How To Finance Movies With VOD Sales Projections

Do you know the most popular question filmmakers ask me?

I’ll give you a hint. It has to do with video on demand.

Ready. . .

Without too much variation, the most popular question is: “Can you provide some VOD sales projections?”

I understand the motive behind this question.

Believe me, I do.

You’re a filmmaker. You either made an awesome movie and you’re trying to use VOD sales projections to convince your partners that VOD is the way to go. Or you are in the process of making a movie and you need to convince your investors that VOD is awesome. In both scenarios, you’re trying to find proof that movies make money in VOD.

I get that. . . But. . .

Let’s make one thing clear. Asking for VOD sales projections is asking the wrong question!

If you dig around, examples of VOD Sales successes are out there. Check out what The Polish Brothers did. And if that’s not enough, Google the case study around Indie Game the movie.

But the truth is, one filmmaker’s past success does not guarantee that your movie will be successful.

Read that statement over and over again. And if you need a little more clarity, take a look at what the cat is saying here:

VOD Sales Projections

Realizing that VOD sales projections are BS is essential for your success. And I am going to explain how you can use your new found understanding for good, very soon…

But before I go there, let’s talk about why people invest in independent film.

Why Investors Invest In Indie Film

Independent movie investors invest because (aside from having an appetite for risk and an interest in the film business) most of these people want a return on their money. If you are doing things by the book, you probably created a marketing strategy as part of your business plan. This plan provides prospective investors an overview of how investment dollars will be budgeted, spent and hopefully recouped.

In the past, trying to convince investors movies were a good investment involved projecting returns based on speculative data. To guess how much money a movie may make, filmmakers would compare their project to other successful movies.

Creating indie movie comparables is complete BS.

The reason for this is simple.

Just because you make a low budget horror movie does not guarantee your movie will have the same success as Paranormal Activity.

In fact, Paranormal Activity is an outlier. It is not a fair comparison. And using breakout hits as examples, while ignoring the thousands of unsuccessful horror movies made each year, is short-sited at best and I dare say a little unethical.

Video On Demand Sales Projections

Given the birth of VOD distribution, as a filmmaker you now have the ability to access and enter into a non-discriminatory marketplace as soon as your movie is ready. And because many of these marketplaces exist online, much of your sales will come from internet traffic.

This is actually awesome news.

It means that you can boost your sales by using a very common marketing concept called…

[Seriously… Are you ready? You are about to receive the secret sauce of modern, indie movie marketing.]

More important than VOD Sales Projections is:

Conversion Rates

What is a conversion rate?

Conversion Rate Defined, According to Wikipedia:

Your conversion rate is the proportion of visits to a website who take action to go beyond a casual content view or website visit, as a result of subtle or direct requests from marketers, advertisers, and content creators.

Conversion_Rate

In other words, if you send one-hundred people to your movie website and two people buy your movie, your conversion rate is two percent. This is profound. This is life changing for indie filmmakers!

Question: Why should filmmakers be enthusiastic about the internet marketing, nerd concept of conversion rates?

Answer: If you know your conversion rates, you can model and potentially project more accurate movie sales projections from day one.

But before you start noodling around to find your conversion rates, it helps to answer the following questions:

Modern MovieMaking Model

  1. Who Is Your Target Audience?
  2. How Large Is Your Target Audience?
  3. How Will You Reach Your Audience?
  4. What Is Your Marketing Strategy?
  5. 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.

The Secret VOD Sales Projection Formula

When you create (or refine) your marketing plan, you must now include 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 test several conversion rate scenarios. You can use these scenarios as a guideline to ballpark the potential ROI for your movie.

Here is a basic website conversion rate calculator you can utilize: http://bit.ly/17TSCrt

Before you get overly excited (like I am) calculating your movie website conversion rate is only one metric to determine your movie’s potential for profitability. You still need to figure out how to price your movie. And at the same time, you will need to determine how much targeted internet traffic will cost you.

Generating Internet traffic is the result of executing four strategies. You can either get free traffic online, free traffic offline, paid traffic offline or paid traffic online.

For the sake of this example, I am going to incorporate pay per visit advertising. With pay per visit advertising, you simply pay for someone to visit your movie website.

One example of Pay Per Visit traffic is StumbleUpon. It’s a social bookmarking site that also allows you to pay for semi-targeted traffic. This works well if you have a movie with a dose of controversy and a strong hook.

And again, if you’d like more info on specific traffic generating strategies, check out my indie guide to distribution.

Ok. Here is our first example…

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 (Electronic Sell Through)
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 (Electronic Sell Through)
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 your conversion rates, 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 (or units) 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.

Some Sales 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, you can treat your movie business like any other small business. With VOD Sales projections, you can find the marketing formula that works for your movie and crunch your numbers until you find a scenario that brings you profits.

Create a plan that included 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.

While these may not be the VOD Sales Projections you were looking for, hopefully you now realize the power of knowing your conversion rates.

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…

Also, can you do me a favor? If you liked this filmmaking article, could you kindly retweet or share this article with your friends?

Comments

  1. says

    VOD comps (that would actually help your case) are tough to find. Unlike the old days of DVDs, when costs were based on a physical product – these days, the VOD revenue is based on a uploading a movie to a platform and then driving targeted traffic to a BUY NOW button.

    In other words, just because one movie gets into iTunes and has success does not mean that another movie will have the same success.

    That is why I emphasize conversion rates over comps. You need a marketing plan for your investor that does not rely on comps.

    You are welcome to participate in my upcoming Film Distribution webinar. More info is found here: http://www.filmmakingstuff.com/sell-your-movie-webinar

    As always, please let me know if you have additional questions.

  2. Karen Martens says

    Where can I go to see how much revenue certain films have done on digital sales? I would like to get comps to present to an investor. Could you please help?

    Example of 3 different 20M budget films and how much each have done in the past 5 years?

    Thanks!
    Karen

  3. Dan says

    Can I just say that you are an absolute entrepreneuring-filmmaking-genius! ! This article as basically answered the question to completing my summary to put on my presentation to my business plan!

    Thank you so much your your valuable advice!

  4. Rjs says

    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.

  5. says

    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.

  6. says

    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.

  7. Anonymous says

    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?

  8. Jason Morris says

    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.

  9. says

    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?

  10. Frank says

    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.

  11. says

    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

  12. says

    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.

  13. says

    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

  14. says

    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.

  15. Rob says

    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.

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