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Feature - Film and TV Top 5 Aha Moments
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This five-week 10-hour series, led by RUI Subject Matter Experts and USC Marshall School of Business professors, took a deep dive into the financial underpinnings producers must understand in our industry.
TOP 5 Film & TV Finance Series Aha! Moments

by Deanna McDaniel

"Whenever someone says, ‘You’re in television? Well, I don’t watch television,’ I want to slug them. Do they know they’re missing some of the most informative and fabulous forms of entertainment that have ever existed?” This statement, from television luminary Rod Perth, is one of the many provocative thought points we came away with during the PGA/Really Useful Information (RUI) Film & TV Finance series, held over a five-week period at CBS Radford Studios and Raleigh Studios.

We learned some good news from our instructors — for instance, that original programming (not reruns!) is the only way that cable channels can establish themselves as a brand. Feature films are recouping investments with up to 10-year pay cycles that include theatrical box office, home video, pay-per-view, pay TV, a matching international cycle, online delivery systems, merchandising and soundtrack revenue streams.

Okay, great. I’m off to the races. Now, how does this financing thing work again? No worries. I have a new mantra. NPV. Net Present Value, my friends. If you believe your budget is $25 million because that is the amount of funding you raised through equity, loans, and gap financing, think again.

Following are five aha! moments and the hard-core learning behind the RUI series:

#1 Money Costs Money
Let’s start with what should be the most obvious — but is often the most forgotten — piece of the puzzle. Money costs money. Period. If you borrow money, investors will expect an annual rate of return for the use of their funds. The minute those funds are deposited into your account, that interest rate starts ticking and keeps ticking until the money is repaid. Let’s return to your $25M budget (if only) and look at the life cycle of your production over several years with discounted cash flows. During the first year alone, guess what? Your total budget figure remained the same, but your expenses in the form of interest (a 15% weighted average cost of capital if you’re lucky) just increased by $3.75M. The total cash you have at your disposal for your production just decreased to $21.25M. (Note to self: remind line producer to can- cel the crane on Day 8 and reduce total shoot days by five). Until the film breaks even and the funds are returned to the investor (we are likely talking years here), you will continue to pay interest on that capital. We as producers have to create a budget line item for this finance cost. It doesn’t magically go away. As Marc Robertson, CEO of RUI, says, "Don’t be afraid to look.”

Really Useful Information, Inc. CEO Marc Robertson, Brand-in Entertainment EVP Brian Williams.
#2 Brand Integration (Not Product Placement)
Here’s a new one. Your screen time has value. And to think, we’ve been giving it away for free all these years. Brian Williams, EVP of Brand-In Entertainment, taught us to think about how to integrate a brand into our project in advance, not only so we can come up with an organic way to fit it into the creative, but also because it’s going to be much harder to go back to the advertiser later on and ask them for money. Brand integration is the only type of financing that you don’t have to pay back. (Remember that $3.75M we just lost in year one? Doesn’t apply.) And it’s one of the few opportunities for advertisers to avoid DVR blowout. The networks are relying more and more on producers to deficit finance their own shows, so brand integration is a great opportunity for producers to come in to the pitch meeting with a little more moxie. If you’re an indie producer and you can successfully integrate a brand into your storyline, you can raise $150K–$500K. And brands love working with indie producers because they have a vested interest (brand money may be half the budget) in making sure the creative elements are seamlessly integrated into the picture, instead of (like certain studio pics) shoving them in at the end. Again, it’s called "brand integration,” not product placement. There’s so much we learned about this topic I can’t possibly sum it all up, but one last tip: Once you agree to portray a brand in a certain way in your project, that advertiser will hold you to those contracts — so it’s critical to get buy-in from all your creative personnel up front.

