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Episode 20: Greed is good: Business models

by | Jul 14, 2021

Let’s find out all about business models, shall we?  Let’s go!

But first, a couple links: 

And you can listen to this episode here!

And here’s the script to this week’s episode!

Hi, this is Joe Dzikiewicz, and welcome to the Storylanes Podcast, the podcast where I tell the story of how I’m making an independent feature film while I’m making it.  Yup, that’s right: I’m hard at work producing SMART HOUSE, an independent horror film.  It’s the story of a cantankerous feminist tech podcaster who is making a podcast about living in a smart-tech home.  But there’s a problem: the house is haunted.  Or so it seems, because all that smart home technology is controlled by a hacker.  It’s as if your worst enemy in the world controlled your Alexa.

This week we’re finally going to talk about business models.  What they are, how they apply to filmmaking, how I’m thinking about them for my film.  It’s a key decision in the development stage, the time when you figure out the plan for the movie.  And it’s in the development stage because it’s a decision that needs to be made before a lot of other things can be done.  I’ll have a lot to say about it here.

But first, a regular update on the current status of the film.  Blah blah blah

Now, business models.

I’m going to start with the basics here.  My apologies if you already know this stuff.  But at the very least, this will show you how I think about this subject.  And I should note at the outset: this is a simplification.  I’ll be focusing on the aspects of this subject that are most connected to my view of filmmaking.  This should not be mistaken for a business school seminar.

I’ll also note that this is informed by my years in the software development business.  In particular, I spent about a decade working as an officer on three different venture capital funded internet startups, clearly a world where business models are important.

So what is a business model?  Well, to get to that, we really have to start with the question: what’s a business?  And I’ve got my own answer for that question.

In my view, a business is a machine where you put money in one end and get money out of the other.  And if it’s a good business, the money that comes out is more than the money that went in.

The money coming in is a lot of things.  It’s salaries and expenses and all the other things you have to spend to keep a business going.  And initially, it’s an investment, money that is used to start up the business.

The money that comes out the end is called revenue.  And if the revenue is more than the costs, the difference is the profits.  And if the revenue is less than the costs, well, the business isn’t going to last too long.

Now clearly there’s other things you have to put into a business to make it work.  It’s not just money.

But money can generally buy you what you need.  Do you need someone to do a job to make the business happen?  Then you hire that person, and that means money.  Do you need office space or a store front or a set where you can film?  That costs money.  Do you need some raw material or equipment?  That’s more money.

So it all comes down to money.

And yeah, some people may be putting in time, effort, and resources and not get paid.  But they generally get some ownership stake in the business.  In that case, you’re turning ownership in the business into money – which really is how investment generally works.  In the biz, we call that sweat equity – you sweat, you get paid equity, which means ownership of part of the business.

So, we’ve got a machine where money goes in one end and more money pours out the other end.  How does this magical transformation work?

That’s where the business model comes in.

A business model tells you how a business turns money in into money out.  It tells what the money in is spent on and how you make the money coming out.

There’s a lot of different business models for a lot of different businesses.  For example, think of a restaurant.  You use money to rent the restaurant, buy ingredients, hire cooks and servers and hosts, and to advertise.  The cooks turn ingredients into meals, the servers serve those meals to the customers, the customers give you money, and voila, you’ve got a business model!    And if the restaurant is a success, the money that you get from those customers is more than the money you spent to make it happen.

Or think about one of the startups where I worked.  It helped people organize group trips and market them on a website.  The money going in went to hiring software developers, advertising for people to organize trips, renting office space, and paying resort owners for the use of their place.  The money coming out of the business came from people paying to go on those trips.  Another business model.

So what does all this have to do with filmmaking?

Well, especially in the independent film space, but to a lesser extent even with studio films, every movie is a business.  Usually it’s literally a business, at least in the case of indies: the most common approach is to set up a legal corporation to represent the making of the movie.  So, for example, I’ve incorporated the Smart House Film LLC in the state of Virginia.  SMART HOUSE isn’t only a movie, it’s a company and a business.

And because it’s a business, SMART HOUSE, like any film, will have a business model.  It will take in money as investments, use that money to make and market a film, and make money from that film.

Now note, from a broad view, most films have the same business model.  You take the money and hire cast and crew, rent equipment and settings, and buy supplies, and you use all that to make a movie.  You spend more money to market the movie and to pay distributors.  You then make money by having people pay you either directly or indirectly to see your movie.  Directly by buying a ticket or renting the film.  Indirectly by subscribing to a service where the movie plays or by watching advertising around the movie.  And that’s the business model: the initial up-front investment to make the movie, then money coming out from the viewers.

But the details matter a lot.  And it’s in those details that I view the differences in the business models that I’m considering.

