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Myth : All pictures lose money!

Much of the world film industry is centered around Hollywood. Though the expense involved in making movies has led cinema production to concentrate under the auspices of movie studios, recent advances in affordable film making equipment have allowed independent film productions to flourish.

For some investors the phrase "motion picture investment" is an oxymoron. It is well known that most motion pictures lose a lot of money. And, in order for the movie industry to make a profit, it's winners must cover it's losers; no different than credit card companies, oil companies and pharmaceuticals.

Let's look at the numbers. On a macro scale, there are three different film industries. First, there is the studio industry that is made of 12 major companies. It is known for it's big stars, flashy projects, and expensive budgets. Second, is the independent industry that is made up of over 100 companies and is rarely written about because their budgets and star power are so modest. The better independent films are released by the majors with marketing costs to match. But, many times an independent film will never "open" because there was no marketing budget to promote it.

Newspaper Reporting

The most egregious and misleading of this reporting is the way the popular press documents a film's revenue. Let's look at a recent theatrical release. It was reported that the film cost $80 million to make, $24 million to market, but grossed only $69 million at the domestic box office, of which only 50% was returned to the producers. Simple arithmetic makes the picture look like a loser.

But what the popular press does not report is the additional revenue collected from a variety of other potential distribution sources. These include foreign theatrical distribution; VHS and DVD home video rentals; rental store sell-through to consumers; wholesale video sales to retail stores; and licensing to premium cable, pay cable, and TV for network premiere and syndication.

There is also potential profit from the novelization and the film's music soundtrack. If this wasn't enough, savvy producers will negotiate with fast-food restaurants for cross promotion and the sale of toys or figurines, and for what is called "product placements" where manufacturers will pay the producers a fee based on the number of seconds that a star carries around their product.

Value of a Business Plan

The landscape for film finance has changed radically. Today, successful independent film producers must cobble together film financing from a variety of sources:

Private equity investors comfortable with film investing

Soft-money motion picture funding from U.S. state tax incentives

International film co-productions from the UK, Canada, EU, and elsewhere

Foreign territory pre-sales of film, video, DVD, television, and other distribution rights

Studio financing, production company backing, and distribution deals

A film business plan is most helpful for indie filmmakers who want to raise money from private investors. In financing a film, potential investors want to know that there is a strong producing team in place. They also want to feel confident that the filmmakers have a strategy for generating film revenues from a variety of distribution channels. A film business plan helps to deliver the information an investor will need to make a reasoned judgment.

Prequalifying Investors

If you feel like your quest for capital is taking every last ounce of energy out of you, then you're normal. It takes a lot of hard work and is the equivalent of a full-time job. Unfortunately that fulltime job is both necessary and completely distracting at the same time.

Not every investor is worth jumping through hoops. You need to stay focused and figure out who is worth spending the extra time with and who is just kicking the tires or stalling.

A few ways to size up investors:

Every deal is different but they leave patterns. If an investor has no idea how long the process takes, need to look elsewhere. You are not their teacher or parent. An experienced investor will weed you out as quickly as possible to get on to better deals. A lousy investor will string you along for months with a constant string of inane questions.

Lots of investors love to talk about doing deals, but very few actually do them! You need to know that the investor you're sitting across from has actually done a deal in the last six months, year or two years. Some investors, who were formerly successful, are always losing for a "comeback" project. Remember that they need you more than you need them.

Successful investors are likely to write checks within 90 days. And, the best ones will continue to write them as long as you are doing what you said you would do.

Four Rules For Movie Producers To Ensure Success

So, why do most pictures lose money? The answer is the same for why most businesses lose money. It is because most business owners (or producers) violate one or more of four natural laws of business.

1) Successful movie producers must diligently apply good financial management. That means adherence to a budget, management of cash flow, and business decision-making based on financial statements and not the egomaniacal sense of an irresponsible director. Yet, most independent producers will think nothing of pursuing their pet projects without regard to budget, forecasts or statements.

