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The Business of Indie filmmaking


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#1 Tenolian Bell

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Posted 22 October 2007 - 02:14 PM

I went to an extremely informative conference in LA this past weekend. In where we had stark and real lesson in how independent film is made and distributed today.

The big question everyone asks is where does the money to make the film come from. There are a lot of private equity firms with fat pockets willing to put millions into films. Unfortunately for most of us this money is largely going to films with well known actors or well known directors. The type of film where Brad Pitt takes a pay cut to be in what they call a small "independent vehicle". The budget of the film will be smaller but in reality this type of film receives many of the same resources that larger budget movies will receive.

Most independent movies are funded by friends and family (called F and F). Many times these films will only raise a portion of the budget through F and F, there are other funding sources used to raise the rest of the needed budget for production. Or funds to finish the film. There are ways to leverage money already raised to convince other investors or receive a bank loan. People also shoot in places with tax rebate incentives such as Canada, New Mexico, Arizona, New York. California currently has no tax rebate incentives. But there can be an argument that there is such a wealth of resources in Los Angeles that in many ways can save money.

Most investors want to see a complete package for a film. They want to see fully casted, with a full crew, and a start date. Many investors will want a completion bond that insures the film will be finished on budget and on time. Completion bond costs around $30,000 - $75,000.

There are two types of investors to contend with. An Active Investor and a Passive Investor. An active investor is someone who will actively be involved in the filmmaking process in some capacity. This can be a problem if that person knows nothing about filmmaking but wants to be in the decision making process. A passive investor is someone who signs the check and is not directly involved in the actual filmmaking. There can be serious problems because most films have more than one investor and may have a mix of active and passive investors, there can be some trade offs with their various wants or needs.

Also in dealing with more than one investor is called "Marrying Money". In this situation it is important you keep the financial terms of the deals equal or at least similar. One investor will ask for more concessions than another. At the end of the process you want all of your investor to be happy they worked with you. So you don't want to give one much more favor than you give another.

Another big resource for film funding are foreign pre-sales. The film will hire a foreign sales agent to go into Europe or Asia and sell the idea of the film. The foreign sales agent is paid 8% to 12% of the sale, and their marketing fees. Its suggested you cap the marketing fee when you negotiate the agents fees. The idea of the foreign pre-sale is that distributors in those different countries will buy the right to distribute the film based on the script. The film can then take the money from the pre-sales in Europe and Asia and use that money towards the actual production.

Often in reality foreign distributors buy the rights to the film based on what actors are in the film. They will pay a lot of money if Brad Pitt is in the film, if Joe Nobody is the lead actor its likely no one will buy the film at all. It was also pointed out that if an American film stars an African-American, Latino, or Asian-American cast the chances for foreign pre-sales are near zero.

There are also two types of bank loans a production can receive based on the foreign pre-sales. GAAP Financing and Mezzanine Financing. GAAP Financing is a loan on the equity of the amount of pre-sales a film has received. This is a low interest rate loan and has to be paid back before you pay any other investors back. Mezzanine Financing is a high interest rate loan that banks will give with no pre-sales equity to leverage the loan. This loan must be paid back as soon as possible.

As the film goes into pre-production. There are various models for how a production can pay the cast and crew. If the budget is extremely tight many will go with whats called favorite nations. Where everyone is paid the same amount and gets the same amount of points on the film. Often to gain higher caliber talent especially in cast and sometimes in crew the production will have to offer that person more gross points of the film than other people are offered.

Gross points are a percentage of the films profits before taxes are accounted for. Net profits are a percentage of the films profits after taxes are accounted for. You are most likely to actually receive money from a gross point deal than a net point deal. Many have moved on from gross point deals to Box Office Bonus deals. In where contractually a certain amount of payment is guaranteed if the film gross a certain amount of money. That is the surest way to actually receive any money at all on the back end.

