James E. Squire (ed.) The Movie Business. 3rd Ed. New York, N.Y.: Fireside Books, 2004.
This book presents insights from movie industry insiders. It shows how film is a high risk yet potentially high financial yield industry. It requires blending creative talent, business managers, and financial handlers.
This book looks at how films are created, such as the role of writers’ agents, how ideas are sold to and developed by the film industry, how movies are funded, the process of managing movie productions, and negotiations between agents and executives as well as legal dealings. It shows the process of creating a film including the roles of directors and actors, the timing of when movies are released, marketing the finished movie product, including how market research is conducted, the business of getting theaters to show films, international marketing strategies, the role of home video releases, the role of product tie-ins to movies, and the subsequent life of film on television, the Internet, and other venues. Examined in this book are the increasing costs in making films (including escalating star salaries) since the 1980s, and notes the fears that increasing costs may soon doom industry profits. Film is a part of the global economy. American films find international distributors, and often attract international financers seeking a share of international distribution rights. The global market is critical to the film industry.
Film producer David Putnam describes his personal research methods for finding film ideas (i.e. reading newspaper stories), finding screenwriters appropriate for the genre being developed, and mentions his belief that sticking with the same screenwriter though the redrafting process works better than using multiple subsequent writers.
Putnam tells the importance of producers in reducing risk. He warns about avoiding prematurely agreeing to a release date that can thrown an entire production off balance, of avoiding focusing film’s future on one actor, as this potentially gives that actor undue influence, the importance of appropriately comparing costs of filming at alternative locations by noting that wise preproduction spending can yield later cost savings during production, recommends shooting crucial scenes early yet also noting that it often takes three days for a crew to function in sync, notes that often a producer needs to evaluate the direction of production around the end of the second week of production, tells of the importance of positive relations between the producer and the director and crew, and notes the critical importance of time and seeing that operations are properly staffed to avoid losing crucial time, including undertaking editing while shooting.
Director Sydney Pollack describes the importance of developing a film idea into a better story. He tells of the rise of agents who are more aware of the entire film market who exert more influence of decision making processes in producing films. This is something Pollack fears does little to improve films although it does often increase profits. Pollack notes that major film studios spend $150,000 to $200,000 on daily location filming. He advises directors to be alert for unexpected problems, i.e. wardrobe stolen, and to be prepared to figure out how to solve these unforeseen incidences. He urges directors to note that sound, including the soundtrack and even when using reverb, is of critical importance. He also observes the importance of cinematography in blending sound and sight in presenting the desired moods.
Versatile Mel Brooks tells of difficulties that comedies face. Studios are often leery about their potential for financial success. He believes keeping a filming journal leads to reflection and creates better results. He notes that films are often financed with 60% 70 70% of domestic financing and 30% to 40% of foreign financing. He further notes it is often less expensive in the long run to go with higher paid union labor as they are generally more experienced and act more professionally and make fewer costlier mistakes.
Independent filmmaker Henry Jaglom recommends using selling foreign distributorships to raise funds to create one’s own pictures. He then shows his films in big city theaters and then seeks to get them released to several hundred theatres. His filmmaking process is to shoot for several weeks, edit for several months, and then up with a few days of shooting. His films have a typical budget of $3 million for shooting, $500,000 for advertising and prints, and he tends to earn a profit in the $4.5 million to $6 million range.
Screenwriter William Goldman urges screenwriters to find and develop their own style. He notes that while screenwriters often are treated with less respect than are directors, the screenplay is an essential part of the movie. He notes that few directors wish for a screenwriter to be present during filming, as directors and actors usually place their interpretations on their performances and that screenwriters are often upset at the differing visions giving to their scripts.
Literary agent Lee G. Rosenberg discusses the difficulties that unknown writers face in getting agents. This is especially difficult as agents will not look at unsolicited scripts. A writer needs to get an agent. An agent, though, will accept a writer either through a trusted source or by something unique in a writer’s letter that captures the agent’s attention. Of course, getting an agent’s attention to read a script is only the first step. The agent has to then like the script before representing the writer.
An agent attempts to find a studio to purchase a script written by a writer the agent’s represents. Once sold, the agent negotiates a contract for the writer. Sometimes writer may be 5% to 15% of either net profits, gross profits after breakeven, gross profits with an alternate calculation, or some other type of calculation.
A manager handles finances and publicity and often does so in conflict when jurisdictions between the manager and agent conflict. The manager and agent work better together when they trust each other.
