How Development Funding Works‘What we do is find stories which we somehow find compelling, fresh; stories we have to tell.  And they will, by definition, be things that are hard to sell because they haven’t been done before’ (Andy Paterson, producer The Girl with a Pearl Earring).

It all starts with an idea, of course.  But even before you look for development funding to get your script written, there’s already been a lot of work and activity.  First drafts of the script, treatments and pitches, getting creative assessments from those in the know; maybe attaching producers, directors, writers or actors – all this has to happen before the actual script can be commissioned.

But let’s say you’re a producer who has already been through that process and have already acquired the rights or the option to the screenplay. What happens then?

Hurdles and gatekeepers

There are several hurdles to be negotiated before the process of creating the script can be funded.  For example:

  • Agents – many producers and broadcasters will not accept scripts that do not come through an agent – mainly to prevent them from being inundated with ‘no-hope’ projects.  So the first hurdle for the writer is to get an agent to represent them.  They can be invaluable in advising on the right director for the project.
  • Producers – the next hurdle is to get a producer interested.  Many studios or other financing bodies do not accept approaches direct from writers anyway.  They want to see a reputable producer attached to the project as an indication that they ought to get their money back if they invest.  The producer then becomes the champion of the film, pitching to potential investors.
  • Development funders – they help decide about the viability of the film from the track record of the producer and writer (as well as from summaries and recommendations written by script readers), and consider the match between their brand and the film’s content and approach.

Sometimes the producer funds the script without external finance.  This happens especially with original screenplays, or when the development funder is also a production funder, as the producer may not want to expose the idea to the production funder too early.

Sometimes the writer does all the work, without a producer, either to show off his or her talents, or to develop the script to a more advanced state before looking for funding.   A spec. script (short for speculative script) can be written without restrictions or having to work with collaborators.

Sometimes they are written as TV dramas as well as films.  The disadvantage of scripts taken to a final or advanced state is that the producer may feel less ownership since he or she has not been involved from the beginning of development.   Some very low budget projects are fully written before a producer gets involved, although the producer often still expects assignment of full rights.

Writers sometimes argue that if they have written the script to a final stage, their time should be regarded as a contribution to the investment, and therefore want an increased share of the profits and may perhaps require associate producer credit.

But what are the facts and figures of development budgets in the US and the UK?  How big are they and how many films are there in development at any one time?

Ballpark budgets for development of the script

Very roughly, an independent producer without a special deal with the studio might expect to get $25,000 to $40,000 as a development fee from a US studio.

A producer with a track record might be able to get a ‘first look’ deal with a distributor, studio or broadcaster, whereby he or she agrees to take screenplays to them first.  This type of deal is more common in the US, but some of the smaller European studios use them now too.

With this, the producer has to cover his or her own costs and overheads, and pay the writer.  Writers typically get a proportion of their fee on signature of contract, more on delivery of treatments and first and subsequent drafts, and the balance on the first day of principal photography (and this will be the largest slice of their fee).

Overall budgets, including production

It goes without saying that the more expensive the film, the bigger the development budget.  In Europe the cost of an average film varies between £1.75 million to £3.5 million, with the development fee being around £44,000 to £130,000.  Larger European films may cost £6 million to £9 million, with development fees being higher at up to £260,000.  A film can be in development for one to ten years, but the average length of development is 3.4 years – this is regardless of whether the film is made!

In the US,  it is more process-driven, professionalized and better paid, and so the spend on development is around 5 to 10 percent of a film’s total budget.  In the UK, the development fee would be a lower percentage; around 4 per cent of the overall cost of the film.

Facts and figures on film development slates in the US and the UK

A recent estimate of the amount of money spent on film production in the UK was £50 million a year, with over 1700 films in active development.  By contrast, Hollywood invests a staggering 13 times more, at nearer £650 million per year.

Only 16-20 percent of films developed in the UK and Europe reach production, but in the US it is lower, at 10-20 percent.   The US studios are even lower at 5 percent, but that is because they have more films in production.

Risk – it comes with the territory …

Film development is, let’s face it, very high risk.  The project may fail, or enter the limbo of development hell, because the script just doesn’t come together creatively; the financiers may simply not like it enough; the option may expire.  Sometimes the studio executive who loved the project goes to another studio or another job, and this usually means doom for the project, at least at that studio.  A director or actor may fall from favour with the public for some reason, or a similar, competing film may start shooting.  Or the economic climate may cool down.   These factors are often based on timing, and are therefore beyond the control of the producer.

Additionally, films take a long time to be developed, so the investment money is tied up for a long time. The development costs are potentially all spend and no (or little) income, as the returns for the investor are relatively low, so sometimes the benefit for the investor is the loss against their tax liability!

This may be why more and more development funding comes from public sources with a remit for cultural or public good.

Recouping the development fee

Studios in the US and the UK differ in how they get back the development fees of films, including the development of films that do not actually get made.  In the US, studios treat development as an overall annual fixed cost, and a portion of this is allocated to each film as a budget cost; at about 8-10 percent of the total budget.  In this way films that do get made, pay for the development of those that do not, and the studio has a way of writing off all the costs it needs to.

US studios can do this because they get income from the distribution of the film, and it is tax-efficient and legitimate.  Independent UK studios cannot do this, because they can’t spread the cost of films that do not get made against the income from distribution of the films that do.  If the film does not get made, the development costs can only be a loss.

If there are five projects on a slate, each costing around £50,000 in development costs, that means there is £250,000 in total.  If one film gets made, £50,000 on first day of principal photography (plus an extra 50 percent premium of £25,000), making £75,000, is recouped, but there is still £175,000 outstanding.  The producer would need to get four of the five films made to break even, and this is a much higher conversion rate than normal.  (Conversion means converting a script into a film).  There is no way to recoup or get back these development fees, which is why projects often get left on the slate even though they will probably never be made.

Sometimes the cumulative development costs of a film become simply too high for them to be recouped on the production budget.  This can happen if the film goes into turnaround, where it is re-optioned to a new producer, bringing with it the development fees of the producer who has left the project.

Producers may be able to treat unrecouped development fees as a loss against tax, but third-party private investors would not be able to.  The reason private individuals like to invest in films is often for vanity – they would like to say that they met such-and-such an actor or actress on the set of a film that they are investing in.  But if the film fails along the line, or even once it is made, these individuals prefer to forget they ever made that investment.

All this happens before the script is even written, and there’s a long way to go after that, so bear in mind what Andy Paterson said:

‘The notion somehow that the world needs movies is a very bad place to start.  Because actually television needs product, film doesn’t.  Television has hours to fill, cinemas would quite happily fill themselves with American movies and there is really no need for British films to be made.

So the only reason to start developing something is if there is a story that you feel has to be told as a movie;is a movie that the world will want to see, and is a movie that you can make that nobody else should make’.