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.
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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.
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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.
Filmmaking Conclusions
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…
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Can you do me a favor? If you liked this filmmaking article, could you kindly retweet or share it with your friends?
About Jason Brubaker
Jason Brubaker is a Hollywood based Independent Motion Picture Producer and an expert in Video On Demand distribution. He is focused on helping YOU make, market and sell movies more easily by growing your fan base, building buzz and creating community around your title. He is also available for speaking engagements.
And reading that back I’ve made some horrific grammar errors; sorry!
Hi Jason,
Great article; if I was a filmmaker and decided to use an aggregator, what costs would actually be involved? From the (albeit little) research I’ve done; it seems that there are 3 main players who would take a ‘cut’ of the profits:
Creator: between 60-50%
Aggregator: between 10-20%
VOD platform: between 30%
If the aggregator has bundled in marketing into their price, would their be any other areas I’m missing? For instances sales agents; or would this be part of the aggregator’s charge; or would there be no need for a sales agent if I was using an aggregator? Similarly, what about local distribution charges? I guess what I’m getting at is generally speaking, do aggregators “take care” of all these separate charges?
Thanks.
Thanks Jason. I think the problem here is, we are all learning it takes a ton of marketing money to recoup the initial investment. So that said, two things have to happen. Either we raise more money – or we make our movies for less money.
Firstly – thanks for taking time to read the article. You are absolutely correct. The formula serves as just that, a formula. Each movie will have different variables. And it sounds like you are working to understand your own movie business needs and challenges.As for your idea, it sounds very interesting. And if it works awesome! But to directly answer your question, I’ll use a quote from the famous internet marketer Fred Gleeck (which applies to your question) – “It doesn’t matter what I think. The only thing that matters is your results!”So in this regard, you should be able to test and figure out very quickly if your strategy has traction. If not, then make sure you think up a Plan B (maybe affiliating with other filmmakers with a strong and targeted audience list?)Keep the community posted. We would love to hear how your strategy plays out. And thanks again for your comment.
VERY interesting article, and good info. I think part of the problem is that people are taking your numbers as gospel, as opposed to taking the information as a “jumping off point” to do the grunt work and generate their own numbers for their own unique film projects.
For instance, your example used a movie budgeted at $1million dollars. Not many microfilmmakers can raise that kind of cash in this economy. Their budgets will be lower, so their numbers will be different.
My upcoming film will be microbudgeted at $25K. It is a gory horror film, a “found footage” movie similar in aesthetics to films such as PARANORMAL ACTIVITY and THE LAST EXORCISM. In my film, the gore and the monster will be my “star”. The script is written to be a one-camera shoot (I own the camera), and about 80% of my movie is just one person.
So my numbers, and my break even point, will be radically different, and will be much lower.
Also, I plan to attempt something new – release my movie first as a web series of 5-7minute episodes. Put the first two episodes up on the net for free to generate interest, then drive traffic to my sight where a subscription fee must be paid in order to see the rest of the episodes as they come online. By setting up my subscription service, I will simultaneously build my mailing list.
My web series window will be exclusive. The ONLY way to see the movie during that time is as a web series. But once the final episodes has aired and 30 days have passed, then the movie will be available as a feature film DVD with all the extras extras, and for VOD rental and download, both online and through cable companies. I am also planning to leverage the web series window to sell merchandise like hats, t shirts, autographed movie posters, etc.
Your thoughts, Jason?
Interesting post but there is something missing. In your scenarios you say profit but in actuality (let’s say with the 1mm movie) you are still $500,000 in the hole to your initial films budget, so in reality you need to sell 4mm to make a profit on a 1mm film. Now although most VOD platforms do not charge 50% recoup, the formula still stands if you factor in the original films budget and not just marketing money and sell through expenses.
Hi Frank,
The challenge filmmakers face: How do we justify a budget big enough to pay day rates, while at the same time project enough sales revenue to recoup the initial investment?
