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Entertainment Before Yesterday (Part 3)

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This post is a continuation of Part 1 and Part 2.

Let’s oversimplify. Amazon, iTunes, and Netflix opened the door on a brave new world of streaming content distribution. Hulu (ABC-NBC-Fox-owned) and Vudu (Walmart-owned) are in the pool, as are YouTube (Alphabet, i.e., Google-owned), Facebook (now launching its Watch video tab), Snapchat (current deals for 5-minute content with ABC-NBC-HGTV-Vice-ESPN, etc.), and even Disney. Disney will soon allow its $300MM annual deal with Netflix to expire without renewal and will launch 2 streaming channels for Disney content (i.e., Netflix with a Mickey Mouse hat and an ESPN pompom). Other studios are in as players too: Sony/Crackle, Viacom-Lionsgate-MGM/Epix, and others. And how about Jeff Katzenberg’s WndrCo and its 8-minute-episode for a mobile concept?

A brave new world. The possibilities are almost endless. So how does a content creator sort through them? This post will focus on some basic ideas and even a few deal parameters.

Let’s stay in the movie-TV platform and say you have a great idea for a movie that could be a feature film or maybe even a TV pilot.

What are your basic options to finance your production? Options include: self-fund; tap investors you know or find; crowd-fund; produce a killer sizzle reel with “friends & family” money to gain distributor interest and investment; or pitch the bare concept to some powers that be and hope to sell the project in a way that allows you to retain some modicum of creative and business control.

There is, of course, some overlap, and — in the end — you could conceivably use all of those strategies on a single project.

Wait, hold on. Hasn’t everything sort of gone to TV and home viewing? Hmm. Good point. So, the first issue is, should today’s project be conceived of as a feature film or for TV?

If it’s a feature or a feature-type production, what does that mean? Today it means, at a minimum, finding distribution or exhibition, possibly raising marketing funds, if it goes to theaters, the economic pitfalls of theater exhibition, dealing with theatrical distribution fees, marketing recoupment and surcharges, collection and payment windows, festivals, red carpets, making ancillary deals, an overall 3-year collection window, and, in the end, hoped-for profit on the endeavor.

If it’s a TV pilot, what does that mean? It could mean, at a minimum, arranging exhibition, arranging marketing funds, making the network or channel deal, possibly arranging deficit financing against a hoped-for syndication sale, a hoped-for series order, finding the right channel-approved and deficit-financier-approved showrunner and writing team, intense and unrelenting pace during production, regular per-episode payments, TV festivals, and the rest.

TV sounds better in a way, right? There is a school of thought that, today, entertainment has all gone to TV.

Here is a snapshot of what the deals look like:

  • Most supportive deal: regular TV pilot deal with a broadcast TV network, but your role is probably limited to a producer role, likely won’t be a showrunner, little control over the other producers or the director. Bottom line: well-paid per-episode producer fees, illustrious, leads to other deals, possible participation in a syndication or early-syndication sale which is a gold mine.
  • Most lucrative deal (potentially): indie feature. No revenue ceiling, could go through the roof, enormous control over creative and production team, but need to raise all production funds, raise all marketing funds, and arrange distribution. Bottom line: modest producer fees, but large piece of the backend, most indie features barely break even, but the rare breakout film is a goldmine and you retire early.
  • Best Option, all things considered: Netflix series or Amazon pilot and then, hopefully, an Amazon series order. Netflix does not, typically, do pilots, but rather goes directly to full season series order (usually 10-11 episodes), but Netflix deals are a “buyout” and Netflix offers no backend profit share. Bottom line: if you sell to Netflix, you are green-lighted but you are in it for per-episode fees and a negotiated profit percent above the production cost (usually 130%-200% of the production budget).
  • Fastest Option: Netflix feature sale. Netflix will, if it wants your film, buy it outright with no backend. Bottom line: a margin of 130%-200% of production budget. So you are in it for the budgeted producer fees plus the margin on production cost. But you made your movie, sold it, made some money, and will move on to your next film that you may, or may not, sell to Netflix.

In a future post, we’ll explore what the actual numbers on a project might look like.

If you require assistance in developing a media & entertainment industry business plan, please give us a shout. We have served many media & entertainment clients.

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