3.1 Market value
The first stage in putting together finance for a film is to understand the value the market puts on it. The producer can then see how this matches their budget for the film.
If the valuation from the market is lower than the cost of the film, then the producer has to make up the difference. That’s when they’ll turn to other sources of funding.
Let’s understand how to go about assessing the value of a ‘product’ such as a film. First, the producer of the film project will hire a sales agent to produce something called the sales estimate.
As well as being a distributor, Alex Hamilton’s company is also a sales agent. He explains the process.
Transcript: Video 7 Alex Hamilton talks about how a sales agent operates
The sales estimate is put together by the sales agent, who takes a look at the script, the director, the actors that are attached to the project and the other key elements, and literally estimates how much the film can be sold for in the different territories.
Activity 1 Reading a sales estimate
Take a look at the sets of estimates for a hypothetical British film [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] . Note that the numbers are in US dollars, which is generally the currency of the international film business. Take a moment to think about the answers to the following questions and note any thoughts you have in the boxes provided:
1. What are the three most valuable territories listed?
Italy, France and Germany
2. Why might these be the three most valuable territories?
These are big territories in terms of cinema-going audiences. To explain the relative difference in numbers, it may be that the film includes an actor or story element that is particularly popular in France and Italy and slightly less popular in Germany.
3. Why might there be no number indicated for the UK?
It is probably because territory sales in the UK are being used to finance the film.
4. Why might there be no number indicated for the US?
It might be that the US is also being used as a source of finance. But the US is very difficult to sell for an independent British film. It is more likely that the sale agent is unwilling to put a value on the US which can often be worth nothing if the film is not bought and released there.
5. Why is there no entry for Austria?
Often rights are sold on a language basis. So the German rights might actually be for German language audiences, therefore including the German-speaking parts of Austria, Switzerland, Italy, etc.
There are a couple of additional points to make about the sales estimates:
- Sales estimates are often put together with a number of columns. There might be a column of best-case sales values, expected sales values, and minimum sales values. Generally, a sales agent agrees with the producer a set of minimum sales values, which means that the sales agent can sell for any price above this minimum. However, if the film only receives an offer below the minimum, the agent must seek the approval of the producer before making the sale.
- The word ‘sale’ is being used here, as is common in the industry. However, usually the rights to a territory are not sold outright. They are licensed to a distributor for a certain period of time, called the ‘term’ – maybe 7–15 years – in exchange for an initial license payment plus a share of ‘overages’ if the film does well in that territory. After the term of the license agreement, the rights to the film in that territory will revert to the sale agent or producer who is free to re-license.