Examples of the Film Value Chain Model

In the book The International Film Business, Angus Finney gives detailed examples of the costs, fees and recoupment involved in independent filmmaking.  Here, we’ll take a look at two of these examples.  Later on, we’ll discuss the implications of the film value chain model, and the central role and responsibility of the producer in the value chain.

In the first example, describing a typical recoupment chart, the process can be divided into recoupment coming from the initial budget, and recoupment from net profits.  In the first section, we see the collection agent’s  expenses, and then the fees that the collection agents begin collecting after this payment is made.

Next are the sales agent’s expenses, and the percentage fees that the sales agents begin collecting after expenses are paid.  We then see the sales agent’s arrears, and the distributor minimum guarantee (sales advance), which makes up one of he largest portions of the overall recoupment schedule.  Next  comes private equity investors 1 and 2, followed by the public subsidy fund, which brings us to the point of breaking even.

The producer and talent take away 30% and 20% of net profits, respectively.  And then finally the equity investors take away 50% of net profits.
Let’s take a look at a second example from Angus Finney.  This is a typical list of major fees and costs for an independent movie.  Finney makes three basic assumptions to start off.  First, US distribution of the film is through a major specialist arm.

Second, the film is foreign sold or handled by an international sales company.  Finally, the  net profits are split 50-50 between financiers and producers. So for this example film the fees can be split into three groups:  First there is the US side of exploitation, which is first in the chain of revenue flow.  Second, there is the foreign side of exploitation.  Third, we have the individual distributor deals in foreign exploitation.

So, in the first portion of the revenue flow you will find the US distributor, who requires interest and overhead charges in advance.  This will be a minimum of 10% of revenue, or a maximum 18-20%.  TV sales account for 30-40% of income given to the distributor.  DVD duplication and marketing costs earn you a royalty fee of 15-20%.  Prints and advertising costs against theatrical release in all territories with interest and override are also included in this portion of the revenue. Finally, you must account for a 35% distribution commission against rental figure of 40-50% income stream to distributor.

In the foreign sales portion, you will typically see a 10-25% sales commission on all foreign territories, which is 5-10% against the US sale. You might also expect a $150,000 minimum sales and marketing costs in foreign exploitation.  Finally, there will be 101.5% collection of agent fees on all revenues collected.

The individual distributor will charge 10% minimum for interest and overheads on advance (override).  TV sales account for 30-40% of income to the distributor.  DVD duplication and marketing costs are a 15-20% royalty to you.  There will be a fee for prints and advertising against the theatrical release in all territories, including interest and override. Finally, expect a 35% distribution commission against the rental figure of approximately 30-45% income stream, but as low as 25% in the UK.

In conclusion, the film value chain is useful as a depiction of the past, present and future workings of the filmmaking process, as well as for giving insight into how changes might affect and/or improve the industry.

The Role of the Producer in the Film Value Chain

These examples represent some sort of ideal, or average investment and recoupment process, but this varies between films, and even country to country.  One important point to take away, is that no matter what the distribution of funds are in your particular film, the producer receives the majority of income at the beginning of principal photography, and the income should amount to about 3% of the overall budget.

The producer receives the upfront payment because the recoupment for financiers, as well as fees and costs deducted by distributors, exhibitors and sales agents, means that the profit share from the net profit does not add up to much for the producer.  However, this set up may discourage a producer from being very active in the distribution process, as they may need to use the time to start working on their next script and film in order to receive their next significant payment.  It is possible to change this dynamic, however, and re-incentivize the distribution process for the producer.

Retaining the Main Players in the Film Value Chain

It is a producer’s relationship with a subset of writers and directors that gives a sense of continuity to the film business.  However, with so many people in the industry, these relationships can be difficult to maintain and carry along from one project to the next.  The enormous financial power of the studios, especially in the US, makes it easy for them to lure key talent away to different projects, and thus increase this fragmentation.

Allowing a producer to build a consistent base of writers, directors, and talent, makes the whole filmmaking process run more smoothly and consistently, as the team comes in to the project with a pre-existing foundation of trust and teamwork.  This foundation can be difficult to re-establish project after project.  It is possible for the director to be made into a company director, working directly for the production company, which can help retain these cooperative bonds.

In the UK we see several instances of these consistent teams, for example, producer Andrew MacDonald, writer John Hodge and director Danny Boyle, along with producer Rebecca O’Brien, writer Paul Laverty and director Ken Loach.

Any independent film producer should make the securing of key talent such as writers and directors a main priority.  In an interview from 1994, producer Julie Baines emphasizes the central role that the script plays in establishing and maintaining the relationships that underlie a film project.  There is no reason why key talent should be able to see the potential in a script that you are working on if it is not sufficiently developed, or if other parties have not been a part of your work/discussions surrounding the project and script; and they do not have access to the vision you are creating until you have created it.  Talent attachments are crucial in the industry these days.

Additionally, financiers are unlikely to back a project that is not sufficiently developed.  Most likely they will wait until you have key talent attached to the project to judge that it is really going to happen before they come on board.  It is much better to submit a polished draft to a potential backer than to submit something half-finished with an improbably wishful casting list.

A financier does not want to read one draft, and then another; better to submit a fully completed one a month later.  Their impression will already be colored by the first exposure to your project.  Do not rush out to put your plan in the hands of possible backers.  Make sure you have a polished, feasible plan and script to show off.