Agencies receive 10% of all gross monies the writer earns. It is noted that agents are regulated and managers are not regulated. Managers often receive anywhere from 15% to 50%.
Writing credits in a movie are determined by the Writers Guild as opposed to the studios so deciding.
Story editor Romy Kaufman urges each screenwriter to find an agent who believes in the writer’s work. It is noted that aggressive, medium sized agencies can be as effective as larger agencies. Kaufman observes the screenwriting process often takes three months for a first draft and two additional months for a redraft and another month to polish the script.
Literary agent Roberta Kent and literary manager Joel Gotier note that guaranteed advances for novelization rights reach $600,000. They observe most book publishers earn small profits on hard cover sales. The larger profits are in paperback rights and book club deals. Authors usually keep their books’ rights. Some screenplays develop as a tie-in with a book such that both a movie and the book are released simultaneously.
Attorney Peter J. Dekom notes the average major studio film budget is $50 million plus $30 million for domestic opening of the film. Lately (circa 2000) profits to movie companies have been reduced. In addition, the number of movies produced has lowered. Movie profits typically were 30% to 100% more a few decades ago. Today, the typical movie’s profits falls within a -20% to 20% range. Many film companies do not see a profit until the movie is released for home video. Studios seek to increase the value of their films by reducing costs (i.e. film in lower cost countries), sell off their own films, and lower production costs by producing films without using high paid stars. Studios are looking to increase their pools of more affordable talent, create screenplays internally rather than making costlier purchase of externally written scripts, seek outside co-financing, and use fewer megastars per film.
Attorney Norman H. Carey states it is legally important how gross and net profits are defined. For instance, someone earning 10% of gross participation from the first dollar may earn a lot whereas someone earning 10% of net profit participation may receive little or nothing.
Carey notes many low budget films are produced by limited partnerships of investors to limit liability to that partnership without risking investors’ personal liabilities.
Financing producers usually will obtain insurance known as a completion guarantor. The insurer may place penalties if the picture is not completed on time. The insurer may have a right to take control of the film away from the director and producers if the movie is not completed on time.
Negative pickup is another method of providing financing for a film that can’t otherwise raise full financing. In this case, a studio agrees to pay a fee if it receives a negative of the film; otherwise, it need not pay anything.
Upfront bank loan financing is often obtained in return for the later negative pickup.
Producers sometimes negotiate gross receipts participation deals with studios. Often, the studio receives a larger share until it receives it costs, then the share favors the producer until a pre-established gross receipts amount is reached. After that, there usually is an equal distribution from that point on.
Other varying arrangements have been negotiated. If a producer can handle financing, the studios may receive only a standard 30% domestic distribution fee. Other percentages provided are often 10% to 15% to the director and 5% to 10% to the screenwriter, and possibly some actors receive a percentage. Thus, a producer’s share with studio financing may be 10% to 20% of net profits.
Venture capital financier Sam L. Grogg observes that regional independent film production with local investors reached places such as North Carolina, Vancouver, Toronto, Texas, Florida, etc. There are numerous financing structures that are found in these regional productions.
Financial analyst Harold L. Vogel notes in 2000 that within the U.S., $10 billion was spent on video rentals and $8 billion in movie tickets. In analyzing film companies, companies with a record of past profitability are then more reliably able to retain their creative talent. Companies that invest the best are more apt to continue being successful. Some good signs of a film company’s financial strengths are if it has a large film library or it is owns many intellectual property rights. It should be noted that films have become riskier investments and movie and television profit margins were approximately 10% to 18% during 1973 to 1980, approximately 8% during the 1980s, and 5% during the 1990s.
Fox Filmed Entertainment President Tom Rothman states that many movie company executives need to be both creative and possess business and legal knowledge. He notes he tries to match similar levels of financial risks to creative risks to yield edgier but profitable films. He is distrustful of pitches and prefers reading scripts in order to determine which should be filmed. He seeks good drama and notes that a lot of dialogue is not required to produce a good drama. His company often develops films rather than passively waiting for script submissions.
Marketing consultant Richard Lederer notes that special effects technologies allow for grander visual presentations. Still, the basics of stories and relationships remain requirements for good films.
Changes in audience tastes have allow movies to present greater presentation of sexual issues than before.
He urges studio executives to be hungry and willing to take risks which more likely lead to better films being produced. Successful film managers have a good sense of what the global audience desires to see in movies, knows how to avoid inflated production costs, hires power talent, understands diplomacy in handling hired talent, and knows how to integrate inexperienced managers into existing operations.
