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How to make money from your film

You've finished your masterpiece and gotten yourself deeply in debt. When does the fame and fortune start? You are about to learn just about everything you need to know to understand how people make money from their films.

First a brief history of film distribution models to put everything in perspective.

For most of the history of filmmaking up until the widespread popularity of television there was a simple distribution model for movies. Movies were made by studios, shown in studio owned theaters and were always "G" rated. A movie was first shown in the plush big city theaters. When that run ended they were progressively moved to smaller and smaller theaters in smaller towns until they had been shown everywhere. Finally the movie was stored on a shelf in a vault and allowed to rot away because no one could imagine it had any more value.

Independent filmmakers were almost non-existent because there were few places to show their films. In 1948 the government broke up the studio ownership of the theaters and things began to change. Theaters could run any movie they wanted, whenever they wanted.

As television became popular in the 60s the studios at first panicked but eventually learned that television was a great way to make extra money off all those old movies rotting in the vaults.

Spielberg's movie Jaws was the first film to be rolled out into thousands of theaters at once for its owning weekend. The experiment was so successful that a general roll out has become the model for most studio films.

VCRs, cable television and DVDs each caused brief panic in Hollywood but eventually were included into the distribution chain creating the film distribution model that has been generally followed for the last couple of decades.

It consists of a series of exhibition "windows of opportunity".

In the last couple of years the model has begun to change again due to two things--foreign theatrical revenues have become double the size of the domestic theatrical revenue, and sales of DVDs have become larger than all the other forms of distribution. Distributors hungry to make a quick dollar are rushing movies to DVD after less than two months in theaters.

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For most filmmakers finding a distributor will be necessary to making any money on your film.

There are two reasons most filmmakers need to go through a distributor. The first reason is because most filmmakers don't have the advertising dollars to make a general audience want to see their films. The second reason is that only distributors have the power and connections to actually collect money from theater owners.

Filmmakers should therefore make every attempt to create buzz for their film and have a successful festival premiere that can lead to a distribution deal.

Bypass the film festivals, go directly to the distributors

What if your film has good festival screenings but you weren't approached by buyers, or couldn't come to decent terms during the festival. Or perhaps your film is so unusual or specialized that you don't feel the festival route will work for you. It's true that successful festival showings are the best sales recommendations a film can have but aren't necessarily required for a sale.

You will have to put on your salesman's hat and try to find another route to making your film profitable. Here are some of the routes that have worked for independent filmmakers.

How to sell directly to film distributors

This involves going to Hollywood, calling distributors, pounding the pavement and knocking on doors trying to get a distributor to take a chance on your film. You will need your press kit with all the positive reviews you have collected and need to use all your ingenuity and personal salesmanship to create interest in your film.

A must have tool is a recent copy of the Hollywood creative directory.

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You will of course be asked to screen the film. Make every attempt to show it to all the interested parties at once at an industry screening in a fancy screening room in Hollywood, away from phones and other distractions. Bring in a live audience of friends and supporters to fill the theater and show enthusiasm.

Carefully prepare the invitation list to only include distributors that are appropriate for the film, then pray that anyone shows up.

Even if a powerful executive says s/he will only watch it if you send a tape or DVD try your best not to give in. It will probably never get watched by the executive. They have too many interruptions and will pass it on to a junior executive who might watch the first five minutes before rejecting it.

This kind of pounding the pavement is how Robert Rodriguez finally sold El Mariachi as described in his inspiring book, Rebel Without a Crew.

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Motion picture self distribution

Direct to customer movie sales and movie exhibition

If you can't find a distrubutor to take on your film you may be able to sell it directly to outlets.

The first route is probably to approach the large DVD rental companies such as Blockbuster. They often will buy films that never got distribution if they think a film has special appeal due to a genre or niche audience. Many horror, low-brow comedy and ethnic films can find distribution this way.

Netflix is another company to try. They have been experimenting with offering films that were festival favorites or appeal to smaller niches, and didn't get significant theatrical distribution.

Next comes pay tv, the premium cable networks, the basic cable networks and the broadcast networks.

If these don't work you can try selling through a web site or through magazine ads, or anything else you can think of. If your film has a specialized enough appeal there may be a ready made audience you can reach through the web. Instructional videos can often be sold somewhat successfully through the internet depending on the subject matter.

The odds of making a profit, even if you make some sales, get pretty small but occasionally pay off.

