Film Value ChainAn important aspect of competitive business strategy has to do with bringing an organization into line with its strategic environment. As such, it is critical for those who run businesses in the film industry to fully understand the value chain in which they are working, especially during periods of radical change.

Thus we have seen a rising interest in the notion of the film value chain, likely due to changes in film financing and distribution economies – changes which threaten current business models (such as declining DVD sales, technological convergence and the anticipated rise in digital downloads).

Despite the fact that writers, consultants and lecturers are increasingly using the film value chain, very few attempts had been made before 2009 to codify this chain or to investigate its complexity, particularly in the independent sector (in contrast to the studio sector).

This finally changed in May of 2009, when a paper was published called “Re-defining the Independent Film Value Chain.” This paper, which provided an independent film value chain model, was assessed in teaching sessions that took place in various UK universities and executive short courses. Since then, this paper’s model has integrated feedback from executives, media business consultants, film practitioners and MBA students.

This article will analyze this chain in some detail. Technically, this is a value system that is being discussed, because it examines the independent sector in which separate cooperating companies work. Nevertheless, this article will refer to it as a value chain, since this is the term typically used by journalists and academics in the media sector.

Ordering the List of Players in a Segment

Production and finance of films can be extremely complicated. The stages mentioned below are generally listed with those having the most creativity and influence listed first. This of course, is just a generalization, for every film is different and varies. It is also important to remember that many members of these stages (such as the director, producer and writer) gain and lose influence during these different stages.

Development

Let us start with development. Development is a section of film production that has been said to be separate from the production itself. Three problems arise from this separation:

  • Money – The finance for a project will come from multiple sources from the production side.
  • Time – During development, there will be a fair amount of both energy and time put into this process, which utilizes the work of individuals from several different parts of the production.
  • Independent Films – This can be easily defined as independence of development.

Packaging, researching and budgeting is sometimes put into the development category, but we will cover this in the next section.

Financing and pre-sales

The financing stage defines itself. This is the stage in which the producer collects money from various parties and uses it to pay for the film. Those who agree to give this money do so in exchange for their company’s name being used or shown within the film or even for a cut of the profits. Arguably, this can be the most difficult process.

The producer must have excellent people and negotiation skills, for he not only needs to get several people interested in handing over funding for the film, but also must get them all to agree to this at the same time. Not only will the producer be dealing with the individuals interested in lending the money, but he will also be engaged with their lawyers; people whose main concern is making sure that their client gets the invested money back with interest.

Pre-sales used to be another way that producers could gather funds to help the production of the film, but as the times have changed, this has become a less useful ability to raise funds. With movies being illegally downloaded and other forms of internet piracy abounding, companies have been more reluctant to buy into the pre-sale of movies.

The Production Stage: Shooting and Posting

Now we move onto the production of the film. At this point, the director tends to hold all of the cards and has the most power. This is the stage where the film is shot and the computer graphics, music and special effects are all put together to create the director’s vision. The final edit may be the only time when the director loses a large portion of his power, seeming almost to be at the mercy of the film’s investors. It is during this final edit that those who assisted in funding the production are allowed to come in and make sure that they are getting their money’s worth.

International Sales and Licensing

The film is now finished, so it must be sent out to those distributors who have paid an advance to be able to claim the rights of the film and the ability to distribute it as they see fit. An agreement is commonly made during this process, which states what percentage of the distributor’s profit will be returned to the original group of investors.

International distribution, Exhibition, and Exploitation

Once the international sales agreement is complete, the international distribution and exploitation can begin. This distribution could be in DVD sales and rentals,  in-flight movies, online downloads, TV, cinema, or even video-on-demand.

Surprisingly, cinema is actually a profit loss at times for the distributor. Cinema is now used as a way to encourage DVD sales and film downloads. At this point, the producer doesn’t have any say in how the movie is distributed or even in how widely that distribution will be spread. This is all decided by a national distributor, who gets to pick and choose how the film will be advertised and where it will be sold. This is also the stage where toys and games promoting the movie flood the market in an attempt to build up hype and earn more income for the film’s profit margin.

Consumption

The consumer is the next stop  on our value chain. The consumer plays two very important roles in this process. The purchasing of merchandise is the first of these roles. The purchasing of these items that the distributors put forth, aids in paying for the cost of the film production. Secondly, the consumer determines the library value of the film and its long term reputation.

Library Rights

This is the value chain in which the distributor or producer may re-release a film and its merchandise. In the case of the distributor, this could be done as a collector’s edition; where the producer would commonly release a director’s cut. These tend to take place on the ten or twenty year anniversaries of the film’s initial release. Another section of library rights contains the rights to sequels, prequels or remakes.

These rights are held by the producer and sometimes by the financiers, depending on their initial agreement during the financing stage. These rights are not granted to the distributors. Sequels and remakes are becoming more common. This is due to the higher likelihood that investors will fund these types of film, because they see less risk when the concept behind the film has already been put on the market. By looking at previous films from the series, the investors can estimate how a new film will perform.