I too share your desire to MAKE it work Jason, but I have to agree more with Stacey that those numbers for potential DVD sales are simply not realistic. I too agree the future for Indy sales will be some type of Internet Download. Making DVDs and mailing them out won’t work at the price point the market will pay. The download will be the way to go… BUT we’re not quite there yet technologically.
Thanks for being part of the Filmmaking Stuff community!
Hi Stacey,
Great points. I’ll address one-by-one.
1. My ad costs are actually based on Pay Per Visit. I have a lot of success utilizing sites like StumbleUpon. There you can pay 5 cents per semi-targeted visit. So if you have a horror movie or something with a weird edge, you may benefit from the direct visit – but subsequently, you could benefit from the social bookmarking component as well.
For example, with one of our titles we have experienced days where we pay for one visit. But that visitor then tells 5 of his friends about the movie. As a result, our outlay of cash is 1 cent per visit.
2. I totally agree that most movies do not sell 15,000 units. And to address my post, there has been a lot of confusion about this article. I take responsibility for that. I was merely looking to utilize a marketing ROI formula that actually made sense to me and subsequent prospective investors. What has happened is, some folks got the impression that I was trying to pawn off the next get rich quick scheme.
While I’m not adverse to getting rich, if we re-visit the numbers, you’ll see that it takes significant marketing dollars to recoup even a small investment. And in the first two scenarios (VOD rental and VOD for download), it is difficult to break-even on the marketing budget – which makes Pay Per Visit (or PPC at 5 cents a click) a horrible strategy.
3. As a former Lehman Brother, I learned the hard way that all eggs in a basket (UGH!) is not the greatest strategy. But as a filmmaker, my movies have never garnered a traditional deal that made sense. (We had some deals on the table, but they sucked.) So the only sales channels I was able to access and control were the channels that gave me access directly to my audience.
On the internet, I think there are several ways to diversify. Off the top of my head, both Amazon and iTunes represent two of the most popular marketplaces. But aside from that, there are about a gazillion other VOD outlets popping up each day. And since there is no inventory, there are only minimal costs to set up shop. (Check out http://www.Distribber.com for access to the popular marketplaces.)
From a business perspective, I would like to make the numbers work for my own marketing, sales and distribution from day one. To me, it makes sense – If I can make the numbers work with direct DVD and VOD then should a better, more traditional middle-man filled deal come along, that is gravy.
So to directly address your point, YES! I am all for a hybrid strategy. If someone wants my theatrical rights or my retail rights or my cable rights or any of these rights in other territories – As long as the deal presents and upside, I’m all for it.
But I’m not holding my breath…
Hopefully that makes sense.
HI Jason,
Great post! A few questions…
1. Aren’t you underestimating your PPC ad costs? 5 cents seems awfully low
2. Most films don’t sell 15,000 units even when they are in the big box retailers. I usually tell my clients that if they sell 10K units of their film online that it’s a home run! 100K units seems a little ‘pie in the sky’ don’t you think?
3. I’m a big proponent of different revenue streams, so personally I think direct to consumer should be only ONE revenue stream and in a business plan you should be able to show 3-5 revenue streams otherwise you risk putting all your eggs in one basket.
Just my two cents!
Stacey
http://www.FilmSpecific.com
Thanks! This was really helpful for me! I am a new producer– actively looking for info on VOD and electronic sales figures so I can complete my pitch packets. It has been a challenge to find accurate info so this post is great! To follow my filmmaking journey please follow me on twitter! http://www.twitter.com/indieflickchick Thanks! Sara Woo
Thanks Rob,
I was going ultra conservative with these estimates in the hopes of providing a semi-worst-cast baseline. Your comments have provided even more optimism.
I’m not familiar with your platform – so email me offline. I’d like to find out more.
This is a great post. The one note I have is that the online VOD options shouldn’t cost you 50% to market unless you are using something like Amazon.
iTunes and Dynamo (http://dynamoplayer.com) both give the publisher much more, typically 70%.
Both of those systems also give you key advantages with that lower cost. With iTunes you are reaching out to devices, and with Dynamo you are embedding on your own site.