Selling DVDs, internet movie downloads and other alternatives

Several commercial firms are now offering interesting alternatives to traditional theater distribution but most of them don't handle indie films. At least not yet. Keep an eye on these as they may begin to offer some real opportunities for independent filmmakers in the next few years. The biggest hurdle however is the issue of "digital rights management" (DRM). The owners of the films want to be sure they are paid when their films are viewed. DRM software controls the download and viewing of the films. As long as the code isn't broken the film owners will be able to control how and by whom their films are viewed. Among the problems with DRM software at this time are that protected films can only be downloaded to, and played on, computers, that all of the DRM systems are incompatible, and it is difficult or impossible to move the film to another computer. Most viewers find the DRM solutions somewhat bothersome but attitudes will change as more options become available and people get used to downloading films. Sell your DVD using the technology of Amazon CustomFlix is a wholly owned subsidiary of Amazon. Their mission is to connect filmmakers to an audience by selling DVDs of your film. The site is full of information on how to master a professional quality DVD and how to promote it to your audience. They make DVDs on-demand as customers order them through your custom storefront which they help you set up. Internet film downloads A few sites are beginning to offer controlled downloads of films for home viewing for a fee. This model may take off as the available selection increases. At the moment almost all the offered films are standard Hollywood fare but some companies will eventually open up to independent filmmakers. Movielink allows rental or purchase of movies. In either case you pay with a credit card and download the movie to your computer. You can store the movie for up to 30 days but once you start watching you have 24 hours to finish. "Digital rights management" software is downloaded to your computer to make sure you abide by the rules. If your computer or laptop has appropriate connections and cables you may be able to view the movie on your television as it plays on your computer. Movielink has announced a licensing agreement with Sonic Solutions, a provider of DVD recording software, to eventually allow customers to record DVDs that can be played on standard set-top DVD players. Movielink offers films from Warner Brothers, Universal Pictures, Sony Pictures, Paramount Pictures, Twentieth Century Fox and MGM. The site is jointly owned by five major studios. CinemaNow offers a very similar service and claims to be bigger but both of these services suffer from limited catalogs. Not all studios and TV networks have signed to have their products offered. Most Hollywood studios continue to fear that the DRM software won't be able to protect their movies from pirates but even that fear is quickly giving way to the desire for profits from the download sales. CinemaNow includes Sony and Lions Gate in it's list of studios offering films for sale. CinemaNow is jointly owned by Microsoft, Lionsgate, Cisco Systems and Blockbuster. In July 2006 CinemaNow announced an agreement that will allow users of CinemaNow to record downloaded movies to blank DVDs that can then be played in set-top DVD players without an attached computer. The initial catalog of movies offered will include about 100 titles. The studios involved in this agreement are Buena Vista (Disney), Lionsgate, MGM, Sony Pictures and Universal Studios. Apple's iTunes has recently started to get in the act. After becoming the biggest online downloader of music they have begun to offer a few TV shows. Apple will almost surely be a player in the future of movie downloads due to Steven Jobs link to Disney. Among other companies with announced plans to offer internet download of Hollywood Movies are: Guba.com BitTorrent Walmart and Amazon are probably working on their own plans to offer downloads of movies. Independent filmmakers would be wise to check out all of these alternatives as this may soon be the way most films, especially independent films, are distributed. DVD swaping How many DVDs do you have that you only watched once and now they clutter up your shelves. Peerflix has come up with a clever plan for swapping DVDs so you can trade those unwanted movies for other movies directly from the other owner. You register for free and list the DVDs you want to trade and find the DVDs you would like to trade them for. Peerflix matches you up with the other owner, supplying the addressed mailers. All you have to do is put in the DVD and drop it in a mail box. Slick! Peerflix charges 99 cents for the service. In fact, the first swap is free. This is really worth trying.

Four walling, roadshow, university venues

"Four wall" refers to renting an empty movie theater (four walls) to show your film. You pay a fee negotiated between you and the theater owner/manager. You charge what you want and you keep all the ticket sales. You will also need to do your own publicity. Spike and Mike's Animation Festivals have been successful at this.

Besides commercial movie theaters other lower cost venues include school auditoriums, churches and community halls. Historically this has been a popular film distribution method for clean, family adventure movies and, many years ago, various kinds of pornography.

Renting a movie theater, community hall or church to show your movie is not as crazy as it sounds. It depends on your ability to create a demand for your film by finding the niche it will appeal to. Two recent films that were initially screened by this route and went on to huge financial success in general distribution are My Big Fat Greek Wedding and The Passion of the Christ.

Both of the film marketing campaigns concentrated their efforts on person to person and viral marketing methods where local ethnic groups or churches were encouraged to use their own resources--Xerox machines and word of mouth--to bring in an audience.

It's not easy to sell a film yourself

The bottom line is that selling or distributing a film yourself will take at least two years of your life and the odds are it won't make you any money. You may end of feeling your time would have been better spent making another, and better, film.

