Monday, December 28, 2009

Box Office Records: Can They Help Indie Film?

I love hearing that Hollywood is breaking box office records this year. Supposedly, the domestic box office is going to reach $10 billion for the first time and Hollywood just had the biggest three-day weekend ever at $263 million -- thanks to an impressive showing by Avatar, Sherlock Holmes, Alvin and the Chipmunks, and It's Complicated. A seven-day record is expected to be broken this week as well. 

Can this help indie film? I think so. If anything, it should help potential investors feel positive about how the film industry is faring at the moment. Making investors feel comfortable about the state of the industry goes a long way in getting them to take an interest in investing in film. 

If investors hear that box office records are being broken then they may want to get in on the action. They may get excited about a possible trickle down effect that may happen from this success. It is possible that this success at the box office will increase the demand for films and lead to increased buying. It may also make theatrical releases less scary for the distributors. 

However, I wouldn't get excited just yet. Hollywood loves to blame success on anomalies so it's most likely going to take a lot more than one year's success during a recession to get them excited about buying more and doing more costly theatrical releases. 

Will this success also make film investments safer? In my opinion, no. Film investments are high-risk investments no matter how you slice them. They strongly depend on the quality of the creative team and the script. 

In addition, theatricals tend to be loss leaders, meaning the film loses money playing in the theater but the exposure leads the film nicely into strong DVD, TV and foreign performances. So though theatricals are breaking records, they aren't known for being major money-makers. The big revenue has been made more in the DVD and TV and foreign markets. 

And right now, there is a real downturn in DVD sales (though rentals are up) and we still haven't figured out how to monetize digital downloads well yet and TV advertising dollars have dried up. Blu-ray has yet to prove it has the muscle to help the DVD industry. 

What these box-office records do show is that people are making the trek to the movie theaters and that is exciting. Even with movie ticket prices being high, people are still enjoying gathering together in a dark room and being caught up in a story with no interruptions for an hour and a half or more. And that has to bolster the entertainment industry. 

The moral of the story is that good news helps everyone -- even if you aren't quite sure how it will help you or your project specifically. Just an overall feeling of success can do a great deal in building confidence and positive buzz for an industry. So yes, I do believe these box-office records can be used to help indie film. They show that people do still love movies and they will spend the money at the box office to see them -- if we offer them a reason to do so. What is that reason? Good, enjoyable, satisfying entertainment. That should be our goal.


Phil Botana said...

I can't tell you how many times people have pitched me to invest in films citing box office receipts. They are useless. The anomalies are just that, anomalies.

Even films that are given as examples that might add credit to this method, one can usually research how the film was put together. The majority of the time it reveals some competitive advantage that the filmmaker pitching me does not have.

Today's releases are predominantly studio films or made by large well capitalized independents. There are some exceptions, but I would argue that they are people with insider connections and information that make the deals work (or anomalies).

The independent film business is a marginal business with few exceptions of films breaking out. Add to that the changes going on in the media world and it is RISKY!

If you really want to impress an investor, show them how their money is protected and their risk is minimized.

For example, there are many states with filming incentives. If you ask for $1 million and the state will refund $300,000, then my investment is about 30% recouped. Or show me a deal with a distributor guaranteeing an advance of 35% of the budget once you deliver.

Having a distributor on board also gives you access to market data - what the film is really worth in the marketplace.

If the above is not cautionary enough, consider this:

"If a film that cost $5 million generates a box office of $10 million, what is the profit to the investor?"

If you cannot say accurately what the answer is and you are using it as an example to justify the profit potential of your film then you will not look credible.

Before the investor in that film sees a penny, the theater takes a cut, the releasing company takes a cut, the P&A is recouped plus a cut, the distributor takes a cut, deferrals or box-office bumps to talent are paid.

If the film is in the red going into TV and DVD sales, then the process starts all over.

Add to this the time value of money and opportunity costs and it is a very risky business.

That said, high net worth investors (and believe me I am not one), do look for assets for the risk side of their portfolio, so as long as they understand this is a roll of the dice and is high risk, high reward potential, you just might find the right investor at the right time, cut the right deals AND have a hit on your hands.

Jane Kelly Kosek said...

Excellent overview of the pitfalls of indie film investing. It is all very risky, which is why the producing and creative team need to be solid as well. You offer great suggestions on what filmmakers need to be doing when they approach investors. Thank you!