Film Investment: How the Financial Side of Film Investment Can Be Calculated

If your film is going to be successful, you need to consider film investment and all aspects pertaining to the financial side of filmmaking. This article covers topics on film financing, so that you don’t find yourself clueless when it comes to finding money to make your film.

The film business has always looked glamorous for people outside of the industry. It’s all about celebrities, fancy ceremonies, beautiful gowns, and bright smiles. Actors, producers, and directors walk down the red carpets to receive their Oscars and golden BAFTA statuettes and pose for the cameras.

While the cover of the film industry looks marvellous and the money invested in this business is huge, the economic side of filmmaking is far from simple.

Film Investment – An Introduction

The main saying about the financial side of the film industry in general and film investment in particular was said by William Goldman, an American novelist, playwright, and screenwriter. He said: “Nobody knows anything”. And it’s the reality.

“Nobody knows anything” – William Goldman

The public is very fretful, and no one in the industry knows which film will be a success. For instance, ‘Inception’ was predicted to be a great flop. Yet today it’s among the greatest British films over the past ten years.

In the current world of filmmaking, the success of a film depends on many things, not just the ticket sales, as it was at the beginning of the film era.

Today, you need to calculate a number of variables to ensure that your film project will be a success and to attract the attention of a film investor.

There is no difference if you are an individual filmmaker trying to earn a place in the sun, or you are a representative of a filmmaking studio. The rules of film financing are universal for everyone.

To get the desired money, you will have to make proper calculations. Here are the top variables that influence the profitability of a motion picture.

A Few Words About Budget Planning

To get the funding and to ask any investment company for it, you will have to demonstrate a film budget. Gary Collins, the head of Red Rock Entertainment film investment company, says that it is a common trick for major studios to disclose their full budget.

What does this mean?

This means that a studio calculates its budget without expenses required for marketing and advertising costs. Basically, they uncover the veil only from their production needs. Take, for example, Kingsman: Golden Circle. Its budget is £75 million, and almost a half of it was spent on marketing and advertising.

However, there is a difference in marketing needs for films. Such films as Kingsman: Golden Circle require less marketing because the first part Kingsman: the Secret Service was a success. The same rule is applied to films based on bestselling books, such as The Hunger Games that come with a ‘built in audience.’

   

Newer films that are more niche, and don’t have this ‘built in’ aspect, need to find an audience interested in them. And so more money is spent on their promotion.

Furthermore, in this case not all means of the film promotion are possible, which leads to a more aggressive strategy for the available sources.

For example, romantic comedies or children’s films can be and are promoted via tv commercials, billboards, and subway ads. This, however, is not the case for 50 Shades of Grey and its sequels.

Generally, a film with a budget of £28-54 million, can expect to spend about £15 million for advertising and marketing needs.

You should also remember about the magic wand called tax incentives and revenues from product placement that can help you pay down the budget.

For example, tax incentives in Britain would be significantly lower than in Canada. This means that you will be able to attract more investors by shooting the major part of your film in Canada.

To sum up this section:

• Remember that in the film industry “nobody knows anything”.
• You can never be sure whether your film will be a blockbuster or it will sink into oblivion.
• Yet, to ensure that it gets its share of success in the market, you need to include marketing and advertising needs into your budget to create ballyhoo around the picture and get capricious viewers to fall head over heels for your film.

Cinema Tickets

Everyone knows about cinema ticket sales when it comes to movies. Movie attendances, especially on opening weekends, are well publicised and discussed in the media. And films have been earning a fortune on theatre attendance over the years.

   

Unfortunately, the glorious era of cinema is passing by because people go to the cinema much less. Yet, in the UK the statistics are not that straightforward. The success of annual admissions significantly depends on the films released in a particular year.

The greater portion of ticket sales traditionally goes to the theatre owners, and the remaining part is divided between investors, studio owners, and distributors.

The graph below from CUNY shows the percentage of the US population that went to the cinema on average weekly over the years:

Domestic ticket sales are around 50% in total for a studio, while overseas sales will be about 30% if not less. This percentage that you will receive as a part of film profitability depends on the contract for each film.