#3 Reality & Serialized TV Shows Have Little to No Downstream Revenues
As a television producer, you have to think about downstream revenues (otherwise known as syndication) for your shows. If you are pitching a reality show or a serialized show, recognize that you will have limitations on the back end. Reality shows are most often based on competition, and once we’ve learned the outcome, there is no rerun value. A serialized show requires the viewer to watch every episode to understand the character development, the narrative, and the arc of the story. These don’t work well downstream. For instance, HBO’s Sopranos was one of the most acclaimed series of the past 20 years, yet tanked when it was rerun by A&E. There’s a lot of money left on the table if syndication isn’t part of the formula. Therefore, you may want to rethink your show’s storyline and create an "A” story that is always closed-ended, and a "B” story that has a through line. This season’s Pan Am is a good example. You can watch and enjoy an episode without having seen every prior episode.

Producer Andrew Sugerman
#4 Protect Yourself With Investors
Make investors aware of what you are doing as a producer. Document everything. Investors may not know the process you’re going through and what it means to make a movie, but they may know everything there is to know about finance, investing, and risk. Never underestimate your investors. Let them know in advance all the possible areas where things could go wrong (extra shooting days, overtime, different release patterns, etc.) so they understand what they’re buying into. It’s okay for equity investors — who may be asking for 20% or more — to take a risk, because you’re paying through the nose for that money. Nonetheless, they may expect a level of financial reporting or projections that you don’t understand or don’t have time to perform. Give them what you can, which sometimes may only constitute a SWAG formula (scientific wild-ass guess). Set parameters, such as providing them with an update every five days — they may be less inclined to be intrusive if they know information is coming their way soon. You don’t want to paint a dishonest picture of success. There is a chance that investors may get a solid return or they may lose everything. You want to let them know up front about all the holes. It’s always worth taking the time to inform investors. What’s not worth it is having the plug pulled in the middle of production because you’ve gone over budget, or asking for more money never having communicated the potential pitfalls. The bottom line is to protect yourself as much as you can with people who are financially savvy by being up front. They can and will sue you. Did I mention to document everything?

#5 200+ Is Not an Exaggeration
There’s a 1000:1 chance if you’re selling a show in prime time that you’ll succeed. Every network purchases hundreds of scripts. Out of those, a small number are developed. Of those, a minute number are picked up as pilots, and out of those, 3–4 shows are acquired (per network). From there, you have to contend with cancelation rates. So, network success is tough, but worth going after. HOWEVER, there are more than 200+ cable channels out there. As we’ve said, cable channels need original programming (rather than reruns) to not only establish themselves as a brand, but to increase their standing with advertisers and cable operators. Cable companies also happen to be much more patient, not following a tyranny of ratings that may blow out a show after only three episodes like broadcast networks. You may have to put up with lower fees and less ownership. They may not be able to afford to pay for high-priced productions, but they do need the content. 200 is a big number. Start pitching.

Marc Robertson (left) with RHP Media Consulting CEO Rod Perth.
#6 (Bonus) Get Your Confidence On
I said five, but let’s make it six aha! moments. During the last session, one of the attendees started to ask a question about approaching a well-known person saying, "Well, I’m not in their league, but...” Marc Robertson stopped the speaker immediately and interjected, "Who’s out of your league? Seriously, who? No one is out of your league. Everyone is walking around the same planet breathing the same air. In this business, a name can carry tremendous clout. But if you think you are beneath them, that’s bullshit. It’s critical that you understand you are just as valuable as anyone else.” He went on to say that getting rid of feelings such as "I’m not worthy” or "I’m not that good yet” or "I’ve never had a hit” is the first step to winning. What makes you think you’re less than these people who just happened to close a deal? They may just be good negotiators, and you may be a creative genius! So, go get some training in negotiations. Get your confidence on. People in power are magnetized to those who express confidence. Why? Because confident folks might be able to shoulder the burden top executives are carrying — they might be responsible enough to get it done right on their behalf. Join the league of human beings. That’s the only league there is.

There is so much more we learned during these film & TV finance sessions, so if you missed them, you can view this series as well as other educational series online at http://www.

A very big thanks from the PGA to Marc Robertson, Rod Perth, Andrew Sugerman, Brian Williams, Devin Arbiter, and everyone at RUI.  Deanna McDaniel is a writer/producer, PGA member and author of the newly released book A Speck of Light: How to Free Yourself From Emotional Darkness.