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Selling to a film distributor

Many independent filmmakers have mastered the skills necessary to finance and make a movie but few have the skills necessary to get a good distribution deal. Let's assume you've found someone who wants to buy your film. What's next?

The bargaining power of the filmmaker has a lot to do with how high the buyer perceives the value of the film. If the film shows a high degree of appeal to a festival audience the distributor has little to lose. Besides getting money up front the filmmaker may also be able to gain substantial back end (percentage royalties), assuming the distributor is honest. The best spot to be in for the filmmaker is to have lots of positive buzz so that multiple distributors are competing to distribute the film.

The filmmaker will hopefully have already done everything possible as outlined in the articles on marketing buzz. The filmmaker will still be in a vulnerable position due to a lack of experience in negotiating distribution deals.

Investigate the film distributor

Don't be taken advantage of by an unscrupulous buyer. Before you sign on the dotted line, always check the track record and reputation of potential distributors. Industry insiders know their competitors.

Ask the prospective distributor to give you their press kit. It will contain one-sheets from films they have distributed in the past. Track down the filmmakers. If you cannot find them, simply ask the distributor for a list of all the filmmakers they have done business with. Call the filmmakers.

Question the filmmakers as to whether they receive timely producer reports, were they been paid what they are due, and did the distributor spend the promotional dollars as promised?

Entertainment lawyer Mark Litwak maintains a Filmmaker's Clearinghouse listing important information on the integrity of distributors.

The terms of a film distribution agreement

The terms of a distribution agreement will typically include the following items: territory, media, term, fees, marketing expenses, advances and guarantees, consultation rights, warranties and representations, accounting, arbitration, insurance, security interest, termination, governing law, territory minimums, return of materials and delivery.

Here is a description of what you need to know about each of them. Mark Litwak has an article including a very detailed discussion of the elements of a film distribution agreement.

Territory

The territory is the country or region where the distributor may show the film. Worldwide rights mean that the distributor has the right to show the film in anywhere in the world.

Independent filmmakers frequently find they need to have more than one distribution deal. Rights are typically divided into domestic and foreign. Domestic generally includes the United States and Canada. Foreign rights are everywhere else.

Filmmakers should only give a distributor territories they directly service. Few distributors, other than major studios, service both the foreign and domestic markets. Even the majors use sub distributors. Distributors will still try to acquire as much territory as they can. They will then use sub distributors, and get a fee as the middle man.

Most companies that only distribute domestically do not participate in international film markets. If you grant such a distributor worldwide rights, they will have to make a deal with a foreign distributor. The foreign sales company will take a distribution fee for its services and the domestic distributor may take a fee as well.

There's nothing wrong with allowing a distributor to use sub-distributors but understand the kind of distributor you are dealing with, and how it plans to exploit your film. Filmmakers should always have a say in how the film is distributed.

The problem of doubled distribution fees can be controlled by placing caps on the total fees the distributor and sub-distributors may take.

Most indie filmmakers will contract with a foreign sales agent to take their film to the major international markets and will also contract with one or more domestic companies.

If the film doesn't have name-actors the filmmaker will probably not be able to get a domestic theatrical release. Then the filmmaker will dealing with distribution companies that serve the television and home video markets.

Media

Media is the method of exploitation. Most films were intended for showing in theaters, the theatrical media. The time window during which a movie will play in theaters may be short for a flop, while a blockbuster will run for much longer.

Afterwards, a film will be distributed in the allied and ancillary markets, which includes home video, non-theatrical (colleges, community groups), pay television (HBO), network television and independent television station syndication.

A film can also generate revenue from merchandising, publication of a novelization and a sound track album if the film is popular enough with some audience.

A theatrical release is still important in one way. Although the theatrical release may not be profitable - because of the cost of prints and advertising - the theatrical release creates public awareness. When consumers visit video stores, the cassettes they rent or buy first, are the movies they heard about during their theatrical release.

Ancillary media tends to be more profitable than theatrical release. When a film is released to television, there are few expenses.

Domestic distributors are often reluctant to agree to a theatrical release since they know the odds are low of it being profitable. Filmmakers need to push for the theatrical release because it will result in much higher profitability for the ancillary sales.

Filmmakers also want to be sure to retain distribution rights to any media where the distributor will not actively push the film, for example to make the film into a stage play, merchandising, music publishing, print publication, and rights to sequels and TV series.

Term

Distributors will ask for long terms, typically 10 years to perpetuity, but most of the profits on a film occur in the first couple of years and then the distributor loses interest. Filmmakers are smart to keep the distribution term to three years or less with the option of extensions if the distributor is able to achieve a certain level of returns. Any agreement should generally have a cap of no more than ten years.

