[Mengtaike Column] Analysis of Return on Investment in Independent Films 45% of investment can be profitable

Independent film investors can earn returns in 45% of the time, but can only double in 25% of the time.

The film industry is an oligopoly market, with a few companies controlling the majority of revenue and market share. Big production companies focus on high-cost and high-publicity commercial blockbusters. Some of these films were produced domestically, and some were purchased at different stages from small companies.

Small-budget films have emerged in the past 10 years (in the United States, it has only been five years in my country); the logic is that the reduced production and publicity costs have given more profit margins. The financial industry also agreed with this logic and began to invest in so-called "independent films." At the same time, large production companies have also established their own independent film departments or branches.

However, just as large-scale productions cannot ensure any return, although there are classic success stories, most independent films still lose blood. This article analyzes the financing and return of independent films. This is an analysis of the American market, and its ideas and results have certain reference significance to our country's market.

The funding method

is like other external investments. The injection of external funds may cause independent filmmakers to lose control of their work. In fact, compared with big brand productions, independent films are more like entrepreneurship, and the problems they face are similar.

Calculation of revenue

1 The box office

is in the local market, and the share ratio between theaters and producers is 55% and 45%. In overseas markets, overseas theaters account for a larger proportion, and because overseas sales can be carried out during the filming stage, sales commissions need to be paid to overseas sales companies. Together, the producer can receive 30% of the overseas share.

After that, the issuer will deduct approximately 10%-15% of the share income. In addition, promotion expenses will also be deducted, which can account for approximately 10%-20% of the global box office. Finally, there are some unpredictable expenses and star appearance fees (not included in promotion expenses), which can account for about 10% of the global box office.

At this point, if there is still money in the book, it is the net income of the film (without considering costs, not profits).

2

There are other windows available for revenue after the box office of subsequent windows. The above picture is a simple summary. For example, it can be broadcast by air for 3-4 months after its release, then home theater for 3-6 months, then Internet for 6-8 months, pay-TV for 12 months, and free TV for 27 months.

However, with the development of technology and industry, the ordering and window periods of various windows have changed, such as the rise of the online market and the decline of home theaters, as well as the significant reduction or even simultaneous release of window periods. This part is often taken into account when calculating the return on investment.

It is worth noting that the above theory ignores two points in actual operation. 1. Ignore derivatives and other additional markets. In fact, the potential benefits of this part, which is what we call IP value, are also a very important investment consideration. 2. The window period and all additional markets have the problem of income periods, which are often 10 years to unlimited, but investment is cyclical. And future benefits also include the difference between the actual value and the face value brought by time.

Additional note: The cost of a movie can be shown on the books as being amortized over its life cycle, rather than the initial large cost.

Between

January 2000 and October 2009, 5,276 films were released in the United States, of which 38% had international distribution. Another 2,858 films were tried but failed. 1,815 films were selected, 900 of which were independent productions and 825 of which were major studio productions. Costs range from $10,000 to over $200 million.

Box office data is relatively public. Other windows only consider home theater benefits. Some home theater revenue has data. Use these data to do regression analysis to calculate the revenue of other films without data.

Finally, we get the distribution of return on investment for independent films:

independent film investors can get returns in 45% of the time, but can only double in 25% of the time.

Overall, independent films are still risky. But the reduced cost does give successful films a high return on investment, which is why the first-line average is so high.

In other words, the logic of low cost and high space is correct, but independent films themselves are high-risk products compared with works from large studios, and most of them may lose money.

We

all know that investment portfolios can effectively reduce risk. Buying stocks is the same, so is investing in movies.

After analyzing 100 film portfolios, we can get the following income distribution:

Please note that these portfolios are all random.

The results tell us that even with random arrangements without any brain, using portfolio strategies can reduce investment risk in terms of quantity, probability, and amount of return.

Author of this article: Produced by Xuezi: Monteger

If you need to reprint it, please contact Monteger to obtain authorization. Reprint without permission is prohibited.

Editor: queenie