2) Successful movie producers make most of their strategic decisions based on traditional market gap analysis and inventory management where there are really only two rules: (1) Make pictures customers want, and (2) Don't make pictures customers don't want. In the movie business this means forming close relationships with distribution channels early in the process and developing multiple films that have a ready market. Yet, most independent producers will develop only a single picture at a time without clearing the idea with their facing customers—the distributors. With the now significant investment in development, to say nothing of time, these same producers will push their film into production hoping against common sense that their movie will find an audience large enough to make it a commercial success.

3) Successful movie producers must produce a high quality product. Specifically, the most important elements of any narrative motion picture are: (a) the truth of the story's moral premise, (b) a professionally structured story and screenplay and (c) the top notch performances by the film's stars that are the direct result of hiring a good director and capable department heads of the supporting crafts.

4) Successful movie produces will ensure budget-covering distribution before production. This means money will not be spent on production until the distribution machinery guarantees revenue equal to the production budget. No manufacturer, in his right mind, would produce 10,000 widgets without first obtaining firm orders to cover the cost of production. Yet, many independent producers will spend their life savings, and the money of their investors, to make a film before ever approaching a distributor.

Yes, most motion pictures lose money. But they don't need to. If the natural laws of business were followed, fewer pictures would be produced but profits would be even greater. Not only does the motion picture industry need filmmakers who can tell good stories that reinforce natural law, but it also needs business men and women who understand how to apply the natural laws of business.

Funding Faux Pas - Mistakes That Frighten Away Movie Investors

Every movie maker believes in their heart of hearts that their movie is truly worthy of getting funded. Thus, they can't understand why people turn them down. Surely everyone should be able to see what an outstanding opportunity is being offered by your next "Oscar"! What is it that investors see that keeps them from investing? Why do so many Hollywood wannabes seem to make the same basic mistakes over and over again?

Here are the most common mistakes you need to avoid:

1. Investing too little in your movie. When an investor sees that you have invested little or nothing in your own movie, it sends a big signal to them that perhaps you don't really believe in your own idea. In other words, you have "no skin" in the game.

2. Investing too much in your movie. Believe it or not, you can invest too much in your movie. Extremes are signals for despair. The lesson? Don't let yourself get trapped into being the only one investing in your deal. If that's the case, there may be a good reason why you're the only one who believes in your project.

3. Not having outside investors. Finally, investors will be looking at who else has invested in your movie. How much have they invested? Did they invest more than once? How impressive are your investors? Are they "A" players? As a movie maker, you're truly known and respected by the company you keep. If your investors are deemed sophisticated and knowledgeable, then you will most share in the aura.

4. Paying yourself too much. Investors will want to look at your budgets. If they see that you are living off of their investment, they will balk. When investors see a movie maker pay themselves out of investor capital instead of distributor proceeds, they will usually pass on the deal. Remember, that you can always negotiate "points" on the backend.

5. Lying About Attached Talent. Don't ever think that you can get past a sophisticated investor with lying about attached talent. Because, they may want to see it in writing. Saying that you are talking to someone or their agent does not cut it. The hardest part is getting the talent to attach when the money is not there and the investors won't invest without the names attached.

6. Not incorporating or incorporating unwisely. A number of movie makers have been fooled into thinking that it's a good idea to incorporate in states like Nevada where there are no state income taxes. On the surface it sounds like a good idea, but from an investor's standpoint those states often have other laws that aren't favorable to investors. Be sure and investigate whether or not the state you're considering is investor friendly. Qualified investors won't invest in a DBA -- you must have a corporate structure in order to legally sell stock. Generally, investors prefer to invest in LLCs, which have become popular due to their tax incentives.

7. Going it alone. Investors will place strong emphasis on who you've attracted to join you in your vision and whether or not they have invested and contributed to your project. Lining up talent behind the scenes is just as important as finding excellent, recognizable on-camera actors to be in your movie.

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