The business of film
The business of film

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The business of film

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.

Download this video clip.Video player: Video 7 Alex Hamilton talks about how a sales agent operates
Skip transcript: Video 7 Alex Hamilton talks about how a sales agent operates

Transcript: Video 7 Alex Hamilton talks about how a sales agent operates

ALEX HAMILTON
Let's imagine this. You're a producer. You make a budget up for a film. You've got various actors. You've managed to get them. You've got a financing structure in place, and part of that financing structure is that you need to sell that film in various places in the world. So what will happen is you can hire a sales company, a film sales company. Now the film sales company will give a sales estimate for the value of that film broken down by each territory in the world. It might say, for instance, the UK rights are worth $2 million dollars, the French rights are worth $2 million dollars, the German rights are worth $2.2 million dollars, Spain is worth $300,000.
 It will provide a value based on its knowledge of all of those markets and what the likely value of that film, that package, is in each of the territories around the world. That will help the producer figure out whether that budget is realistic, whether it can be financed by the market as it were. Quite often a film is budgeted and is budgeted at a level higher than the market can take. Now if that's the case quite often, they seek equity. So they'll seek somebody who's prepared to put the gap. The market the market is telling you that this film is worth $20 million dollars in its global value, but your budget is $30.
 You have to find that $10 million dollars from equity, which is someone saying, I believe that film is going to be successful enough that actually it's going to be worth more than $20 million dollars eventually, because what will happen is one of two things. One, the film will arrive at the marketplace and be sold for more than the sales company is estimating, or two, it will sell that way, but it will earn so much money in its distribution and its exploitation, that more money will ultimately come back to the producer of the film, the equity partner on the film. Now if you invest in Star Wars as an equity financier, you will have made unbelievable amounts of money.
But most of the time, it's the first one that plays out best. You probably want to get the budget of your movie covered from a combination of underlying equity and the sales around the world.
End transcript: Video 7 Alex Hamilton talks about how a sales agent operates
Video 7 Alex Hamilton talks about how a sales agent operates
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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

Timing: Allow about 10 minutes

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?

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Answer

Italy, France and Germany

2. Why might these be the three most valuable territories?

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Answer

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?

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Answer

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?

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Answer

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?

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Answer

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.
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