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?

Independent Film Distributor Report Card

If you’re an independent filmmaker focused on finding a great distribution deal, you know it’s a tricky world. As a result of VOD as well as declining retail options, many traditional DVD distributors are offering some really bad deals.

This week’s guest post comes from  Sheri Candler. Sheri is an inbound marketing strategist who helps independent filmmakers build identities for themselves and their films. Sheri stopped by Filmmaking Stuff to tell us about a new service for filmmakers called the Distributor ReportCard™.

The Key to Choosing the Best Distributor? Research

We’ve all heard many horror stories from filmmakers who were thrilled to find a distributor for their film only to find the film was mishandled, shelved or the company went under with no recourse for the filmmaker to claim their rights back. There are also distributors so coveted for their professionalism and skill at finding the right audiences for their titles that everyone wants to work with them.

How to separate the wheat from the chaff?

There is a new tool being developed to help independent filmmakers research backgrounds, complaints and recommendations before choosing a distribution partner. The Film Collaborative (TFC) has aggregated all of the information you will need to inform your decisions before you sign agreements and they have called this free resource the Distributor ReportCard™ (DRC). It is an open source wiki anyone can use to voice opinions, experiences, questions and recommendations for both filmmakers and distributors.

The DRC is meant to be an online guide much like Yelp is for restaurants and shops.  TFC founder Orly Ravid says, “For the same reason people really find YELP useful before choosing where to go to dinner, we know that feedback from filmmakers who have worked with distributors will be useful to other filmmakers. We always advise filmmakers to get and check references before signing on with a distributor and this is just an even more unbiased way to get feedback.”

At present, the DRC’s list was pulled together by TFC, but they want that to change. “We had to start somewhere so we listed distributors that we have either worked with or know about. It will take some time before it’s completely thorough and contains plenty of feedback. The more filmmakers and distributors we reach to encourage company submissions and feedback, the faster it will done,” said Ravid. Distributors representing all forms of distribution are included as well as some international sales companies and digital distribution platforms. The list is human edited and vetted regularly to provide the most up to date information on currently operating distributors.

Experiences both negative and positive are encouraged. “The more information and perspectives the better. Just as people rely on Consumer Reports and Yelp and Blue Book to make informed decisions, the DRC is meant to help filmmakers by having information all in one place and rated according to their colleagues’ experiences.” Distributors are also encouraged to participate by answering any questions, misunderstandings or concerns on their respective pages.

The instructions for using the DRC are as follows:

1. Log into/create a wikispacesaccount, The site utilizes wikispaces so you should use a unique username and password. If you are already a member of The Collaborators site (www.thefilmcollaborators.org), you’ll need a different username and password than your Collaborators membership. If you are creating an account, a Wikispaces MY ACCOUNT page will appear.

2. Go to MY WIKI (near upper right-hand corner) and type in FILM DISTRIBUTOR GUIDE. A small window will pop-up underneath with FILM DISTRIBUTION GUIDE. (You can later add this to your favorite wikis and not have to type in the name each time you log in.  You will still need to go to MY WIKI link to select it. Click on FILM DISTRIBUTION GUIDE. The DRC front page will come up.

3. On the far LEFT-HAND SIDE column, select the DISTRIBUTOR you wish look up or to comment on.

4. Once you are on the chosen distributor’s page, click on the DISCUSSION tab.

5. Click the NEW POST button (located just under the distributor’s name, upper left side) if you wish to comment.

6. A NEW POST window will pop-up.

7.  Fill-in your SUBJECT and type your MESSAGE in the pop-up window.

8.  If you want to receive an email when others respond to your post, click the box  “MONITOR THIS TOPIC”.  If not, proceed to #8.

9.  When you are finished entering your missive, click POST.

10.  Your post is complete!

TFC encourages factual and constructive information attributed to named individuals. Acknowledging that some filmmakers may not feel comfortable registering complaints or low opinions of their past or current distribution partners, Ravid said there is an option to post anonymously. “We have a user handle for anyone who wants to use the DRC anonymously and also we are happy to post the comments on anyone’s behalf. You’ll just need to contact the site administrator with your details. We will post that the person making the comment wishes to remain anonymous so those who are doing research can take this into consideration.”

To access Distributor ReportCard, please visit the site

www.distributorreportcard.com

About The Film Collaborative

The Film Collaborative (TFC) — the first non-profit devoted to distribution education and facilitation for independent film. We offer a full range of affordable educational, distribution and marketing services to independent filmmakers looking for distribution sustainability and to reach traditionally underserved audiences. Launched in early 2010 TFC has already provided its services to more than 75 independent films such as Sundance Award Winners We Live in PublicGasLand and Undertow, and SXSW Award Winners Made in China and Weekend.

 

About Distributor ReportCard™:

Distributor ReportCard™ gives filmmakers and producers a chance to SCHOOL THE DISTRIBUTORS. Write reviews, share your experiences and learn from other filmmakers’ successes or mistakes.

Simply click on one of the distributors and you’ll be taken to the info page for that distributor. All information is gathered from their respective website and is not based on a TFC review.

Speak your mind. Create or join a discussion about a specific distributor.

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Filmmaking For a Living

Hollywood Sign

Image via Wikipedia

As a filmmaker, you are expected to make a product (your movie). The money invested to create your product should be less than the eventual sales of your product. If you can not figure out how to achieve this goal, you do not have a business. You instead have an expensive hobby and probably a good demo reel.

There are a lot of filmmakers who attempt to raise money without first considering how their movie will recoup the initial investment. These filmmakers say things like “I have a vision” or “I’m going to make this for the love of filmmaking. Then I’ll get into festivals, get noticed and garner a great distribution deal!” And while it is true that passion, tenacity and blind optimism play an important role in getting your movie produced and seen and hopefully sold, this alone is not enough to drive the masses to your screenings.

This happens in Hollywood all the time. A filmmaker creates a typical business plan that focuses on film festivals as the most viable distribution strategy. And played out, the filmmaker gets the money, hires a crew, makes a movie and then enters the festivals. But months after wrap, well into the festival circuit, these filmmakers realize that the market has changed. The days of awesome DVD acquisitions deals and huge upfront advances are over. And when the last frame flickers off the silver screen, these filmmakers take their dashed-dreams back to their day job.

The veterans of the industry tell us that all this distribution deal disappointment is a result of improved technology. They optimistically tell us that our lost DVD revenues will be recouped by Video On Demand. Some refer to this as simply a market correction, implying that someday, somewhere, someone will figure out how to once again pay the big bucks for movies. But this is a pipe-dream.

Here is the flaw. Most filmmakers depend on DVD distribution for a return on investment. And with deteriorating DVD sales channels, filmmakers are currently left with iTunes, NetFlix and Amazon as the most prominent VOD sales options. My question is this. Who on earth is going to pay a major advance to get your movie into a marketplace that YOU can easily access without the middle man?

This approach to the marketplace changes everything. Your business is no longer dependent on production and capital gains. Nope. These days, the focus for the filmmaker lies in creating multiple streams of movie income over the long term. And if you want to make a living making movies, you need to realize that your libary and the subsequent auidence you source (over your career)  are your major assets. And as a result, your most important filmmaking focus (aside from doing good work) is to acquire and keep a customer.

Like it or lump it, filmmaking has become a small business. The same rules now apply.

– – –

Jason Brubaker is a Los Angles based independent filmmaker and an expert in Video On Demand distribution. If you are one of the many filmmakers seeking movie distribution, you might want to check out The Independent Producer’s Guide To Distribution.