FILMED ENTERTAINMENT
Industry introduction and overview
Agenda
• Who are the players?
• How does a film or TV show get made?
• How are films and TV shows distributed?
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Markets
Market & advertising a film
Theatrical distribution
Home entertainment
Television distribution
Licensing & merchandising
Agenda
• Ultimates and cost amortization – overview
• Participations – overview
• Residuals – overview
WHO ARE THE
PLAYERS?
The Studios (“Majors”)
Parent
Viacom
Disney
News Corp.
Comcast
Studio
Paramount
Walt Disney,
Buena Vista,
Pixar, Marvel
20th Century
Fox,
Searchlight
Broadcast
Television
CBS broadcast
assets spun off
ABC
Cable
Television
BET, CMT,
Comedy Central,
Logo, MTV,
Nickelodeon,
Spike, TV Land,
VH-1
New Media
Addicting Games,
Atom.com,
GameTrailers.com,
Neopets,
ParentsConnect,
Shockwave
Alternative
New Media
Distribution
Time Warner
Sony
Universal
Pictures, Focus
Features
Warner Bros.
Columbia,
Screen Gems,
Sony Pictures,
TriStar
Fox
NBC,
Telemundo
CW
(joint venture
with CBS)
ABC TV Network,
Disney Channel,
ESPN, SOAPNet,
ABC Family
Fox, Fox News,
Fuel TV, National
Geographic,
Speed, STAR,
Stats
Bravo, Chiller,
CNBC, MSNBC,
MUN2, Oxygen,
Sleuth. Syfy, USA,
The Weather
Channel
Cartoon Network,
Cinemax. CNN,
HBO, HLN, TBS,
TCM, TNT, TruTV
GameShow
Network (with
Liberty Global)
Various
international cable
stations
Club Penguin,
Disney Interactive
Media Group,
Disney Online,
Hulu (JV)
AskMen.com; Hulu
(JV), IGN
Entertainment,
Milkround, The
Daily
Daily Candy,
Fandango, Hulu
(JV), iVillage,
Xfinity
Flixster, HBO Go,
The Smoking Gun,
Warner Bros.
Interactive
Entertainment
Crackle,
Gracenote, Sony
Entertainment
Network,
Station.com
Bing; BitTorrent; CinemaNow; Dailymotion; Facebook; Google (including YouTube); iTunes; Joost; Kazaa;
Morpheus; Napster; Netflix; Playstation 3; Qlipso; Twitter; Veoh; Vudu; Xbox 360; Yahoo! TV
Other players
Mini-majors: Smaller companies that produce major motion pictures and may
distribute their own films
Independents: Smaller companies that may produce films for others and rely on
others (majors or mini-majors) to distribute their films
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•
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•
•
Amblin Entertainment
DreamWorks Animation
DreamWorks Studios
Imagine
Lakeshore
Lions Gate Entertainment
(recently purchased Summit
Entertainment)
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•
•
•
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•
•
LucasFilm
MGM
New Regency
Overture Films
Relativity
Spyglass
Village Roadshow
Studio market share – 2012 vs 2011
2012 (thru 7/5/12)
Fox
9%
Others
12%
Others
15%
Disney
17%
Sony
15%
Paramount
9%
Warner
Bros.
11%
2011
Fox
11%
Paramount
19%
Warner
Bros.
18%
Universal
12%
Lions
Gate*
12%
Universal
15%
* Includes Summit
Source: http://www.boxofficemojo.com/studio/?view=parent&view2=yearly&yr=2012&p=.htm and
http://www.boxofficemojo.com/studio/?view=parent&view2=yearly&yr=2011&p=.htm
Disney
12%
Sony
13%
What was the highest grossing
film for 2011?
What was the highest grossing movie so
far in 2012?
What was the highest grossing movie in
2011?
