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View Full Version : The Myth Of Financial Risk In Hollywood


kitnerboy
01-31-2005, 10:39 AM
I have posted a couple of times over the last year about why the current dvd sales boom is failing to trickle down and create a boom in the financing of independent features in the 3-5 million dollar range.

After all, once one takes into consideration the income sources for American films (with international box office and international dvd sales now outearning domestic grosses by far) how could a film with a 3-5 million dollar budget NOT make it's money back?

According to today's NY Times, the studios prefer to keep dvd sales figures private

www.nytimes.com/2005/01/3...31dvd.html (http://www.nytimes.com/2005/01/31/business/media/31dvd.html)

in order to perpetuate the long standing Hollywood accounting tradition that says most films lose money.

The reasons are obvious. The studios pay less taxes, less royalties, less in salaries to the big stars.

With a guesstimated annual sales volume of anywhere between 50 and 100 Billion dollars (who knows?) the mega-successful films pay for all of the flops and then some.

I don't begrudge the studios their money (this is America, after all) why do they have to make the bar to the marketplace so impenetrable?

wcmartell
01-31-2005, 12:52 PM
Except Video Business Magazine reports on sales & rentals (with #s) every week.

If you're wondering why the $ doesn't trickle down to indies it's because most of the $ is from studio films or genre films and films made outside the system (indies) tend to account for a very small part of the home video biz - reflective of box office. It's a niche audience. The money that *does* come back to an indie distrib is what they use to buy films at Sundance and other fests. But it's not typically used for financing films because most indies are financed outside the syetem and purchased as completed films.

One reason for that is the crap-shoot of indie production. I know I've mentioned this before - my friend Jim owns a below the line employment agency for indie films - he crews maybe a third of the indie films made. And every year he crews about 4k feature films made independently. Where do all of those films go? Most are so bad you couldn't sit through them, so they get no distrib - no DVD, no VHS, no door-to-door... nothing. They are so bad no distrib wants them. So *thousands - maybe ten thousand* indie films don't make a cent every year. Not a single penny.

No imagine a system that funds just the 4k features every year that my friend's company crews. It'd be broke in no time. Best way to handle it is to buy *completed* films so that you can see whether it turned out or not.

Which menas indie films will probably continue to be funded outside the system, with money rolling in from the system only after the film is completed and screened.

- Bill

PS: Genre films are an entirely different thing. Monster movies are selling well right now.

bottomlesscup
01-31-2005, 01:19 PM
Which means indie films will probably continue to be funded outside the system

Also, isn't that the idea?

Unless kitner means that Hollywood should make more cheap films.

emwitty
01-31-2005, 01:21 PM
"Monster movies are selling well right now."

That's good to know. I have two creature features I am marketing. Who's buying them? Have any good leads?

kitnerboy
01-31-2005, 01:47 PM
bottemless,

I was thinking more along the lines of Joen & Ethan Coen. Everybody knows who they are (and loves them), and they keep their film budgets below 10 million. Yet every two years they finish a script and have to go begging for money all over town.

Why? What's the risk of giving these guys $7million for a film? How could you lose it? And yet they get turned down all the time.

But my point applies to features as well. I guess. Like back in the day Steven Spielberg had 2 of the biggest grossing films of all time (Jaws and Raiders, both nominated for Best Picture Oscars as well) and yet he could not find anyone to lend him $15 million (is that all?) to make ET.

You always hear stories like that, how a great film got 'turned down all over town' and I'm saying that while the studios prudence might have been justified in the past, if that kind of crap still goes on, it's complete BS.

I'll bet even Gigli is $10 million in the black already....



**Bill, are you sure there is a record of dvd sales beyond a weekly top 40? I mean Warner Bros likes to brag that they've sold 90 million Harry Potter dvd's, but that's an isolated case of marketing hype rather than any real inventory system. Here's a great example. Fight Club has a reputation as a box office flop. You can go to Imdb and get all the grosses. And yet I believe it's one of the best selling dvds of all time. Not only NOT a flop, but a HUGE financial windfall for 20th Century Fox. Is that sales info on public record? If anyone can tell me real #'s, I'll edit this post again to say what an idiot I am.


***also, this is getting into semantics, but I frequently use the term 'independent' to describe a form of storytelling free from the usual commercial constraints of Hollywood, rather than financing, which only comes from one place (banks) no matter how you slice it.

diehardatthegetty
01-31-2005, 03:18 PM
Let's assume a studio decides to own the whole project:

If the Coen Brothers make a movie for 7 million, the actors are probably deferring their salaries. Even if the actors aren't, add in marketing and negatives and the film "cost" rises to about $9-12 million (conservatively - "INTOLERABLE CRUELTY seemed to marketed a lot on TV). Figure a 50-50 split with exhibitors and the film has to gross about $25 million for the studio to break even - the reality is that both the Coens and actors backends are going to eat into that.

