The Business of Low-budget Filmmaking – Part One

The Business of Low-Budget Filmmaking

Part I

By: Jeffrey Ross

With the advent of Paranormal Activity, the entire buzz in the movie industry has been on the variance between how much revenue a film makes versus its costs to produce, leading many to believe that the old adage, “it takes money to make money,” doesn’t necessarily apply anymore. This misguided belief has further incinerated many up-and-coming filmmakers who now believe that all it takes is a few thousand dollars and a good idea, and they’re writing your own ticket to Hollywood.  

Well, for all those neophyte filmmakers and/or adventurers out there who are thinking about venturing into the abyss of filmmaking, it would be wise to see the iceberg, not by its tip, but by what lies beneath the murky waters.

Staying true to form with the above analogy, the film industry can very easily lure you in under calm waters, and if you’re not prepared, well informed, and take a business approach to your film project, you will crash and sink.

This multi-part series on The Business of Low-Budget Filmmaking, will attempt to elucidate this quagmire and help you to more safely navigate your film project.

First, it is important to keep in mind that the true cost of a film does not end with its negative costs (cost to produce the film from pre-production through post production).  Regardless of whether you self-distribute or obtain a distributor, the cost for exploitation must be factored into the over-all cost for the film.  After all, an investor does not receive his/her return until after these costs are recovered. 

A simple rule of thumb would be to use a ratio of 1 to 1: negative costs to exploitation costs.  However, this rule would only apply if the film’s negative costs were in excess of at least one million dollars. For example, a good gage for theatrical release is 300 screens. Obviously, the more screens, the better.  Using a conservative figure of $15,000 per screen for prints and ads (P & A), marketing, and public relations, the exploitation costs for those 300 screens would amount to over $4,500,000.  By the way, many would argue that the actually cost is closer to $25,000 per screen. So, do the math. Consequently, regardless of whether your film cost $15,000 or $1.5 million, the cost per screen isn’t going to change.  Furthermore, unless the movie is a hit, those 300 screens won’t provide for your return on investment. 

Once again, let’s say those 300 screens feature your film for two weeks to an average audience of 200 per day, paying $10 per ticket. That would equate to $8,480,000 in ticket sales. However, those ticket sales are typically split 50/50 with the exhibitor (movie house). So, your gross return equals $4,240,000.  And, assuming there are no other fees or deferred costs, you just lost $260,000 plus the negative costs for the film.

That’s not to say that your film is destined to fail. The life of a film is typically three to five years. And, after theatrical domestic, there is foreign theatrical and the ancillary markets (DVD, Pay-Per-View, etc.). Consequently, if your film “has legs”, its revenue generating ability will eventually exceed its exploitation costs.  So, don’t lose the faith yet.

In the next article we’ll continue with The Business of Low-Budget Filmmaking, picking up with why it is not a good idea to have your film go directly to the ancillary markets, and by-pass theatrical release.