Top films of 2012 – domestic vs int’l
Film (through July 5, 2012)
WW gross ($M)
The Avengers
US gross ($M)
US vs Int’l
$1,452
$611
42 / 58
The Hunger Games
678
404
60 / 40
Men in Black 3
602
172
29 / 71
Madagascar 3: Europe’s Most Wanted
454
196
43 / 57
The Amazing Spider-Man
342
140
41 / 59
Snow White and the Huntsman
339
150
44 / 56
Journey 2: The Mysterious Island
326
104
32 / 68
Dr. Seuss’ The Lorax
311
213
69 / 31
Wrath of the Titans
302
84
28 / 72
Prometheus
294
122
42 / 58
Source: http://www.boxofficemojo.com/yearly/chart/?yr=2012&p=.htm
Top films of 2011 – domestic vs int’l
Film
WW gross ($M)
Harry Potter and the Deathly Hallows
Part 2
US gross ($M)
US vs Int’l
$1,328
$381
29 / 71
Transformers: Dark of the Moon
1,123
352
31 / 69
Pirates of the Caribbean: On Stranger
Tides
1,044
241
23 / 77
Twilight: Breaking Dawn Part 1
705
281
40 / 60
Mission: Impossible – Ghost Protocol
694
485
70 / 30
Fast Five
626
210
34 / 66
Hangover Part II
581
254
44 / 56
Cars 2
559
191
34 / 66
Sherlock Holmes: A Game of Shadows
544
187
34 / 66
Rise of the Planet of the Apes
482
177
37 / 63
Source: http://www.boxofficemojo.com/yearly/chart/?yr=2011&p=.htm
HOW DOES A FILM OR
TV SHOW GET MADE?
(THE PRODUCTION PROCESS)
Film production: Direct
production costs
Concepts
Books, Screenplays
Rights
Development/
Packaging
Greenlighting
Pre-production
Principal
Photography
Postproduction
Script Development
Set Design
Casting
Budget
Crew Selection
Costume Design
Location Scouting
Actors
Directors
Soundstage
Wardrobe
Producers
Writers
Set Construction
Labor
Film Editing
Scoring
Titles and Credits
Dubbing
Special Effects
Soundtrack
Film production: Direct
production costs
Concepts
Books, Screenplays
Rights
Development/
Packaging
Greenlighting
Pre-production
Principal
Photography
Postproduction
Script Development
Set Design
Casting
Budget
Crew Selection
Costume Design
Location Scouting
Actors
Directors
Soundstage
Wardrobe
Producers
Writers
Set Construction
Labor
Film Editing
Scoring
Titles and Credits
Dubbing
Special Effects
Soundtrack
Film production: Direct
production costs
Concepts
Books, Screenplays
Rights
Development/
Packaging
Greenlighting
Pre-production
Principal
Photography
Postproduction
Script Development
Set Design
Casting
Budget
Crew Selection
Costume Design
Location Scouting
Actors
Directors
Soundstage
Wardrobe
Producers
Writers
Set Construction
Labor
Film Editing
Scoring
Titles and Credits
Dubbing
Special Effects
Soundtrack
Film production: Direct
production costs
Concepts
Books, Screenplays
Rights
Development/
Packaging
Greenlighting
Pre-production
Principal
Photography
Postproduction
Script Development
Set Design
Casting
Budget
Crew Selection
Costume Design
Location Scouting
Actors
Directors
Soundstage
Wardrobe
Producers
Writers
Set Construction
Labor
Film Editing
Scoring
Titles and Credits
Dubbing
Special Effects
Soundtrack
Film production: Direct
production costs
Concepts
Books, Screenplays
Rights
Development/
Packaging
Greenlighting
Pre-production
Principal
Photography
Postproduction
Script Development
Set Design
Casting
Budget
Crew Selection
Costume Design
Location Scouting
Actors
Directors
Soundstage
Wardrobe
Producers
Writers
Set Construction
Labor
Film Editing
Scoring
Titles and Credits
Dubbing
Special Effects
Soundtrack
Television production life cycle
Concept
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•
•
•
1-hour series
(dramas)
30 min series (sit
coms)
TV Movies
Miniseries (8-12
hours)
Pilots
•
•
•
30+ pilots ordered
for the start of
each TV season
Introduce main
themes and
characters
< 50% picked up
for regular season
Full Season
•
•
•
•
•
Sold to network for
distribution
Typically 22
episodes/season
(12 for cable series)
Avg production
costs vary
depending on
format/talent
Episode fees
increase 5-10%
each year – higher if
a hit
50-60% lose money
during first few
seasons
Syndication
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•
•
•
Sold to TV
stations and cable
programmers
At least 60
episodes
Only 20% of new
series make it to
syndication
Typically for
certain number of
runs within 3-5
year period
Film of TV production costs
Above the Line
• Rights acquisition
• Writers
• Stars
• Director
• Producer
Below the Line
• Crew
• Set decoration / construction
• Location
• Hair/makeup
• Camera / cinematography
• Non-star talent
• “Negative costs”
• Classified as “film inventory”, “production costs”, etc
Film or TV production costs - other
• Interest
– Allocated to films based on current period spending
– Beginning with principal photography through “answer print”
• Overhead
– Allocated to films based on current period spending
– Departments/individuals with “exclusive or significant” responsibility
for production
– Beginning with principal photography through “answer print”
Cost minimization
• Forming partnerships with investors (non-film
companies) to share risk
• Splitting production and marketing roles (coproductions)
• Sharing risk with key talent (participation
agreements)
• Tax incentives – other countries or states
HOW ARE FILMS AND TV
SHOWS DISTRIBUTED?
