How Film Investors Turn A Profit

Aug 12, 2022

Read Time: 3 minutes | YT Video

In today's issue, I'm going to show you how films turn a profit by taking you through each step of a recoupment waterfall.

It's important to understand how revenue flows back to the backers of a film so that you can explain this while pitching. This will give them confidence that you understand what you're doing and have a clear pathway to profitability. It also allows you to level up in your skills and knowledge as a filmmaker.

Now, let's dive in.

Collection Agent

Ever wondered who helps to keep everyone honest?

A collection agent manages the collection account for the film. And as the name implies, the collection account is where all revenue from is sent.

The agent is engaged by the producer subject to a Collective Account Management Agreement (CAMA) and provided with the task of ensuring all payments outlined in agreements are paid on time. And for their work, they take an upfront fee and small percentage of all revenue they manage.

Sales Agent / Distributor

Next in line, the Sales Agent and/or Distributor!

The sales agent acts on your behalf and sells your film to distributors in different territories. The distributor releases the film in a local market. Both these companies recoup their marketing costs, advances, distribution expenses AND commission, before sending any checks your way.

Senior Debt - Loan

Borrowed money to cash-flow a tax incentive? This is where you cover any shortfall.

Sometimes, you get unlucky. You don't spend as much as you expected or the expenses you incurred don't all qualify as eligible expenses for the incentive. This leads to a shortfall with your loan, which you can cover by including the senior debt lender in your waterfall.

Deferrals

Read: Blood, sweat and tears...

This is where your hard-working cast and crew are paid what they really should have been paid upfront. You can push deferrals down past Investors, but my take on it is that the deferrals are part of the production of the film. They're an expense. They should be paid back before equity.

Investors @ 120%

OK...we got there.

This is where your backers, those people that took a risk with their hard-earned cash, recoup their investment at a premium. Some filmmakers offer a 10% premium but investors can make that type of return in an index fund. Don't be greedy, give them a little more.

Reinvestors

Not sure what this is? Don't worry, it took me a while to work it out.

If you, the Director, a post-production company or anyone deriving a fee from the film has agreed to invest part of that fee back in the film, this is where you recoup. If you're thinking of reinvesting, speak to an accountant!

Net Profit

Finally in the black!

Yes, that's right, all the way down here is where dreams are made. But it's not all yours. 50% goes to investors and 50% to the producers/production company, referred to as Producer's Net Profit. You can then dish that out to actors, crew or keep it all for yourself.

Well, that’s it for today.

I hope you enjoyed it.

For more on this topic, head to my Youtube Video.

See you again next week.

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