Want to join me on my next adventure?

Spoiler alert … my dad bod in a tight fitting bike kit will be coming to a big screen near you!!

But before I dive into that, I want to share a quick update on my book project. I’ve been overwhelmed with incredible support for “Built to Finish – How to go the distance in business and in life”.  I am beyond grateful for the purchases, social media posts, press mentions, pod cast interviews and online reviews.  This project has exceeded all my expectations. Thank you!

The most common question I get asked is “What’s Next?”.  Well, there are several answers actually. On the endurance front I have some very unique and challenging events coming up over the next 12 months that I can’t wait to share details about. On the book front, I’m excited to announce that I’ve finalized details for a celebrity to record the Audio Book for Built to Finish. I’m heading to California next week to participate in the recording process. It will be a very unique format. Stay tuned for more details on that. Instagram is your best bet for updates @Steven.Pivnik.  On the business front, and the reason of this post, I’ve signed on as an Executive Producer for a feature film titled “Olde Boys” that is going into production very soon. Think Ted Lasso meets The Full Monty.

The film was written by someone I know very well, Nick Wilkinson. Nick was the CEO of my last company for its final years before we exited. Not only is he super creative, but he’s also an incredible business man which is why I’ve joined this movie project. He partnered with award winning producer Lisa G.Black with whom I had the pleasure to meet a few years ago at the premiere of one her successful films. I witnessed their partnership and passion to bring creative vision to audiences globally with a strategic approach to maximizing investor confidence while minimizing risk.

Over the last year, I’ve learned more than I ever wanted to know about the business behind feature films. The amount of moving parts are quite fascinating and I’m thrilled to be playing an investor and operating roll in it. This blog post is an overview of all these parts and is aimed to share everything I’ve learned and hope to soon be experiencing.

Totally by coincidence, there are several scenes in the movie that contain MAMILs.  Middle Age Men In Lycra :-).  AKA – bicyclists. Yep, I’ll be in some of those scenes. We’re keeping it PG-13!  But in all seriousness, there is still some opportunity for additional investors in this exciting project. After you’ve read all the details below and if you meet the criteria specified at the bottom of this post, please contact me and I’ll provide you an Investor Package and Pitch-book. Nick Wilkinson has also offered to meet with anyone who is seriously considering participation. We can arrange a virtual meeting or an in-person one in New York, New Jersey or Pennsylvania.

Hope you enjoy! -Steven

Private Investment in Film Production

The allure of the film industry, with its creative endeavors and potential for substantial returns, has attracted private investors for decades. This white paper aims to demystify the process of private investment in film production, outlining the stages of film creation, the financial involvement, and the return timeline for investors. Understanding the structured, albeit complex, ecosystem of film financing and revenue distribution is crucial for any party considering an investment in this dynamic sector.

The Film Production Timeline

Film production is divided into several distinct phases, each with its own set of activities, costs, and milestones. Here is an overview of these stages:

1. Development

The genesis of a film lies in its development. This stage involves the creation, selection, and refinement of the script, as well as preliminary budgeting and financing plans. Key activities include securing rights to the story (if applicable), scriptwriting and revisions, and attaching key personnel such as directors and possibly star talent. Development can take anywhere from months to years, depending on the complexity of the project and the securing of initial financing.

2. Pre-Production

Once a film is greenlit for production, it moves into the pre-production phase. This stage focuses on planning and preparing for the actual shoot. Tasks include casting, location scouting, set design and construction, costume design, and scheduling. The budget is finalized, and financing needs to be in place before proceeding to the next stage. Typically for an independent movie this period is 1-2 months.

3. Production

The production phase is the actual shooting of the film. It’s the most visible and arguably the most critical phase of the film production process. This stage is labor-intensive and involves the coordination of numerous departments, including camera crews, lighting, sound, and actors. The production phase is highly time-sensitive and can vary in length based on the complexity of the film. For many successful independent films, the actual filming took place over a period of six weeks, which is standard for many low-to-mid-budget films.

4. Post-Production

After principal photography ends, the film enters post-production. This phase involves editing, the addition of sound effects and music score, visual effects, and color correction. Post-production is crucial for shaping the final product and can significantly impact the film’s quality and audience reception. For independent film, post-production is likely a matter of a few months, focusing on editing, sound, and music to get the right emotional tone for the film.

5. Distribution

The final stage is distributing the film to audiences. This includes securing distribution channels, marketing, and the release strategy, which could involve a combination of theatrical release, digital platforms, and physical media. Distribution agreements and strategies are key to maximizing revenue and, consequently, the return on investment.

