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?

Indie Filmmaking As Your Business

If you’ve been following Filmmaking Stuff for some time, you probably know that this site really pushes non-permission based filmmaking. This concept means that if you’re a filmmaker with ambition and a dream, you should not hesitate…

You should not wait for Hollywood to give you permission – but rather, you should pick up a camera and Make Your Movie Now!

For some of you, this is easier said than done. Part of why this seems challenging and impossible is because many of us start our career with the belief that filmmakers need a gazillion dollars, tons of experience and an address in Hollywood to make a living as a “real” filmmaker.

While this was once true, the new model of movie making allows you to create and sell movies from anywhere in the world.

For many, this filmmaking evolution is exciting. But the classic elements of filmmaking remain. You still need a great story, the passion and persistence to bring your movie to life, and the guts to share your work with the world.

To give you a rough plan of how to get your indie movie business up and running, I’ve provided a few steps. (Where I thought it would help, I also included links to some sponsored filmmaking tools and services.) Ready:

1. Build A Team: Create relationships with at least 5-10 collaborators who complement your skill set. At the very least, you’ll want to find a writer who understands budgets, a physical producer experienced in low budget movie making, a tech guru who understands cameras and modern production gadgets, an editor with Final Cut Pro and an internet guru who can help you promote and sell your movies online.

Bonus points if you can find a lawyer who can provide you with the necessary legal advice, contracts and advice on setting up a business.

2. Create a Manageable Movie Concept: Come together as a team and design a movie that can be explained in one high-concept log-line. It has been my experience that original, genre specific movies with a bit of controversy, geared towards a clearly defined target audience will later help you when it comes time to market and sell your movie.

Above all, your movie idea should be totally fun and captivating. (Otherwise, why make the movie?)

3. Break Down Your Screenplay: Out of this, complete your schedule and your budget. Then analyze your budget. Ask yourself: If we do not garner a traditional distribution deal, how many $4.99 VOD downloads will we need to sell to get a return? At this point you can decide to decrease your budget, or not. But once you decide on your budget and the amount of sales you’ll need to get a return, you can then begin planning your marketing strategy.

If you have money, hire a great Production Manger. If you don’t have money, you’ll have to do your own breakdown. Check out my sponsor, LightSpeed EPS.

4. Go Get The Money: Once you have a concrete filmmaking strategy, you can go after your money. Investors like to see three things in your business plan: Who is running the company? How will you spend the money? And how will you make a profit?

Unlike years past, iTunes, Amazon and (sometimes) Netflix provides you with an accessible distribution pipeline. This will assist you in getting the necessary movie money. If you don’t know how to find prospective investors, see: www.GetMovieMoney.com

After you lock down your money, you can go into pre-production full force. Hire a great 1st AD.

5. Sell Your Movie: Once you get the money, I’m assuming you’ll make the movie. After that, two things have to happen. You have to spread the word about your movie. And you have to figure out how you are going to sell the thing. Once you get your movie out there and selling, focus on fueling your marketing with ads, PR and partnerships with other filmmakers.

After you do this once, the way to become successful is to create more and more movies. Remember, your goal is to create at least 20 movies in your life time, so that you can get at least 20 checks in the mail each month!

If you like this filmmaking stuff, you’ll love this resource: www.FreeFilmmakingBook.com