The filmmaker needs to be sure the distributor can't grant longer terms to sub-distributors although foreign terms are frequently for 12 to 15 years since foreign distribution is often a much slower process.

Distribution Fee

The distributor is going to want a fee to cover his expenses and give him a profit. The fee will vary by media.

For domestic theatrical release they will typically want 35% of the gross revenue for the film after they have covered their expenses. Since the theaters typically get 50% of gross revenue for their share that only leaves 15% to cover the distributor's expenses and provide something for the filmmaker. You can guess that the expenses almost always exactly equal that 15% margin. The lucky filmmaker will have gotten a good up front payment for the film and not expect much in the way of back end.

For domestic home video/DVD there are two approaches. The "50/50" deal gives the distributor his expenses plus 50% of the revenues. If anything is left it goes to the filmmaker. Usually there isn't much left.

The other approach is to give the filmmaker 20%-25% as a royalty on the wholesale price for each unit sold. This guarantees something to the filmmaker but again it may not be much as the wholesale price for DVDs is often less than $5.

Distribution for domestic television can be anywhere from 10% to 40%. The distributor will try to grant a windows of exclusive exhibition to the various television outlets.

Distribution fees for foreign distribution are similar to domestic with the added complications of additional expenses, currency conversions, collection costs, taxes and the possibility that the foreign country may not allow the filmmaker to take the money out of that country. Foreign distribution can get very complicated.

Distribution And Marketing Expenses

These must be clearly spelled out in any distribution agreement or the distributor will be able to charge anything they want as an expense. A frequent tactic is to charge the expenses associated with a failed film against the receipts of the successful films reducing them to break-even. A good entertainment lawyer is your only hope of ever making any backend money.

Advances And Guarantees

Getting an advance on revenues is highly desirable. If the distributor isn't entirely honest or goes out of business that may be the only money the filmmaker ever sees. There is also typically a considerable delay between when the distributor gets the film and when the filmmaker is get any return. If the film doesn't have name actors the distributor will be reluctant to put any money up front. The payment of any advances may also be subject to inspection of deliverables.

Consultation Rights

Filmmakers may request some say in how the film is advertised and shown and what sorts of edits the distributor is allowed to make to the film. Filmmakers generally will have little say in what the distributor does with the film.

Warranties And Representations

Distributors will ask for certain warranties and indemnifications that they will be paid for any loses or legal fees if the filmmaker breeches the contract or can't deliver the film as promised. This sometimes happens when it turns out the filmmaker failed to get a clean title to all aspects of work such as by unsigned releases.

The filmmaker should also demand some warranties of his/her own such as that the distributor will be diligent in promoting the film, is solvent and will act within the law at all times.

Accounting

If the contract calls for the filmmaker to receive anything other than a complete up-front payment then the filmmaker must be granted the right to inspect the distributor's books and the distributor must be required to maintain proper books. The frequency of payments should also be spelled out. Fines for failing to follow the contract need to be specified.

Arbitration

It is important for filmmakers to demand an arbitration clause so they can get to a legally binding decision if there is a dispute. The filmmaker is invariably the financially weaker party in a distribution agreement.

Insurance

The filmmaker will probably be required to have a policy of Errors and Omissions (E&O) Insurance. This is liability insurance in case something in the film causes the distributor or exhibitors to be sued. Since it cost about $10,000 for an indie film and most indie filmmakers are broke by this point, it is typically paid for by the distributor with the cost being an expense against the filmmaker.

Security Interest

Filmmakers may want to secure their right to revenues from their film by having the distributor grant them a security interest.

Termination

This clause specifies how the parties can terminate the agreement due to failure on either party to keep their end of the contract.

Governing Law

This specifies what state's law will apply, typically California or New York.

Territory Minimums

This clause sets minimum fees at which the distributor can license the film to exhibitors to prevent a misallocation of revenues.

Return of Materials

When the term of the contract expires all materials should be returned to the filmmaker. This clause specifies how that will happen. Master materials are very valuable and need to be returned promptly in good condition. Also terms need to be specified for obtaining any materials the distributor create at his own expense to promote the film.

Delivery

This very important clause specifies in very technical terms exactly what you must give to the distributor. Filmmakers frequently don't have a completed 35mm negative and soundtracks to deliver and the distributor will advance the cost to the filmmaker and get back the expense from the first revenues.

Filmmakers need to retain their master elements, film, tape, artwork, etc. Otherwise they will probably go lost at some point before the distributor is due to return them. Master negative are usually kept at a responsible laboratory which will make distribution prints on request from the distributor and report the number of negatives made to the filmmaker.

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