Financier-distributor David V. Picker observed that United Artists was able to become profitable after being purchased by Arthur Krim and Richard Benjamin by working directly with the creative talent that made their films. The talent has large artistic freedom and a percentage of profits while United Artists retained all distribution rights and a percent of profits. This arrangement, unique at that time, instituted a new, and what became a more common, era of moviemaking. He worries that high risk can lead to high profit, yet it is difficult to sustain high financial yields due to these greater uncertainties.
Former motion pictures President (at Sovereign and then Valhalla) Barbara Boyle believes independent films are often riskier, more innovative, and more compelling to viewers.
She credits United Artists for operating as a financier-distributor of independent films and interceding on the creative process only if a producer violates contract terms. She sees this as the roots of modern independent filmmaking. The emergence of the home video market in the 1980s encourage the growth of independent films, as it provided greater opportunities for such films to achieve commercial success. Yet, this increased production and marketing costs and led to the demise of financier-distributor independent companies such as New Line, Miramax, and Orion, who each were purchased by larger studios. Independent filmmaking turned to the nonprofit venue with the 1980 creation of the Independent Feature Project. While financing methods may change, she notes the independent filmmaking spirit continues.
Attorney Norman H. Garey encourages agents and attorneys working for a client to work well in coordination with each other. The agent usually handles negotiations and produces the basics of a deal and the lawyer refines the details. Some frequent issues to be handled includes who has the “final cut” approval, what influence if any the writer has, and the final authority of the film between the producer and the director. Sometimes an actor will have some control over the use of the actor’s image. Credit and billing decisions often need to be negotiated and determined. An issue that often emerges regards the amount of compensation to an actor when that actor’s work is cut from the film. Negotiations that are seriously stalled may wish to turn to arbitration. Norman Garey notes that the film industry overall leads to less litigation than exists in most other types of businesses. Entrainment lawyers, though, need to understand more handling complex human relationships in negotiations than found in other type of industry negotiations.
Attorney Stephen M. Kravit notes how the rise of television viewership as well as anti-trust consent agreements during the 1950s changed the movie industry. Movie studios switched from its prior emphasis on long term contracts to contracts per picture. Sometimes, though, studios will lock desired actors into multi-picture deals. This also changed the role of agents who negotiate these film by film contracts. After reaching a basic agreement, the studio attorneys present a detailed contract, which can range from short statements to 120 pages in length. Purely oral contracts are valid and do occur. Oral contracts though are more difficult to ascertain the facts of an agreement should they later be challenged. Areas of entertain contracts that are often hotly negotiated are rights to sequels and television spinoff rights.
Attorney Norman Grudman and completion bond expert Lionel A. Ephraim note that the costs of completion bonds, compared to other film costs, have reduced since the early 1990s. Completion bonds insure studios against financial losses from movies shoots that take longer than anticipated and go over budget. If this happens, producers and/or directors can be penalized if the studio does not approve of the additional time and costs. Other means of handling cost overruns is to write into contracts with investors that they may be required to provide an extra amount, perhaps up to 20% of prior investments. A completion bond is issued by an insurer. Completion bond insurance is a very competitive industry which has kept their costs low. Sometimes a studio or investors issue their own completion guarantees. Cost insurance is also available to insure the availability of major cast members, director, and producer.
Talent agent Jessica Tuchinsky states that motion picture talent agencies start all personnel from sorting mail for one to five years. Those who succeed at this level become an agent’s desk assistant for at least one year. It often takes about ten years before a person is able to be promoted to agent.
Agents must learn to negotiate film employment deals for their clients. Agents often attempt to match clients with directors and creative people and create full package deals with studios and/or financers. To be successful, agents need to know the filed of who is available so they may put together salable package deals.
Agents need to guide clients to reasonable career choices. Accepting the correct type of role can be critical for a director. There is no established correct path that guarantees success. It may require turning down the most lucrative offer in order to develop the best long term career.
Film production manager Michael Grillo explains how production managers work with creative staff to make financial determinations, including the costs of shooting at each site location as well as the costs of casting and staffing decisions, etc. Prepatory work is done in conjunction with the creative producer, who usually develops the screenplay and the talent package, and with the line producer, who oversees production.
Production managers need to be aware of details, such as length of daytime for outdoor shots, travel arrangements between filming locations, seasonal weather likelihoods, policing crowds, local laws, etc. as well as larger concerns such as the available of a director to remain within budget.