• Theatrical
• Home entertainment
• Pay-per-view (PPV) / Video on
Demand (VOD)
• Pay TV
• Network / free TV
• Syndicated TV
• Merchandising / licensing
Digital Media
Film markets
Current release windows of a film
Licensing and Merchandising
Free TV
(network &
syndicated)
Pay TV
PPV/VOD
Home Entertainment (DVD, Blu-ray)
Digital Media
Theatrical
3
6
9
12
15
18
21
24
27
30
33
36
(months)
•
•
•
•
•
Network
Cable
Home entertainment
Syndicated TV
New media
Digital Media
TV show markets
MARKETING AND
ADVERTISING A FILM
Marketing and distribution costs
• aka “Prints & advertising” (P&A),
“exploitation”
Prints – film prints that are made and sent to
theaters for projection on screen
– $2,500 - $4,000 per print
– 1,500 – 4,000 prints at initial release
– Digital cheaper, but exhibitors slow to convert
Marketing and distribution costs
Advertising
– Media: air time and print space costs
• TV and radio advertising time
• Billboard, bus / bus stop space
• Newspaper, magazine ads
– Basics: creative and promotion costs
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•
•
•
•
Creation of advertising campaign
Printed materials (posters, standees)
Promotion (premieres, junkets)
Award show promotions
Trailers
THEATRICAL
DISTRIBUTION
Box office trends – U.S./Canada
Box office gross ($B)
Non-3D
3D
$1.1
$-
$0.1
$0.1
$9.3
$8.8
$9.1
$9.5
$9.4
$9.5
2004
2005
2006
2007
2008
2009
$-
$-
$9.2
2003
Source: MPAA 2011 Theatrical Market Statistics
$0.2
$2.2
$1.8
$8.4
$8.4
2010
2011
Theatrical – U.S.
• Movie release pattern:
– Limited (less than 1,400 screens)
– Wide (3,000+ screens)
– Roll-out (platform)
• Release season
– Summer (Memorial day weekend – August)
– Holiday (generally November/December)
• Film rentals
– Studios’ box office share
– Negotiated settlement rates
Box office trends – International
Box office gross ($B)
$21.0
$16.6
2007
$18.1
$18.8
2008
2009
Source: MPAA 2011 Theatrical Market Statistics
2010
$22.4
2011
HOME
ENTERTAINMENT
Home entertainment
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Sell-through
Rental
Revenue share
Correlation to box office success (“conversion
rates”)
• Big box retailers vs independent retailers
(Walmart – loss leader model)
Home entertainment trends
Worldwide spend on physical home video ($B)
$60
$47.7
$50
$47.6
$47.9
$46.1
$41.6
$40
$40.8
$16.0
$15.3
$15.0
$11.2
$38.4
$37.0
$11.9
$11.4
$28.0
$26.6
$25.6
2009
2010
2011
$14.4
$12.8
$30
$20
$30.4
$31.8
$32.3
$32.9
2004
2005
2006
2007
$31.8
$10
$0
Sell-through
Source: “Video intelligence,” Screen Digest, March 2012
2008
Rental
What was the biggest selling
DVD title in the past week?
