I’ve been quoted as saying that investors get the short end of the stick in film investment. They end up putting up all or most of the money, and then are often left with their hands out. They’re the last to get paid on the production, and the system is structured in such a way that it’s almost Impossible to create a sustainable investor class.
I wrote an entire 7-part blog series on WHY film investment is in the tubes, so I don’t need to do that again. This blog will focus on exactly what I mean about investors being the last to be paid, when filmmakers don’t get any profit share until after the investors have recouped. The answer to this question lies in the standard distribution waterfall
But before I list it out for you, I should make a point of saying that this is only true if you pay yourself either a stipend or a salary to produce the film. If anyone is working 100% deferred, then it’s relatively likely that they’ll get paid after the investor. However if you paid yourself to make the film in any way, then you have been paid before the investor, often using their money.
So what is a waterfall? A waterfall is how money from foreign sales and domestic distribution deals flows to the filmmaker. The top of the waterfall is the money source, and the bottom of the waterfall is the filmmaker. They normally look something like this, if the buyer is paying an MG or a License fee to the sales agent.
If the buyer is offering a revenue share deal (Rev Share) then the waterfall will look more like this.
Generally, a Production Company won’t see ANY money until the sales agent has recouped their expenses. Once they have, that item is essentially removed from the waterfall.
The four subcategories underneath the production company are generally what happen after the production company receives money from the sales agency. Admittedly, the investor is at the top of that waterfall (if we exclude the payments made in production) but they’re at the bottom of another.
Each piece of the Waterfalll takes a slice of the film. For this example, we’ll assume the sales agent has already recouped their expenses. We’ll assume another 10,000 dollar sale has come in for easy math. So in the first waterfall, the sales agency takes 20% or 2,000 USD, then the remaining 80% (8000) goes down the line.
Then let’s say that your Producer’s rep has done their job and gotten a good deal for you. They charge the average price which is 10%. So the Producer’s Rep takes 10% of the 8,000 dollars, or 800, and passes the remaining 7,200 on to the filmmaker. The filmmaker then passes uses that money to back back investor, settle deferments, and then pay themselves whatever is left.
If that same 10,000 USD was the result of a revenue share distribution agreement, it would look like this. First, the distributor takes their 20%, then passes not he remaining 8,000 USD to the sales agent. Next the Sales agent takes 20% of the 8000 (1600) and passes the remaining 6,400 to the producer’s rep. The Producer’s rep takes 10% (640) and passes the remaining 5760 to the production company.
In both these examples I’ve ignored wire fees, but they can range from 1-3%.
One thing that you might notice is that the Sales Agency Commission is above their recoupable expenses. This does mean that they’re taking out their commission before they start to pay themselves back their recoupable marketing expenses. This is common, and while I don’t agree with it it’s a very difficult thing to negotiate. That being said, it doesn’t make as big of a difference to the bottom line as you might think. I’ve done the math, and it often amounts to around 4,000 to 5,000 extra for the sales agent. I know that’s far from nothing, but it’s the comparably small amount means there are better places to focus the negotiation.
A good producer’s rep will help streamline the sales agency selection process, and occasionally handle domestic distribution themselves. They’ll also know exactly which parts of a distribution contract can be negotiated, and which ones can’t. They’ll generally have long term relationships with many sales agencies, so that the negotiations are likely to go smoothly. In short a good Producer’s Rep might take a piece of the pie, but they’ll make the pie much bigger while they do.
So that’s something of a crash course on film distribution waterfalls. If you have any more detailed questions on the topic, or want to know more about distribution in general, you should consider booking a FREE Strategy Session with me. I'll help you chart out your path to distribution, figure out your target market, and whatever else you need to grow your filmmaking career. Book your today!
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My name is Ben, I'm an Entrepreneur, Producer's Rep, and Author. I'm the founder of Guerrilla Rep Media, Co-Founder/CMO of ProductionNext, and founder of Producer Foundry. Together, the organizations seek to help make filmmaking a more economically sustainable endeavor. I am dysic, I have capitalization issues, and the blogs are often unedited. opinions all my own.
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