Distribution
Each year, independent filmmakers produce over 15,000 films while only a small fraction are able to secure distribution for their product. At the same time, the proliferation of theatrical and home entertainment outlets, including DVD/video (e.g., Fox Video, Sony Video, Wal-Mart, Blockbuster), pay-per-view/video-on-demand (e.g., IN DEMAND), pay & free cable/satellite (e.g., HBO, Showtime), free television, new media (internet, pod-casting, web series, electronic delivery systems, etc.) and international markets, has resulted in an ever-increasing demand for filmed entertainment content around the globe. However, the market connecting the filmmakers and the buyers of content is controlled by a few players in the industry.
There are few significant players in the small independent film sales agent business. The more prominent companies in this sector now focus on larger independent films. Companies such as New Line Cinema, LionsGate, and The Weinstein Company, all began selling and distributing low-budget independent films before being acquired by major studios or going public. As these companies have grown, their business has progressed towards larger budget films, creating a large opportunity for The company with smaller budgeted films. In addition, investors such as Mark Cuban and Paul Allen are investing millions of dollars in entertainment production and distribution companies, such as Lions Gate, in order to secure content for their media outlets (HDNet and Charter Communications respectively).
The company’s leading principal has 23 years experience in producing, selling and distributing feature film and television programming, have established a proven track record as well as valuable relationships throughout the entire film supply chain from independent producers to the buyers of filmed entertainment. These relationships allow The company to operate in a lucrative and low-risk side of the entertainment business. The Company anticipates having offices in both New York and Los Angeles. The majority of the film distribution business will operate in a small, low risk, and profitable segment of the entertainment industry that connects the independent filmmakers and distribution outlets. The company’s principal activities will consist of the following three complementary areas (in order of emphasis):
Sales Agent
The overwhelming majority of independent films are made without adequate financing and/or distribution arrangements. Often independent filmmakers run out of money during the finishing stages of a film. In some cases, films get “stuck” in post production due to lack of payment to suppliers or become foreclosed films held by financial institutions and/or post production houses. Those that have managed to complete their films then have the daunting undertaking of marketing the film to distributors.
The company’s primary focus is to act as a sales agent for independent film producers by providing the sales and marketing services for films. The company acquires the rights to license these films (which are either fully or partially completed) from the filmmakers for little or no cash outlay. The company then licenses the films to distributors in the various outlets (i.e., theatrical, home video, cable, TV, international, etc.). The process usually takes between 1 – 12 months beginning when the sales agreement is effected with the filmmaker. By connecting the film producer with a market, the company participates in the revenue streams of films and earns commissions from the first dollar received.
The company’s principals have the relationships and credibility with independent filmmakers, production suppliers and the distribution companies. This is due to their track record of profitably identifying and licensing films on behalf of producers. Further, the production experience of The company’s principals enables them to enable the completion of any unfinished films quickly and efficiently.
Acquisitions and Marketing
The company identifies films through its network of independent filmmakers as well as industry festivals and trade shows including Sundance, Tribeca, Cannes, and Toronto. The company estimates that it will represent, as a sales agent, 60+ films in the five years in this plan. These films are projected to have gross licensing fees ranging from $350,000 - $3,000,000 with the majority of films generating gross licensing fees in the high six figures. While it is possible that one or more of these films is distributed in theaters, the projected gross licensing fees only include revenue from non-theatrical outlets.
The company will acquire the rights to license (as sales agent) films for a period of 7-25 years in return for a commission ranging from 10-30% of the licensing fees paid by the distributors. In some cases, The company will incur minimal upfront costs including: advances to the filmmaker, costs for finalizing the film, and marketing costs. Upon signing a sales agent agreement, The company and the filmmakers agree on the “market attendance fees”, trailer/artwork and other marketing costs. These costs, along with any advances to the filmmaker and/or costs to complete the film, are recouped by The company after its commission, but before any proceeds are paid to the filmmaker. The company will incur costs of approximately $40-150K per film to prepare marketing materials including the production of a trailer, artwork, etc.
The company markets these films to distributors in all domestic and international outlets by utilizing its relationships with distributors for various markets as well as through industry shows and conferences (e.g., AFM, MIPCOM, NATPE).
Sample gross profit calculation for a typical sales agent arrangement:
Total The company (gross profit)
Gross licensing fees $500,000
The company commission (125,000) $125,000
Acquisition cost (50,000) (A)
Marketing (trailer & artwork) (50,000) (A) 5,000 (B)
Market attendance fees (70,000) (A) 45,500 (C)
Balance to producer $205,000
The company gross profit $175,500
(A) - Recoupable after commission
(B) - Marketing costs have a 10% margin
(C) - Market attendance fees typically have at least a 65% margin
Negative Pickups
Studios often hire film production companies to produce lower budgeted films. In these situations, known as “negative pickups”, the studio and the production company agree on a budget for the film and the production company keeps the difference of the budget and the actual cost of producing the film, as well as a producer’s fee, typically generating between 5% - 10% of the total budget.
The company’s principals have profitably produced low budget films. The company’s ability to produce quality films at or under budget stems from low overhead and excellent relationships with industry suppliers. As The company does not receive funds (other than the producer’s fee which is paid over the course of production) from the studio until after the film is delivered, a credit facility will be arranged to cover the cost of producing the film. In addition, a completion bond is obtained.
The company expects to produce approximately 5 films under negative pickup arrangements with budgets ranging from $1.4M to $3.8M in the five years covered by this plan generating estimated profits ranging from $300K to $900K per film.
All of these, involve the company making a licensing agreement with a distribution company. We at IFDC strive to make strategic relationships with the best companies here in the United States and internationally. We do this by fostering relationships at various festivals and film markets like MIPTV, Mifed, AFM and Cannes Market.
Direct to Video (Home Video) - this will be used to create equity by selling the licenses for our current back catalogue for home video market.
We will find a DVD label that is compatible with our vision for this title. They will make a good transfer and only use the best quality for production in the creation of the DVD.
The DVD label will do a cross-market promotion of IFDC and the title, via press releases, PR and various other media on the release of the DVD, and then reviews after the title is released.
IFDC's name and branding will be shared with the DVD company on the DVD packaging. IFDC will negotiate a good licensing fee with profits paid out every three months.
Direct to video will also be a possible route for some of IFDC’s smaller budget films that don’t meet to the standards of theatrical but are made with a small enough budget have a smaller overhead and so would be fine with a direct to video release.
Limited Theatrical
- 3 to 4 months, of festival support to garner hype and awards in various film festivals, both domestically and internationally
- We will then carry this hype and PR on to one of the major film markets where we will acquire a distribution deal with a sales company or a studio (if a deal is not already in place). In the deal we will attempt to procure a limited theatrical release based on the success and exposure of the film at the markets and festivals.
- After the limited theatrical run we will sell the rights to both foreign and domestic for DVD rights, via the direct-to-video plan mentioned in our first strategy.
Full Theatrical
This is where we would sell all rights to a studio or mini major, they in turn would handle all distribution and advertisement for both theatrical and home video markets