$25 million for an indie step-release is not a guaranteed proposition. We've all seen wide releases (3000+ screens) that don't gross $25 mil. And if a Coen movie were released wide - my $2-5 million dollars for marketing would be way to low - the hurdle gets raised even higher. For every dollar the studio adds in marketing, it has to bring in two dollars to break even.

Don't forget that DVDs require marketing too - some of the campaigns seem as significant as a theatrical release.

We're all film lovers here - but the reality is that most of America probably hasn't even heard of the Coen Brothers, but you can be pretty sure that major actors (if they are taking a pay cut) are going to expect the studio to spend marketing dollars like America does. The project can quickly become a sinkhole.

I'm not necessarily disagreeing with you - but you can see that there is real risk. Especially, if the theatrical release is a flop (e.g. non-commercial "indie" concept) - from the bean- counters perspective it's all an uphill battle.

wcmartell
01-31-2005, 03:19 PM
A foreign company who funded a couple of my action flicks also funded a Robert Altman movie, once... and said they'd never do it again. They lost all kinds of money. They tried again, laer, with another well-known indie director... and lost money again. Why should they put up $X for a Robert Altman movie that loses money (or breaks even) when they can fund some genre film that makes a ton of money for them?

BIG LEBOWSKI, a movie that I love and own on DVD, had US BO almost equal to its cost... but that had to be shared with the cinemas (and the way the these deals usually work - first weekend the distrib gets the larger % and the longer the film plays the more money goes to the cinemas... which means a bad blockbuster can make more money than a great film that has hung out in cinemas for several months).

Now, how many people bought the LEBOWSKI DVD? Now compare that to how many people bought a studio blockbuster. The audience for Coen brothers ilms is *not* a mainstream audience... and no matter how that film is released to the marketplace, it's *still* a Coen brothers movie. It still has the same audience.

FIGHT CLUB was a VHS hit - but it's not an indie film. It's a Fox film that starred Brad Pitt and Ed Norton. It still didn't sell as many copies as ALIENS, so why should Fox make another film like FIGHT CLUB when they can make another film like ALIENS?

If you want to make an indie film, do it the way everyone else does - find the funding (outside the system) and make the movie yourself. It's still a crap-shoot, but at least you've made the movie you wanted to make.

- Bill

PS: $5 million budget? Yikes! Why not make the film for $200k on 35mm or $75k on digital. Easier to find that kind of money outside the system (if you aren't the Coen Brothers).

kitnerboy
01-31-2005, 04:13 PM
Also, on the subject of dvd's, a movie like Big Lebowski, while not a big name blockbuster, can be found at the local Best Buy for 9.99.

By contrast, an 'indie' film like Maria Full Of Grace, which will struggle to find an audience, retails for like $25+.

Of course you can Netflix anything you want, but for sales income, the smaller films would do better to sell cheaper.


p.s. I know all about supply and demand, but it only costs 25 cents to make these damn things.

Evil Elf the One and Only
01-31-2005, 04:14 PM
Yes, it would be interesting to see the difference between VHS and DVD has made on the home sales market. DVDs are cheaper to make than VHS tapes, and last longer, but they cost about twice as much to buy. This is a racket, pure and simple. Has it hurt sales? I know I used to buy a couple of VHS tapes a month, but have switched to downloading rather than pay $25 to see Harry Potter in digital. Maybe when the price comes down...

To VHS Prices, That Is (http://terminalcity.diary-x.com)

Oh, and I can't remember the source for this (I think it was Barry Diller) but according to a well-informed source as recently as four years ago, Hollywood movies averaged a four percent return. That's not a bad average; it's more, for example, than a Starbucks will return (typically 2%).

wcmartell
01-31-2005, 06:30 PM
Smaller audience = high price required to make money.

Cost of manufacturing the DVD is part of the cost, remember they have to hire people to sell it to the stores, and they split $ with the stores. Compare the price of a filmmaking book from Michael Weise to a Stephen King novel.

- Bill

kitnerboy
01-31-2005, 09:08 PM
Elf, the whole point of the article I linked to was that the advent of dvd has boosted the average return on investment on a Hollywood film to 11-12%.

It's like a license to print money.