After the film that has been completed there comes the festival run and distribution. The first step is getting a sales representative also called a producers representative. The producers rep essentially sells the film to a distributor for a percentage of the sale. The Prod Rep works generally for around 8% - 15% of the sale. Its easier to negotiate for a lower percentage if the film is a hot commodity. If the prod rep feels it will be a challenge to sell the film then they may charge a higher percentage because they may spend more time trying to sell. What's also not widely known is that producer reps have relationship and connection to festival programmers. Prod reps will advocate and improve chances to get the film into Sundance, Cannes, Berlinale, Toronto, Tribeca and so on.

It is strongly suggested you send your film to a producer rep well in advance of festival deadlines but as near to picture lock as possible. Producers reps see hundreds of films and only accept a few. There are only a few really good prod reps and if they all turn down your film you are essentially on your own. There are rare but known cases of films in a festival that have no prod rep that gain interest from distributors. Because of the interest a prod rep comes onto help sell the film during the festival. This is rare but not impossible.

Films are not always sold during the festival. After Sundance the prod rep continues to get the film into more festivals and screenings trying to sell to a distributor. The prod reps themselves say they will champion a film as long as it takes to sell. While I heard from producers than a film that does not sell at a festival will receive less and less attention as time goes on.

The film will also need a public relations person. This person generally works for an up front fee of $5000. Public relations are important because they help build buzz about the movie during the festival. One of PR primary jobs is to convince acquisitions people from distribution companies to come to the screening of the film. As well as a general audience to fill the theater and give positive reactions for the acquisitions people.

So lets say a distribution company becomes interested in buying your film. The producers rep will negotiate a fee to acquire rights for distribution in the United States. If the film has had no foreign pre-sales then the film needs an International Sales Representative to sell the film to foreign markets. The public relations person sends out press releases about the sale of the film and its amount to begin the buzz of its theatrical run.

When the film has been given rights to a distribution company the filmmaker essentially gives up all rights to the film for 15 - 25 years for an up front payment. Once the film has its first showing in theaters the distributor will analyze ticket sales on the first day as well the first weekend to determine how long they project the movie will have a profitable theatrical run. The distributor has all rights to DVD sales and television rights. The distributor has full control of back end payments to the filmmakers.

As an example lets say you made a film for 2.5 million. Your investors gave you 2 million, you got the $500,000 through in-kind services and tax rebates. You go to Sundance and sell to a major distribution company. Typically that company will pay around 2 million for the rights to distribute the film. The Producers Rep gets 10% of that. The distribution company typically will not pay for deliverables. Some cases they may not pay for prints and advertising. Depending on the number of markets the film will show P&A can range from $500,000 to $10 million.

Deliverables are elements needed for a full theatrical run.

- Answer Print
- Senior Positive
- Inter-negative
- HD Master (4x3, 16x9, 1.85 or 2.40)
- NTSC Master
- PAL Master
- Music and Sound Effects

The total cost for deliverables is typically $200,000.

Other elements needed for a theatrical run that the distribution company may not pay for.

- MPAA rating
- Dolby Digital Surround Sound License
- Print Continuity Check
- Errors and Omissions Insurance

These elements typically cost $33,000. Errors and Omissions Insurance can cost $12,000 to $15,000 alone.

Of the 2 million advance you have to spend at least $233,000 to get the film into theaters, and possibly pay for prints and advertising with a small theatrical run will cost at least 1 million. You still owe your investors 2 million. If you have any high interest bank loans those need to be paid as soon as possible.

As the film goes into its theatrical run the distribution company will view a financial success if it breaks even for the cost of distributing and advertising. If the film does make a profit in its theatrical run the chances are more than likely the distributor and theater will keep and split. This is where Box Office Bonus deals are an advantage because you are guaranteed payment of a back end deal if the film profits. Because of this a box office bonus is difficult to get. If the film does not break even in its theatrical run the distributor will recoup those losses in DVD sales.

Of the DVD sales and television rights, 45% typically goes to the distributor, 45% goes to paying back the investors or bank loans, 10% goes to paying gross points to the filmmakers and actors.

