The Economic Model of Filmmaking
Filmmaking is not about filming and uploading on YouTube. Stop! Filmmaking is an economic relationship between four powerful economic agents: investors, filmmakers, cinemas and viewers.
If you just like making videos or movies, it's your hobby, not your profession, and you don't want it to become a profession, then do what you want. If you want cinema to become your profession, you have to understand a lot of things. And the first of them - the profession is unthinkable without making money. If what you do does not bring income, then this is not a profession. So let's figure out how to make filmmaking your profession. Let's look at the basics.
The diagram shows the economic model of film making.
Investors who finance a film in the hope that the return on the film will exceed their investment and they will make money.
Investors should show up when they realize that their investment will be returned at a profit. That is, they will earn and earn better than with more conservative financial instruments. How much money can you get from a bank deposit? 5%? 10%? I don't think that more (but it depends a lot on the country where you are). The income from the film should be significantly higher, since the risks are higher. The bank will give interest on the deposit in any case, and cinema is a risk. Film investors are investing in dozens of films, most of which have low returns, no profits, or losses. However, some are very successful. Investors expect that on average they will earn their 20-30%.
20-30% is probably the average. This means that the best films should give investors 40-50% more than they invested. Or even 100% profit! Therefore, it is better if you try to exceed the expectations of investors. Otherwise, how to build a good reputation as an outstanding filmmaker?
Filmmakers who request funding for a film in the hope that the film's income will exceed their costs and they will have a good reputation.
Filmmakers have to make good movies. Very good movie. This can be discussed in more detail in other articles. Write in the comments if interested. Although I thought that I would write and speak in more detail on this topic when I myself achieve outstanding results. But no one forbids me to quote respected people? And besides, we can discuss individual elements of cinema art. We can analyze films that we like. In general, you should have a very good film that will not leave the audience indifferent. Before you make a movie like this, you need at least some reputation. Where will you take it from? You can start building it by making amazing non-budget short films. The movie doesn't have to look like Interstellar. Everyone understands that you don't have the budget for special effects, expensive actors, spaceship sets, and your own cornfield. Do what you can. This narrows down the scenario (story or script), but that's your job at this point. And if you like the way Interstellar is made, you can at least make your own story by trying to make the cinematography and visual style feel close to that movie.
Moreover, the history of Kung Fury shows that it is possible to raise a budget even for the first short film, if you are ready to make a high quality teaser (trailer) for it. You choose which path to take. These are just one of the examples. See how any of your favourite filmmakers have achieved success and try to understand what moments of their career were key and how to do the same. Maybe this will help (adjusted for the current time).
Cinemas and platforms that agree to show a movie on their site in the hope that a lot of viewers will come and they will make best possible money.
If you are a well-known and box-office filmmaker, then cinemas will be happy to show your film. If you are not yet a box office filmmaker, then you will have to prove that your film will be shown well in theaters. How to do it? Submit a film to a film festival. Producers and investors often visit major film festivals. You can make your film and yourself visible. Research what film festivals are out there, where you should apply, and succeed at the film festival. Success at a film festival can help your current film, or it can help you find producers or investors for your upcoming film. We could talk about festivals in more detail. Write if you are interested in this topic and I will write a separate article about it.
Viewers who buy movie tickets, platform subscriptions, and video-on-demand, hoping to watch an amazing, inspiring, outstanding movie.
Sometimes viewers and investors are the same people. Like the story with the short film “Kung Fury” which went to Kickstarter hit, Cannes entry, and Hollywood feature. Also some platforms are already invest to films, Netflix for example.
In any case, you should study the opinion of potential viewers. What do they like to watch? Why do they go to the movies? Or maybe they rarely go to the movies. Then understand other things. What do they care about? What are they discussing? Maybe you should understand their concerns and needs. Be relevant filmmakers. Make movies for real people. Communicate, discuss what interests them. Get involved in major social and political issues. Maybe what is happening in the world now excites people and you can make a relevant film that could support the audience, give them hope, reassurance, or maybe call for something, give instructions, a new look at the world?
What you need to know about the economics of this scheme: investors give money to filmmakers, filmmakers make films and give films to cinema theaters or platforms. Cinemas and platforms collect money from the audience and show them movies. After that, the cinemas give some percentage of the profits back to the filmmakers, and they, in turn, give part of the money (or all the money, if God forbid income is less investment) - to investors.
In some situations (including at the beginning of the release), for unknown reasons, marketing is not included in the film's budget. In my article, I present the budget as the total cost of a film, no matter what stage of production it is (marketing and distribution is the fourth stage). - addition dated 27.07.2023.
Let's go into a little more detail. Suppose investors give filmmakers X money. Filmmakers make and advertise films with that money and give the films to cinemas or platforms. Those, in turn, show the film to the audience (viewers) and receive revenue from the audience in the amount of 6X. This is a quite optimistic plan. The lower line for a break-even movie where everyone earns without regrets is 4X. For our optimistic calculations, we will take 6X as a basis. Cinemas hold about 50% so they give 3X back to filmmakers, who give 2X back to investors. In this scenario, as a result, investors have income twice as much as expenses, filmmakers have received double income - from investors and from interest on the net profit of repayable funds. Cinema theaters are earn too. Well, cinemas will earn something anyway. Cinemas should rather worry about lost profits, that is, think about whether they have chosen the film. Or maybe they would have raised more money by choosing a different film to show. When planning to ask for money, I was wondering how to maximize the profits of all parties. This means that, as you can see, our goal is six times our expenses.
If you're asking for one million dollars, the box office should be six million (no less than four). If you're asking for $10 million, then the box office should be $60 million (and no less than 40).
The actual box office (not just a share of the budget) also matters, because investors will be able to return more money, more investors can participate in larger amounts of money.
The scheme is more for feature films (full-length films). Cinemas and platforms generally do not accept short films. However, short films can be a good place to learn, to understand how the film industry works, and to showcase your style and mastery. Moreover, as far as I know, platforms sometimes buy short films. But I haven't heard that about cinemas (movie theaters). This is a very simple model. But it is better to understand all the big and important things first in their entirety, in a general way, and then it will be easier for you to delve into the details to know in particular and find answers to more highly specialized questions.
Ask your questions in the comments below and I will try to find an answer. Don’t stop to ask when you need an answer.
In the following articles I plan to talk more about film industry and more effective ways to make film making a well-paid profession. Subscribe to my blog, write your questions, objections and suggest new topics for articles.