Distribution Strategies

Once a film is completed, it must find its audience to generate revenue. The strategy chosen for distribution is critical, as it determines how a film is received and how widely it is seen. A well-crafted distribution strategy can significantly enhance the financial success of a film. In this section, we explore the various distribution strategies employed in the film industry and their potential revenue impacts.

Traditional Theatrical Release

Description: The most conventional strategy involves releasing the film in movie theaters domestically and internationally. The theatrical release window has historically been the first stage of a film’s public life.

Revenue Generation:

• Gross Box Office Receipts: This is the total amount of money collected from ticket sales at theaters.
• Exhibition Split: The gross box office receipts are shared between theaters and distributors, often with a sliding scale that favors the distributor more heavily in the early weeks.
• Variable Deals: Some high-demand films can negotiate more favorable terms. Blockbusters or films with high anticipation might secure a larger portion of the ticket sales for the distributor, based on their expected draw.
• Block Booking: Distributors may bundle popular films with less anticipated ones, ensuring a wider release.

Day-and-Date Release

Description: This approach releases a film in theaters and on at least one non-theatrical platform (like VOD or streaming) simultaneously.

Revenue Generation:

• Simultaneous Revenues: It targets different audience segments at once, maximizing immediate revenue across multiple channels.
• Flexibility for Consumers: By providing multiple viewing options, it taps into diverse consumer preferences, potentially increasing overall consumption.

Platform Release

Description: Starting with a limited release in select theaters (often in major cities), and if successful, expanding to more locations progressively.

Revenue Generation:

• Building Buzz: A successful limited release can generate word-of-mouth promotion and critical buzz, leading to greater interest and wider audience reach.
• Controlled Costs: It allows for controlled marketing spend focused on high-performing regions before wider distribution.

Pure Digital Release

Description: Skipping theaters entirely, a film is distributed through digital platforms such as VOD, EST (Electronic Sell-Through), or streaming services.

Revenue Generation:

• Direct to Consumer: By cutting out the theatrical middleman, a greater percentage of revenue can return to the distributor and ultimately the investors.
• Subscription Models: Streaming platforms may pay for exclusive rights, generating revenue upfront regardless of viewership numbers.

Windowing

Description: Staggered release across different platforms over time. After an exclusive theatrical window, the film transitions to VOD, then to pay cable, and finally to free-to-air TV.

Revenue Generation:

• Multiple Revenue Peaks: Each platform can create a new revenue peak as different audiences access the film.
• Long-Term Earnings: This strategy can extend the revenue-generating lifespan of a film.

Hybrid Distribution

Description: A combination of any of the above strategies to tailor the distribution to the film’s strengths and market conditions.

Revenue Generation:

• Flexibility: A hybrid model allows for adaptation to real-time market feedback, maximizing potential revenue from all avenues.
• Customized Marketing: Marketing strategies can be adjusted based on performance in different distribution channels.

Distribution Considerations

Choosing the right distribution strategy is critical for the financial success of a film. Each method has its advantages and can significantly impact the revenue an investor might expect. The choice will depend on various factors, including the nature of the film, target audience, market conditions, and the overall objectives of the investors and producers.

The film industry continues to evolve, and distribution strategies must adapt to changing consumer behaviors and technological advancements. A flexible, well-informed approach to distribution is key to maximizing revenue and, by extension, returns for investors.

Distribution is the bridge between film production and audience engagement. A well-executed distribution strategy not only ensures that a film reaches its audience but also maximizes the revenue it generates, ultimately affecting the returns for investors. With the landscape of film distribution continually changing, staying abreast of the latest trends and consumer preferences is essential for the success of any film investment venture.

The Budget

A film budget is a comprehensive document that provides an estimate of the total cost to produce and bring a film to the audience. A well-structured budget is critical for investors to understand the financial needs of a film project. Film budgets are traditionally divided into various sections that encapsulate all possible expenses. This section outlines the key components of a film budget and defines industry-specific terms.

Above the Line Costs

Definition: “Above the line” costs refer to the expenses related to the creative talent. These are typically negotiated and set before the film’s production begins. They are typically non-negotiable once production begins.

Components:

• Screenplay: Costs associated with acquiring the script, including purchase rights and writer’s fees.
• Producers: Payments to the producers who oversee the film’s production.
• Directors: Fees for the director, who is responsible for the film’s artistic vision.
• Principal Cast: Salaries for the leading actors and actresses.