Case studies we heard from filmmakers many films were still in debt after its theatrical run and had taken months or years to pay back all of its debt. Which means the filmmakers and actors earned back no money from gross points.

After going through this process some producer/directors have earned picture deals with major studios. Where they present scripts that the studio begins to take control of and add its own ideas of how the story should go. With the thought to a certain actor they would like to get into the film or themes and concepts that will play to a larger audience. Others that have not gone the studio route say they have started over again from the beginning with fund raising for their next film, and will go through the whole process again.
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#2 Alex Ellerman

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Posted 22 October 2007 - 02:59 PM

Thanks for taking the time to post that...

sobering :)

I've heard that most 1st time filmmakers hope to break even on their film if they get distribution - now i know why.
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#3 Richard Boddington

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Posted 22 October 2007 - 04:56 PM

"Case studies we heard from filmmakers many films were still in debt after its theatrical run and had taken months or years to pay back all of its debt."

Theatrical releases on small movies is usually a waste of time for all of the reasons you mention.

Direct to DVD & TV makes much more sense, all you need in this case is the HD master.

R,
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#4 Tenolian Bell

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Posted 22 October 2007 - 06:21 PM

I did somewhat provide half of the story. The panel whom discussed these topics were a mixture of directors, producers, and distributors from New York and Los Angeles. A couple of the directors were from other parts of the country.

Much of what I described above was being pushed by the people from LA.

- You must have known actors

- You must hire a Producers Rep

- You must go to some major festival

- You must sell to a distributor for wide theatrical release.

This was mostly from people who work in the Hollywood system as they are the system and benefit from it.

Many of the people from New York or from other parts of the US did not follow this mantra so closely or even completely agree with it. These people generally don't have immediate access to the benefits of Hollywood or necessarily agree with its tenants.

Several of the producers from NY described how they distribute their films can very much depend on the film and its target audience. Not every film they make will necessarily benefit from Sundance or being sold to a distributor for wide release. Some films benefit more from some form of alternative distribution or maybe even smaller theatrical release.

Bob Berney the executive of Picturehouse (NY distributor) spoke. He said he's built his career on making films that defied the rules of what distributors want to distribute. Such as Memento, Whale Rider, Y Tu Mama Tambien, Prairie Home Companion, and recently Pans Labyrinth. He says he has championed many films that are regarded as undesirable because they are foreign language, or lack known actors, or have complicated themes that distributors fear the audience won't understand or like.

New York has the benefit of being extremely supportive of the independent film community. There are a dozen theaters completely dedicated to showing independent and foreign cinema. Thus their is access to theaters for filmmakers in NY. I've heard that as many as 30 independent and foreign movies a month open in New York. Producers in NY take advantage of this by having their smaller films go for a theatrical run in NY. Garner media attention from the New York Times, Village Voice, MTV, the internet and various other NY media outlets. As the film grows in recognition have a wider run in more cities such as LA, Chicago, Austin TX, San Francisco. Targeting the film directly to its core audience then growing the audience from the grass roots up.

This business model has worked well for quite a few films. In cutting out the producers reps, the PR, the festivals runs, and distributors, the film is able to go directly to the people who will enjoy it the most and more of the profit goes directly to the filmmakers.

These films are not made with the money or resources of Hollywood. Nor will they make the equivalent amount of profit. Some alternative films have been able to recoup their entire investment and even make a good profit from the smaller theatrical run, then DVD sales are pure profit.

But this doesn't work for every type of film. And doesn't always work with the film you expect it to.
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#5 Tenolian Bell

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Posted 22 October 2007 - 06:33 PM

Theatrical releases on small movies is usually a waste of time for all of the reasons you mention.
Direct to DVD & TV makes much more sense, all you need in this case is the HD master.


This was also discussed theatrical vs straight to DVD. There are disadvantages to straight to DVD. Essentially it does cost a lot less money but you get no glory either.

There are many small films that have a theatrical run that hit the right chord and are big hits. You never really know what film that is going to be.

Theatrically released films make more money in DVD sales and television rights.