It is noted there is a difference between above and below line costs. Above the line costs include screenplay and rights purchases, producer compensation, director compensation, cast and casting costs, support teams costs, and all labor costs including living and travel costs. Below the line costs are film production costs, salaries of the production manager, assistant directors, extras, production design, art department personnel, set construction crew, set staff, property staff, wardrobe staff, makeup artists, hairdressers, camera crew, lighting crew, sound crew, transportation staff, location staff, etc, as well as postproduction costs, including editors, music, film lab costs, post sounds, and credits, as well as insurance and other general costs.
Production managers need to consider the costs of stunts, effects, prep work such as training skills actors need in a film, seeing cast and crew are fed over a normal 12 hour filming day, and deciding the logistics of arranging all these necessities. He recommends placing importance on hiring a good caterer to boost cost and crew morale.
Director Christina Fong notes the division of directing duties often given to assistant directors. The first assistant director works directly with the director and usually oversees with actors that shooting occurs according to schedule. The second assistant director handles communications regarding upcoming work and background players. The second assistant director is usually responsible for the call sheet, which is a list of people required for the following day’s shot and time they are required to report on the set. Assistant directors usually write the production report, which summarizes what was filmed along with an inventory noting cast and crew used that day, and presents this to the unit production manager.
Independent production company president Lindy Dekoen notes there are over 100 made for TV movies annually produced. It is noted that sometimes a network will counterprogram, which is when a network will run a newsmagazine story on a topic on another network plants to run a movie. This is designed to lower interest in a subject the public has thus already seen. Networks seek original movies that can have high ratings whereas cable networks may seek movies that will induce people to subscribe to their networks. Most production companies have final approvals on what is shown in these movies. Thus, most of these films are filmed to have appeal to both their networks as well as for foreign markets.
Film marketer Robert G. Friedman notes a film can open to 3,000 theatres. Proper publicizing this release is important to its financial success. Films are publicized during shooting. Unit publicists handle media requests for information. Still photographers take photographs during or after filming to be provided to the media. Electronic video press information and behind the scenes programs are often developed for press use.
Ads for movies are subject to market research, including concept testing of audiences that present the audiences with movie ideas and ads for the movies. Audience with preset demographic representation often preview a film or ad and are then surveyed for their feedback opinions of what they viewed. Advertising can be directed that presents the parts of movies that appeals to specific demographic groups.
Exit interviews are conducted on audiences after a movie opens.. Movies that open poorly with poor reviews are often abandoned.
Market researcher Kevin Yoder notes that major studios release about 15 to 20 movies annuals with about 200 major releases in total every year. With so much competition, a movie must open strongly in its first week in order to successfully continue into being shown in subsequent weeks. Movies need to be examined for their marketability and playability. Marketability involves determining how much of an audience a movie should attract. Playability attempts to determine the degree to which audiences like the movie. Focus groups are used for qualitative research into learning what people think of materials shown to their groups. Sampling research produces some quantification analysis on how effective materials are. The results from these studies guide marketing decisions. This can be tricky as it involves forecasting trends in an uncertain future.
Film festival juror Steve Montal explains that independent films can be shown at film festivals and markets in hopes they will be viewed by distribution executives who will then be willing to distribute them. Festivals involve showing movies to paid audiences as well as distribution executives and film journalists. Markets are where films are shown only to film industry insiders. It can cost around $15,000 to show a film in a festival, including costs for the film print, travel, publicist, promotion, application fees, etc. It should be noted that competition to get a film into a festival as well as the competition amongst the films at the festivals to be accepted by a distributor are both tough.
Financial officer Steven E. Blume writes how movies get revenues from theatrical showings, home video rentals and sales, pay per view and pay TV showings, TV network showings, later pay TV showings, cable TV showings, and syndicated TV showings. He notes that movies theaters usually earn 25% to 30% of their gross revenues from concession sales. These earnings stay totally with the theater and do not go to the film companies.
Many movie studios owned theatre chains which controlled what movies the theaters carried. A Supreme Court decision found this to be an improper restraint on interstate commerce. This forced the movie studios to sell the theatres.
Major studios control over 95% of the U.S. theatrical market share as well as approximately 65% of the foreign theatrical share. Some studios have partial investments in theaters. The theaters pay to the movie studios rental fees for the movies as well as a percentage of ticket sales. This percentage increases for each week of showing. Often the theater pays the movie company the larger amount of either a.) the rental fee plus a percentage or gross ticket sales above a prior set amount or b.) an amount with a lower percent of gross ticket sales with no preset amount subtracted.
