Financing Movies With VOD Sales Projections
As a filmmaker, once you have a great screenplay and an initial break down and budget, your next step is to take your proposed budget and put it into a business plan. The business plan will help you determine how the money will be spent and hopefully recouped.
Independent movie investors invest because (aside from having an appetite for risk) they want a return on their money. Creating a business plan provides your prospective investors with a road map on how the investment dollars will be spent and hopefully recouped.
In the past, trying to project returns was a pain in the butt, oftentimes based on speculative data. This is mainly because independent movie distribution was discriminatory. And as a result, after production, many independent feature filmmakers held their breath in hopes their movies would get into a film festivals, build buzz, and (hopefully) garner awesome distribution deals, complete with cash advances.
Unfortunately those old business plans, focused on what is commonly referred to as the “Sundance Dream,” were flawed – And thankfully, that dream (or nightmare) is over.
Given the birth of VOD distribution, filmmakers now have the ability to access and enter into a non-discriminatory marketplace as soon as your movie is ready. As a result, you can now create movie sales projections from day one.
To get started, answer these questions:
Modern MovieMaking Model
- Who Is Your Target Audience?
- How Large Is Your Target Audience?
- How Will You Reach Your Audience?
- What Is Your Marketing Strategy?
- How Many VOD Sales To Break Even?
While I won’t get into the actual mechanics of marketing and selling your movie here (My Action Guide How To Sell Your Movie provides you with an actual step-by-step plan for getting your movie seen and sold), I will simply note that a marketing plan must now be included with your business plan. And in that marketing plan, you’re going to add some marketing math.
Truth be told, math is a weak subject for me (and I dare say, most of the filmmakers I know) – but luckily there are many spreadsheet templates that allow you to project the marketing return on investment for your movie. One of the early formulas I use is related to pay per visit advertising. With pay per visit advertising, you simply pay for targeted traffic to your movie website. This works well if you have a movie with a dose of controversy and a strong hook.
Let’s assume only 1% of the targeted folks who actually visit your website, buy. Then how many visits will you need to sell 100 units?
100 units = Our goal for this ad campaign.
$.05 = Amount you may pay advertiser per visit.
X = Number of Visitors Needed to buy 100 units if only 1% buy.
(X).01 = 100 units
EQUATES TO: X= 10,000
THEN 10,000($.05) = $500 paid for targeted traffic.
So in other words, if you were lucky enough to get a 1% return, you just paid $500 dollars in pay per visit advertising to sell 100 units of your movie. But let’s go one step further. Let’s assume you’re like me – and you hate order fulfillment and shipping. So you decide to let a company like Amazon’s Create Space or iTunes (or some other popular marketplace) handle your order.
Video On Demand For Rent
100 units ($3) = $300 – 50% paid to marketplace = $150
minus $500 paid for advertising = -$350 NEGATIVE
In this VOD rental scenario, the Pay Per Visit Ad numbers don’t work, unless you like losing money.
Video On Demand For Download
100 units ($10) = $1000 – 50% paid to marketplace = $500
minus $500 paid for advertising = BREAK EVEN
In this VOD download to own scenario, the numbers work a little bit better. Assuming you’re lucky enough to get 1% of your money returned, at least the advertising pays for itself. But unless you can increase profits, pay per visit advertising is going to be very difficult method for returning money to your investors.
Physical DVD Sales
100 units ($20) = $2000 – 50% paid to marketplace = $1000
minus $500 paid for advertising = $500 in profit.
Ah ha! If you’re fortunate enough to get 1% return on your pay per visit advertising, you can see how physical DVD’s sold at $20 dollars may offer a slight profit margin. In other words, in this scenario, for every $.50 cents you spend, you get $1 dollar back.
So let’s tackle the bigger problem. Let’s try to get a return on our 1Million dollar movie, selling physical DVD sales and using pay per visit advertising alone:
Movie Budget = 1 Million dollars
Physical DVD Sales using Pay Per Visit Advertising
$1,000,000 divided by $20 per unit = 50,000 Units
Since we will give 50% to the marketplace for all sales, we will need to project for double our budget.
100,000 units = Our goal for this ad campaign.
$.05 = Amount you may pay advertiser per visit.
X = Number of Visitors Needed to buy 100,000 units if only 1% buy.
(X).01 = 100,000 units
EQUATES TO: X= 10,000,000 (Yes, TEN MILLION people.)
THEN 10,000,000($.05) = $500,000 paid for targeted traffic.
100,000 units ($20) = $2,000,000 – 50% paid to marketplace = $1,000,000
minus $500,000 paid for advertising = $500,000 in profit.
So to break even, you would need to sell 100,000 units and make $2,000,000.
Based on this scenario, as a filmmaker you will (obviously) need to expand your promotion beyond pay-per-visit advertising!
But importantly – and most AWESOMELY - for the first time in independent moviemaking history, you can now treat your movie business like any other small business. Find the marketing formula that works for your movie and crunch your numbers until they work. Once you have a plan, then simply include your marketing costs in your budget.
While there are no guarantees in any business, having a plan for marketing, sales and distribution sure beats the old days when your only plan for ROI involved crossing your fingers in the hopes someone will offer you a profitable, traditional deal. Treating your movie business like any small business simply means you don’t have to ask permission. You can make your movie NOW!
And your prospective investors might take notice…
Can you do me a favor? If you liked this filmmaking article, could you kindly retweet or share it with your friends?