A straight to DVD film will not be eligible for awards season. You never quite know what film will be selected.

If the Producer or Director wants a chance at a studio picture deal they have to have a theatrically released film.

Lastly, no shooting on the Red camera in and of itself will not over come any of these obstacles.
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#6 Richard Boddington

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Posted 22 October 2007 - 06:46 PM

Yes I would agree with all that, but, many movies are designed as "direct to DVD" movies even in the pre-production stage. Even Disney makes a slew of direct to DVD family type movies every year.

A theatrical run is great and any filmmaker would want that, but in many cases for the super low budget stuff, direct to DVD is the way to go. Especially for genre movies that lack known talent.

As for:

You must have known actors

Can any one name off the top of their heads the stars of Saw 2, 3, and 4? The list of financially successful movies that have no name actors is quite long. So is the list of movies with all star casts that lose tens of millions.

Of course I would take Brad Pitt for a film, but name actors are certainly no guarantee of success.

One thing you did not mention in your report was film vs HD?

What did this pannel have to say on the subject?

R,
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#7 Tenolian Bell

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Posted 22 October 2007 - 07:13 PM

Can any one name off the top of their heads the stars of Saw 2, 3, and 4?


Saw is in a different situation. Its a genre film produced by LionsGate. So it never had to go through the same hoops as an independent drama.

One thing you did not mention in your report was film vs HD?


It was only slightly touched on. Most of the producers said they did not care either way. But most all of the films discussed were shot on 35mm.
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#8 David Mullen ASC

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Posted 22 October 2007 - 07:41 PM

Horror is a somewhat unique genre in that the cast is not much of a factor in its marketability. Fantasy/Sci-Fi also, maybe, but that tends to need more efx, sets, costumes, so it is not a common genre for low-budget filmmakers to tackle (unless they are horror films with a fantasy or sci-fi element).

You would think the action genre would also not necessarily need name actors, but actually they tend to be driven by action stars.

Comedy and drama tend to not translate overseas as well, so are not as popular for distributors.

Then there is the broad "family" genre, which actually can encompass genres like comedy, drama, fantasy (though not horror...) -- a profitable market if you can figure it out.

The basic truth is that you need SOMETHING to sell the film on, some hook.
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#9 Alex Ellerman

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Posted 23 October 2007 - 02:03 AM

Saw 2,3,4 were part of an established franchise (Cary Elwes anyone?), built in audience. Point still taken, but probably not the film to make your point.
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#10 Brad Grimmett

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Posted 23 October 2007 - 02:05 PM

Saw is in a different situation. Its a genre film produced by LionsGate. So it never had to go through the same hoops as an independent drama.

Actually, the first Saw was independent. As I understand it, they were talking to Lions Gate, but didn't get any money upfront from them. But I believe all of the sequels were produced by Lions Gate.
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#11 Robert Houllahan

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Posted 23 October 2007 - 05:39 PM

I operated on a indie S16 picture based out of LA this summer (in Massachusetts) and the budget was fairly low, there were several actors who were up and coming (I saw the lead actress on a ABC primetime network show last week) I think there are a good deal of working actors that get smaller parts in big budget productions who do indie work to show their talent, and that this crosses over to the Director/DP Producer, etc. and can be a work to see your work and get into bigger jobs.

I am shooting a feature (in NY/NJ) which has 4 actors who have had various parts on tv and in studio features this is my first full feature picture as DP (and co producer) I do not expect to make money back on the project but I think it will get seen and maybe go to festivals which will help getting other projects made, or at least that is what I think!

The above mentioned both have certain "hooks" with the first being a romantic comedy and the second having an interesting mix of SVN :rolleyes: etc.

I think as you go money people will ask what you have done and building a portfolio of quality projects is a way to make a investor comfortable with giving you loot.

-Rob-
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#12 Matt Pacini

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Posted 25 October 2007 - 04:34 PM

Not to be anal retentive, but just to address one of the quotes above:

"These films are not made with the money or resources of Hollywood..."