Below the Line Costs

Definition: “Below the line” costs cover the technical and operational aspects of a film production. These costs are usually more variable than above the line expenses and can be influenced by changes during production.

Components:

• Crew Salaries: Payments to the crew members who handle the film’s day-to-day physical production.
• Equipment Rentals: Costs for renting cameras, lighting, grips, and other production equipment.
• Set Design and Construction: Expenses for building and decorating the sets.
• Costumes and Wardrobe: Costs for designing and acquiring clothing and costumes for the cast.
• Location Fees: Payments for the right to shoot at the various locations needed for the film.
• Transportation and Travel: Costs for moving and accommodating cast and crew.

Post-Production Costs

Components:

• Editing: Costs for editing the film, including editor’s fees and equipment.
• Visual Effects (VFX): Expenses for creating visual effects and CGI.
• Soundtrack and Scoring: Payments for composing the film’s music and sound design.
• Marketing and Distribution: Budget allocated for promoting and releasing the film.

Contingency

Definition: A contingency is a reserve fund, usually a percentage of the total budget, set aside to cover unforeseen expenses during production.

Importance:

• Risk Management: Acts as a buffer for unexpected costs.
• Investor Assurance: Provides a safety net that can reassure investors.

Completion Bond

Definition: A completion bond is a form of insurance that guarantees the film will be finished and delivered on schedule and within budget.

Function:

• Guarantee: If a production goes over budget or is unable to complete filming, the bond company is responsible for additional costs or refunds to the investors.
• Investor Protection: Serves as a security measure for investors against the film not being completed due to financial or production issues.

Budget Considerations

Understanding the components of a film budget is essential for investors to assess the financial viability and risks associated with film production. Above the line, below the line, contingency, and completion bond are all crucial terms that define the structure and safeguards within a film budget.

Investment and Payout Structure

Private investment in film production typically enters during the development or pre-production stages. Producers (and Executive Producers) secure investors to provide capital for a production company, typically a special purpose vehicle (SPV) established specifically to produce the movie. This funding, along with other sources, such as loans against tax credits and minimum guarantees, and product placement fees, is used to finance the production of the film, in accordance with budget.

In exchange, once the film has been distributed, investors receive a portion of the film’s revenues, following a predefined “waterfall” structure that dictates the distribution of revenues.

Waterfall Tiers

Tier One: Fees, Commissions, and Expenses

Distributor Expenses and Fees: Distributors are pivotal in ensuring a film reaches its audience. They incur substantial expenses in promoting, marketing, and releasing the film. These include:

1. Marketing and Advertising Costs: These are substantial and include promotional materials, advertising spots, premiere events, and more. They are often recouped from the distributor’s share before any profits are distributed.
2. Prints and Advertising (P&A): The cost of producing physical copies of the film for distribution to theaters (less common now with digital projection) and the advertising campaign to promote the film. These costs can be significant and are recouped from the film’s earnings.

These costs, plus a fee for their services, are recouped from gross receipts. It’s crucial for investors to understand the extent of these expenses as they directly impact the net revenues.

Advances and Minimum Guarantees: Advances are upfront payments that distributors make to production companies, often in exchange for distribution rights. If a film performs well, the advance is eclipsed by revenue share. If not, it serves as a minimum income for the production.

Sales Agent Commissions: Sales agents, who facilitate the sale of distribution rights, receive commissions for their role. These are typically a percentage of the deal value and are considered a cost of doing business.

Tier Two: Debt and Production Loans

Tax Credit Loan: Many film productions benefit from tax credits offered by governments to incentivize local filming. These credits can be loaned against, providing immediate capital but necessitating repayment from gross receipts.

Minimum Guarantee Loans: Loans may also be secured on the basis of minimum guarantees from distributors. These loans provide liquidity during production but must be repaid before equity investors see returns.

Tier Three: Equity Investors

Investment Recoupment: Investors’ initial capital is the first equity outlay to be returned. This capital return is paramount, as it sets the stage for profit distribution.

Premium Payment: Following recoupment, investors are often entitled to a premium—over and above the return of their initial investment. This is akin to interest, acknowledging the risk undertaken.

Tier Four: Deferments

Deferred Compensation: Key creative talents may agree to defer part of their compensation to aid the film’s cash flow. This deferment is repaid from gross receipts after investors’ recoupment and premiums are paid, demonstrating a shared investment in the film’s success.

Tier Five: Net Profits

Distribution of Net Profits: After all prior obligations are met, any remaining profits are considered ‘net profits.’ These are split equitably between the investors’ pool and the producers’ pool, with a typical division being 50/50.