TELEVISION
DISTRIBUTION
Television distribution - Films
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Pay-per-view (cable & satellite providers)
SVOD (cable, Netflix)
Pay TV (e.g. HBO, Showtime)
International TV (BBC, TF1)
Network TV (NBC, ABC)
Syndication / cable (TNT, USA, AMC)
Digital media (Netflix, Hulu, streaming,
downloads)
Television distribution – TV shows
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•
•
•
•
Network
International TV
Syndication
Cable
Internet
U.S. TV ratings
“Share”
2 homes
watching
Jersey Shore
Share = .33 (2 out of 6 houses with
TV sets on watching Jersey Shore)
“Ratings”
Rating = .20 (2 out of 10 houses with
TV sets are watching Jersey Shore)
Broadcast TV trends
Top 10 Broadcast TV Shows – Week ending July 1, 2012
Rank
Program
Network
Rating/Share
Viewers
1
AMERICA’S GOT TALENT – TUE
NBC
7.0 / 11
11,668
2
AMERICA’S GOT TALENT – WED
NBC
6.4 / 11
10,662
3
AMERICA’S GOT TALENT – MON
NBC
6.0 / 10
10,452
4
US OLYMPIC TRIALS – SUN 9PM
NBC
5.9 / 10
10,021
5
60 MINUTES
CBS
5.5 / 11
8,444
6
NCIS
CBS
5.4 / 9
8,034
7
US OLYMPIC TRIALS – SUN 8PM
NBC
4.8 / 9
7,886
8
US OLYMPIC TRIALS – FRI 9PM
NBC
4.7 / 9
7,785
9
BIG BANG THEORY
CBS
5.1 / 9
7,695
10
US OLYMPIC TRIALS – WED 8PM
NBC
4.4 / 8
7,091
Source: http://tvbythenumbers.zap2it.com/2012/07/03/tv-ratings-broadcast-top-25-us-olympic-gymnastics-trials-americas-got-talent-top-week-41-viewing/140363/
Licensing and merchandising
• Contractually driven
• May require minimum guarantee (MG) plus
overages (royalties)
• Revenues dependent on statements received
from the licensees
• Revenue recognition may be cash driven
ULTIMATES AND COST
AMORTIZATION OVERVIEW
What is an ultimate?
• Management’s estimate of the “ultimate” gross profit
of a film (accounting standards give 10 year
limitation)
• Judgmental and high risk area
• Used to amortize capitalized film costs to cost of sales
Amortization calculation
• Year 1
Yr. 1 revenues
Ultimate revenues
Ultimate
costs
Costs to
amortize
Ult costs
to go
Costs to
amortize
• Year 2
Yr. 2 revenues
Ult revs to go
PARTICIPATIONS AND
RESIDUALS
Participations – overview
• Contingent compensation for creative talent
(actors, writers, directors, producers)
• Expensed using IFF method (based on ultimates)
• Amounts paid, if any, are based on contractually
agreed-upon formulas and cash received (not
revenue recognized)
• Formulas vary depending on star power of talent
(gross deal vs net deal)
RESIDUALS
Residuals – Overview
• Additional compensation for “ancillary” markets
(DVD, pay TV, cable, network TV, etc)
• Residuals based on percentage of gross revenues
received by a distributor from ancillary markets
• Residuals for TV shows based on original salary
paid during the production and are not paid on
the initial airing of the show (only on “re-runs”)
• Union or “guild” specific
• Payments made to individuals or to the guilds on
behalf of members
Residuals – Overview
• Pro-ration for filming outside the U.S.
• Some states are “right-to-work” states (nonunion)
• SAG/AFTRA applies no matter where actor works
• Range from 12.5% - 20% of revenues generated
in ancillary markets
• Fringe benefits (payroll tax, pension, health &
welfare benefits) can add another 25%
surcharge to residual payments
CASE STUDY
INTRODUCTION