For the record, that's the very definition of Independent Films, actually.
It has nothing whatsoever to do with type of content, it's how it's financed.
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#13 Richard Boddington

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Posted 26 October 2007 - 10:18 PM

Well no matter what if you make an indie movie there is nothing stopping you from selling it at AFM. Pay the money for a pass, and meet with the buyers direct if you can't find a distributor.

Or rent a booth and dedicate it to one movie, yours. I know of a company that operates with just a few titles that they have made and they sell them direct to buyers at AFM on their own. Either you rent a booth or pay distribution commissions, it may end up the same in the end.

The good thing about AFM is that it's not a festival, there is no acceptance committee to get past, it's all about one thing. Money. That's all. If you have some your film can be there, no one can stop you.



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#14 James Steven Beverly

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Posted 26 October 2007 - 11:53 PM

How much does a pass, booth or space rent for?
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#15 Richard Boddington

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Posted 27 October 2007 - 11:58 AM

Full market badge is $775.00.

http://www.ifta-onli...att_how_att.asp

This would allow you to walk around and show your movie to buyers, they are all in one spot. Have a look at this years distributors list.

Booths vary in cost depending on how much space you want.

If you go yourself you take 30-50 screeners, one sheets, and have your trailer on a lap top. Lots of people do it and some even sell that "un-sellable" movie.

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#16 David Mullen ASC

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Posted 27 October 2007 - 12:08 PM

$250 just to walk around the booths for a day seems excessive.
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#17 Jonathan Bowerbank

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Posted 27 October 2007 - 12:36 PM

Tenolian's first post sounded like a much better informed version of a summary of Dov Siemens' "A-Z of Filmmaking", which is a joke of a seminar. He basically says "Look, I've failed, here what you have to do to avoid it!"

I'd much rather receive advice and take notes from those who are out there and doing it.
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#18 Tom Lowe

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Posted 27 October 2007 - 01:26 PM

The film ONCE was done for 160K. If they would have replaced the DV camera with a RED or HD cam, you can imagine it coming in at around 200K.

There is a huge difference between a $6 million dollar picture and $300K picture.

For AFM, do people set up booths or suites or whatever for their small indies? I imagine that's a lot more than $775?
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#19 Richard Boddington

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Posted 27 October 2007 - 02:24 PM

$250 just to walk around the booths for a day seems excessive.


Well there is the half market badge for $295.00. $250.00 a day is common place at these things, NATPE also costs a fortune to attend. I actually like the high prices, it means only the most serious people will be walking around. I did several trade shows for my stock footage company a few years back at shows that charged $20-$30 to get in. You would not believe the flakes that would show up, drove me nuts.

Also, if you just blew 100K on your indie movie, $775.00 for a full market badge that gives you access to the buyers for 8 days is a pretty cheap expense.

I see so many indie filmmakers that make a movie then walk away from the marketing end of things and wonder why they never sell it. One of the primary rules they teach you in business school is this, "The CEO must sell." As a filmmaker you are the CEO of the film, it's up to you to push it forward in the sales arena. But so many filmmakers dread making sales calls or even sending out cold e-mails.

I'm sure that if you examine any successful indie filmmaker they are half talented filmmaker and half super salesman.


The film ONCE was done for 160K. If they would have replaced the DV camera with a RED or HD cam, you can imagine it coming in at around 200K.

There is a huge difference between a $6 million dollar picture and $300K picture.

For AFM, do people set up booths or suites or whatever for their small indies? I imagine that's a lot more than $775?



Yes booths are a lot more than $775.00, have a look at the site, all the info is on there.

Again, if you spent 150K on the movie, are you going to cheap out on spending $7,000.00 for a booth at AFM if you need to?

R,
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#20 Tom Lowe

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Posted 27 October 2007 - 03:12 PM

$7,000 would be a significant portion of a 150K budget, though. What does it cost to have your movie screeded at AFM?

Richard, for someone with a high-quality finished indie in the can, what would you say is the best idea for getting it sold at AFM? This assumes, of course, that it's a quality movie.
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