The trick for getting more money, in this case, is in giving more money. This means that if you shoot a sequel of a blockbuster, then you can negotiate with the theaters to get a bigger share of the profit on ticket sales.

In this case, if successful, you can change the game in your favor. For example, if you are to release Deadpool 2 then you can be the person to set the rules because the audience will come to see this film. If your film is predicted by the media to be a success, yet it is not known to the wide audience, then you need to be smart.

For example, representatives of Red Rock Entertainment film investment company say that in the case of That Good Night they had to give away some more percentage of the ticket sale to get the film theatres interested in the film. As a result, the film was displayed in most cinemas of the UK, gained the rating of 7.8/10 and brought a huge wave of profit to the company.

Remember that films for more universal and currently in topics, such as superheroes or sci-fi, will be easier to get investment interest in. This is an issue of universality. The idea of a superhero is clear for both the British and the Malaysian, so the overseas ticket sales will be higher.

All of this is a numbers game, of course.

Foreign Sales

When the budget for the independent film is calculated, it is essential to include distribution rights in foreign territories. For instance, for small (not low) budget films (around £20-25 million) it is essential to include distribution rights because they can bring in revenue.

In most cases, it is advised to cooperate with a professional foreign sales agent who is aware of the tendencies of the overseas markets and can focus on the proper one.

The basics of great overseas sales is to have big names in your film. If Anthony Hopkins or Benedict Cumberbatch is co-starring with Helena Bonham Carter or Tilda Swinton, then you are very likely to sell the rights to Russia, Australia, or France.

Of course, don’t expect that this is a bullet-proof way to make your film earn millions, but this is the most reliable element of the financial side of film investment and profitability.

   

Merchandising

Merchandising is a great way to earn a couple of dollars and get investors interested in your project. The era of film merchandising started with George Lucas in 1977 and his star wars. The story says that this franchise licensed particular film-related toys and earned on the sales of them more than £8 billion.

Almost 40 years later, Star Wars: The Force Awakens levelled up its retail sales and brought a pure profit of £500 million.

The International Licensing Industry Merchandisers’ Association conducted a study in 2016 about global merchandising sales. It found out that in 2015 the sales rose by 4.2% to £180 billion.

Of course, don’t rush into printing T-shirts and ordering cups with your film characters. This strategy works for big-budget films that appeal to Comic-Con addicts and small kids. (Retail sales of the Toy Story franchise were about £1.7 billion.)

On the other hand, for low budget films like Get Out, which is a horror/comedy, this strategy wouldn’t work at all.

Vod/streaming Rights/tv/dvd

Before the Internet occupied the minds of the viewers, it was the era of DVD. Today the times of Video On Demand (VOD), television and streaming rights has come.

Selling pay-TV rights can be a great way to earn a profit because in this case you can literally forget about the advertising and marketing expenses.

This means that even though the profit in numbers might not be that great, the money spent will definitely be significantly lower.

Furthermore, once the release of a film is over, sooner or later it has to get on TV. Whether you go for traditional TV channels, for online channels, or for airline TV, you still can make a fortune on such offers.

The bottom line of a studio can add hundreds of dollars due to the VOD. There are several strategies for VOD that you can opt for:

• day-and-date (the film is simultaneously released in theatres and VOD)
• day-before-date (the film is released in VOD before the theatre release)
• VOD-only

The last option is always great for films that don’t have big stars in their cast.

The DVD market is definitely going not through difficult times. However, that state of affairs is not evident in all films. For instance, The Hunger Games in the first week sold 3.8 million DVD/Blu-Ray copies. This means that the DVD market is still open for branded films or those having a huge built-in audience. Or any kind of audience that would be likely to trend towards collecting and wanting physical copies of the media they love.

Film Investment – The Bottom Line

You now know that “nobody knows anything” in the film industry. Your film can be a great success or it can fail loudly.

However, you now understand what strategies to go for depending on the genre and primary budget of your film. The more factors you include in your final budget calculations, the easier it will be to get the attention of film investment companies.

We hope you’ve found this article on film investment useful. What are your film financing success stories? Let us know in the comments below.