Proportionate Share of Investors’ Pool: Each financier’s share of the net profits is proportional to their contribution to the equity investment. This ensures a fair return corresponding to the level of risk and investment each party has made.

Collection Account Management Agreements

In the context of film production and the subsequent distribution of revenues, a Collection Account Management Agreement (CAMA) plays a pivotal role. This agreement is a key financial instrument used to manage the distribution of funds according to the waterfall payment structure.

Collection Account Manager: The CAMA designates a neutral third party, the collection account manager, who is responsible for collecting and allocating revenue generated by the film. This manager acts on behalf of all parties with a financial interest in the film, ensuring that the revenue distribution is impartial and in accordance with the agreed-upon waterfall structure.

Allocation of Revenue:

• Ensuring Compliance: The collection account manager oversees the allocation of revenue, ensuring each stakeholder receives their rightful share as stipulated by the waterfall arrangement.
• Transparency and Trust: By having a neutral party manage these funds, there is an added level of transparency and trust in the distribution process.

 

Timely Distribution: The CAMA ensures that as funds are collected, they are distributed in a timely manner following the sequential order outlined in the waterfall model.

Protection of Interests: The agreement protects the interests of all parties, especially those lower in the waterfall, by mandating the distribution of funds as per the contract, thus preventing any misallocation or withholding of funds by parties higher up in the waterfall.

Financial Clarity: The CAMA provides a clear financial picture for investors and other stakeholders, detailing when and how they will receive their returns. This clarity is crucial for investor confidence and for maintaining the integrity of the financial structure within the film industry.

The inclusion of a CAMA is a standard and critical component of the waterfall payment structure in film production finance. It provides a systematic approach for revenue distribution and reassures all parties involved that their investments are protected and that they will receive their due earnings in the proper sequence and proportion. A CAMA provides increased reliability and reduced risk for investors.

Investor Considerations

The waterfall model of revenue distribution offers a structured and transparent approach to film financing, which can significantly influence an investor’s decision. Investors may receive Tax Benefits or other incentives, so they are encouraged to engage with experienced legal and financial advisors to navigate the complexities of film investment agreements. Understanding the details of the waterfall structure is paramount to setting realistic expectations regarding the potential return on investment and the associated timelines.

For investors, the critical takeaway is to recognize that their return is contingent upon the film’s overall financial success, which is influenced by many variables, including the film’s quality, market conditions, and the effectiveness of the marketing and distribution strategy.

In the landscape of film financing, regulatory bodies play a crucial role in determining who can invest in film projects. In the United States, the Securities and Exchange Commission (SEC) has set forth specific guidelines that define an “Accredited Investor.” This classification is pivotal in the context of of private securities offerings, which include investments in film production. An Accredited Investor, as per the SEC, is an individual or a business entity that is eligible to deal in securities that may not be registered with financial authorities. These investors are presumed to have the financial acumen, resources, and resilience to bear the significant risk of these investments. Non-compliance with SEC regulations, has major legal and financial consequences.

Other countries have their own definitions and requirements for equivalent investor statuses, such as the “Sophisticated Investor” in the UK or the “Qualified Investor” in the EU, which serve a similar purpose in their respective jurisdictions.

Prospective film investors in the United States and in other countries are required to meet the standards of Accredited Investors or their local equivalents. This ensures that they are capable of understanding and affording the risks associated with private equity investments in film. The requirement for investor accreditation is an essential regulatory aspect that upholds the integrity of the film investment process and protects both the individual investor and the financial system.

Conclusion

Throughout this white paper, we have endeavored to demystify the process of film investment, delineating its inherent structure and the transparency that governs each phase—from initial funding to final revenue distribution. By elucidating the various stages of production, the detailed components of a film budget, and the intricacies of the waterfall payment structure, we have illuminated the roadmap that guides a film project from conception to realization.

We have highlighted the significance of regulatory measures, such as the Accredited Investor status, which further underscore the industry’s commitment to a responsible and secure investment environment. The implementation of Collection Account Management Agreements (CAMA) and the requirement for completion bonds stand as testaments to the protective frameworks established to safeguard investments.

In essence, film investment is not the opaque venture it is often perceived to be. Instead, it is a calculated, well-regulated financial endeavor with multiple checkpoints and balances designed to protect stakeholders. As the industry continues to evolve with new distribution strategies and financial models, the foundational principles of clarity, security, and structured progression remain central, offering reassurance and confidence to the investors who fuel the cinematic arts.