Khabs
11-28-2005, 02:21 PM
for numbers lovers

if you go wide and release the film on 3000 prints, those new prints will cost you 4.5mio alone
add distribution, promo merchendise,..., all the before you even come close to the media buy advertising and imagine how much money you spent

theatrical releases haven't made profit (generally) in years and are basicly only an advertising of the film before it hits the dvd and is sold to tv

once most of the households have Video on Demand, the distribution will change dramatically

hi-def dvds or Blu-ray might get obsolete before they take the torch from old red laser dvds

WriteByNight
11-28-2005, 03:06 PM
theatrical releases haven't made profit (generally) in years

I'm interested in the above statement. You have any numerical stats on that?

Khabs
11-28-2005, 03:29 PM
I'm interested in the above statement. You have any numerical stats on that?

well, pick a title, it's very easy to break it down :)

anyhow, maybe Lucas will be more assuring

http://www.hollywoodreporter.com/thr/film/feature_display.jsp?vnu_content_id=1001524471

THR: Really? Because of the economics?
Lucas: Because of piracy. It's the only way you can stop piracy; there is no other way. You have to get a very, very aggressive enforcement program so that people do have consequences to stealing, but you also have to be able to offer it to them (in the home) for the same price they can get it on the street. It won't be DVDs -- DVDs aren't going to be around too much longer. If you can get it at home for $2, then why would you go on the street and get a bad version?

THR: What do you think will replace DVD?
Lucas: Pay-per-view.

THR: Something that streams in, not prerecorded media?
Lucas: It's the way kids do it today. It's how you do it on your iPod: They just download it. You pay 99 cents for music, and movies will be like two bucks. That will definitely change the economics of the business because (studios) are losing money now.

THR: Somebody was telling me that the studios' profit margins are only about 10%.
Lucas: I don't even think it's that: If you look at the (theatrical) divisions, I don't think they make any money. I don't think they've made money for five or six years.

THR: So it's basically a loss leader for DVD, television, etc.?
Lucas: Yup, all of the ancillary markets. For studios, the fact is that the theatrical film market is less than 10% of their business -- it's very, very small. I mean, you could chop that off in a second, and it wouldn't even bother them -- they're just doing it as a promotional thing.

vstm10
11-28-2005, 03:44 PM
PS: Genre films are an entirely different thing. Monster movies are selling well right now.


What else falls in that category? What other genre?

Mystery?
Thrillers?
Neo Noirs?

Cesahr
11-28-2005, 04:54 PM
Bill: I think this is the best advice we can get. Do research, make the film you want to make with the end in mind for distribution, raise a reasonable amount of money and a recognizable/bankable star or two (ask a foreign sales rep, they'll give you a hint at least) who'll ensure a decent foreign sales amount, get into a couple of film fests, take advantage of the Truly Indie program for your domestic distribution (for example), and viola, you've made your money back and then some for your investors, you've made the film you wanted to make, and you're on to the next one, wiser, and with a ton of experience and people who will work/financially support you again. Ahh, if it were only that simple.

One thing I have learned over the last year in developing my own project is that you have to love it...not just the project, but the whole process. And you have to find others who will do the same...which is not easy. Research, network, RESEARCH...it never ends. I swear, I'd do it for free tho...okay, maybe not. Anyway, thanks for all your good advice here and elsewhere Bill, you are a gentleman and a scholar.

A foreign company who funded a couple of my action flicks also funded a Robert Altman movie, once... and said they'd never do it again. They lost all kinds of money. They tried again, laer, with another well-known indie director... and lost money again. Why should they put up $X for a Robert Altman movie that loses money (or breaks even) when they can fund some genre film that makes a ton of money for them?

BIG LEBOWSKI, a movie that I love and own on DVD, had US BO almost equal to its cost... but that had to be shared with the cinemas (and the way the these deals usually work - first weekend the distrib gets the larger % and the longer the film plays the more money goes to the cinemas... which means a bad blockbuster can make more money than a great film that has hung out in cinemas for several months).

Now, how many people bought the LEBOWSKI DVD? Now compare that to how many people bought a studio blockbuster. The audience for Coen brothers ilms is *not* a mainstream audience... and no matter how that film is released to the marketplace, it's *still* a Coen brothers movie. It still has the same audience.

FIGHT CLUB was a VHS hit - but it's not an indie film. It's a Fox film that starred Brad Pitt and Ed Norton. It still didn't sell as many copies as ALIENS, so why should Fox make another film like FIGHT CLUB when they can make another film like ALIENS?

If you want to make an indie film, do it the way everyone else does - find the funding (outside the system) and make the movie yourself. It's still a crap-shoot, but at least you've made the movie you wanted to make.

- Bill

PS: $5 million budget? Yikes! Why not make the film for $200k on 35mm or $75k on digital. Easier to find that kind of money outside the system (if you aren't the Coen Brothers).