When the movie is released to video, American rental receipts are usually earn approximately half the gross ticket sales and foreign rentals are often about 40% of gross foreign ticket sales. Nontheatrical revenues, such as showings on airplanes, ships, armed forces, prisons, libraries, etc. are usually approximately 5% of domestic film rentals.
In the video rental market, a distributor typically sold a VHS to a rental store for $65. Average rentals were for $3. An alternate system existed where a distributor changed around $6 to $10 for a VHS and would then receive about 45% of video rental money received.
A VHS was sold to the public for about $15 to $30 with about $20 being the typical price. Royalties paid by distributors on DVD sales typically are 20%, which is often lowered to 10% when the DVD is sold directly to the DVD market without a theatrical release. Some film talents have demanded more income that drives the royalty percentage to 25% or 30%.
Pay per view and video on demand revenues generally are set around $4 per pay TV viewing. These revenues are typically divided with 45% to the distributing studio, 45% to the cable operator, and10% to the third party biller and collector.
Paid cable television pays a share to studios of the movies it shows according to a licensing agreement with payments dependent upon the number of subscribers the cable station has.
TV networks typically pay $7 million to $10 million to broadcast a movie. Usually this agreement prohibits the movie being shown on any other TV medium. This is changing as some networks are creating deals for subsequent showing on their affiliated cable networks. TV networks seldom show a movie that has been shown in theaters. Major network movies are original movies.
Domestic distributor Daniel R. Fellman notes that distributors are usually responsible for printing film, sending film to theaters, handling licensing films to entities other than theaters such as airlines and military showings, handling legal matters regarding film distribution and exhibitions, maintaining accounting and financing operations, monitoring film negotiations and distribution, handling administrative tasks such as checking box office receipts, and providing promotional assistance to exhibitors.
Independent distributor Bob Berney notes there are numerous differing examples of what an independent distributor is. Some independent distributors have strong relationships with major distributors and others have no such relationship. Independent distributors must rely on their skill and perhaps correct timing in finding good movies to present to the public.
Exhibition executive Shari E. Redstone notes how the increasing costs of buying land for drive-in theatres drove the exhibition business towards multiple screen theatres. She recommends that theatres own the land they are on. This land can also create rental opportunities for other businesses that do well being near a cinema, such as stores selling books, music, etc. This also allows for expanding the market by opening a nearby theatre, as the rentals to other stores offsets the decreased volume at the original theatre.
Independent exhibitor Robert Laemmle states that most movies negotiate the exhibition of independent movies and foreign films. Some cities like Los Angeles are divided into zones and competition exists within each zone. Many theatres create images of themselves as ones that show specialty films. Newspaper advertising often costs theatres move than what newspapers charge retail advertisers.
Laemmle warns that attendance of indigenous films in foreign countries has not been rising as quickly as the increase in foreigners viewing American films. This is jeopardizing foreign film production.
Home video business executive Benjamin S. Feingold states home video viewing produces larger revenues to a movie than does theatrical viewing. Home video viewing is more common among people age 25 to 40. People under age 25 are more apt to see a film in a theatre.
Video reporter Paul Sweeting notes that the largest American seller of VHS and DVDs in the world is amazon.com. There are three major video rental chains, which (in circa 1993 data) are Blockbuster with over 2,500 stores, Hollywood Videos with 1,800 stores, and Movie Gallery with around 1,400 stores.
Studio executive Louis A. Feola notes some large studios create films meant for direct to video distribution. Some of these are cartoon movies and sequels.
Studio consumer products executive Al Ovadia notes studios often charge a producer of a product tied to a movie a licensing fee generally ranging from 3% to 14% of whole revenues. The first movie tied product ever may have been comics and books based on Charlie Chaplin’s film character Little Tramp. This can be a big business, as Star Wars products grossed over $1 billion.
Media consultant Bob Aft notes that Americans have been increasing their investments into foreign produced films. Japanese films are receiving the largest share of American nondomestic film investments.
Studio executive Steven Gerse notes that tax incentives can save a film in the range of 2% to 20% of production costs. Several countries and states offer tax incentives to attract film producers.
Film trade editor Dan Ochiva predicts that high resolution film will be the future of film. Viewing film on personal computers will also become much more common, he predicts.