So let’s look at some possible business models for films.  I’m going to start with a few that I’m not going to use for various reasons.  And just for the fun of it, let’s start big.

And about as big as it gets these days is a Marvel movie extravaganza.  So why not start at the top – with AVENGERS ENDGAME, the biggest grossing movie to date.

Okay, there should be a giant asterisk on that.  Because of course it’s only the biggest grossing movie if you don’t adjust for inflation.  If you do adjust for inflation, GONE WITH THE WIND is still the biggest grossing movie in history, over 80 years after it was released.  And for various reasons, probably always will be.

But of course, the Hollywood hype machine doesn’t like saying that an 80 year old racially problematic epic is the biggest grossing movie in history, so they don’t adjust for inflation.  And by that standard, AVENGERS ENDGAME is number one.

So, let’s look at the business model for AVENGERS ENDGAME.  First off, it cost $356 million to make.  That’s a lot of investment.

They used that money to hire writers and directors, a whole lot of top actors, and a small army of crew members and FX technicians.  Really – sit through the credits sometime and look at how many people they hired.

And they used money for cameras and lights and settings and all the other things that you need to make a film.

And of course they used money for marketing.  $200 million for marketing, according to Google.  That’s a big marketing budget and is a key input into the film’s business model.

So much for inputs.  Where did the revenue come from?

According to Box Office Mojo, a great site for this kind of thing, in box office alone AVENGERS ENDGAME made $858 million in the US, $1.9 billion internationally.  For a grand total of a little under $2.8 billion worldwide.  That’s a lot of box office.

But of course, that’s not all the money this movie made.  It sold DVDs and BluRays.  It brought in revenue from video on demand.  It makes money on streaming services.  It makes money from TV and from airplanes and from all the other places you can see a movie.

How much?  Well, that’s an interesting and complicated question.  The short answer is, it’s awfully hard to find out just how much a movie makes through all those other channels.  Which makes it awfully hard to plan how much your movie might make.  And since a lot of movies, including SMART HOUSE, are likely to make more money from streaming than from box office, those other channels are crucial.

And of course, I don’t even know how you figure out the revenue in some of these channels.  For example, take streaming.  You can see AVENGERS ENDGAME on Disney Plus.  You see it free – if you’re a subscriber.  How does someone watching count against the bottom line?

I’m sure that smart number crunchers at Disney and Netflix and HBO Max and all those other streaming channels have ways of determining how much a movie “makes” based on how many subscribers watch it.  But I’m not sure how real those calculations are.  Did anyone subscribe to Disney Plus just to see AVENGERS ENDGAME?  Maybe so, but probably not many.  If AVENGERS ENDGAME and all those Marvel movies weren’t on Disney Plus, would a lot less people subscribe?  Probably.  But how do you determine how much of that subscriber revenue should be attributed to these things?  It’s confusing.

But happily, it’s not a problem I have to deal with.  So let’s put AVENGERS ENDGAME aside and look at something on the opposite end of the business model spectrum.

I have a friend named Justin Snyder who recently made a movie called PATH OF THE BEAST.  It’s a horror movie about Bigfoot.  It’s good – I recommend you seek it out and watch it.  You can even find my name in the credits – I was a production assistant on the film for a couple of hot summer days.

But I didn’t get paid for my time working on the film.  To the best of my knowledge, nobody got paid.  We all helped out for the pure pleasure of making a movie.

Not surprising, the investment in the film was quite low.  It was shot in locations that Justin had free access to – a meeting room in a library, woods by a relative’s house.  Justin used equipment he borrowed or owned.  And there were no people-expenses: like I said, we all worked for the fun of it.

Now of course, Justin put a huge amount of time and effort into it.  He spent months, maybe a couple of years, making Bigfoot costumes and masks.  (And they looked quite good – he really did a great job on the Bigfoots. Bigfeet?)

But there wasn’t a huge amount of money going into it.  Just time.

Of course, Justin isn’t making Marvel-type revenues either.  You can rent the movie on Vimeo or buy a DVD from Justin.  And he’s taking it to Bigfoot conferences.

So that’s another business model: make a movie for next to nothing, do it with free or cheap resources, market and distribute it yourself.  Not much money going into the business machine, but also nowhere near Marvel levels of money coming out.

There’s actually a famous book by a famous filmmaker about just this model.  It’s REBEL WITHOUT A CREW by Robert Rodriguez, and it tells how Rodriguez made his first film, a no-budget volunteer-only effort that he made for only $7,000.  And that’s back in the days of film: Rodriguez bought film and developed it for that money.  And from it he launched a successful directing career – Justin’s approach is not a crazy one.

And one thing I really want to stress: I am not in any way looking down on anyone who manages to make a movie at any level, whether it be no-budget or budget in the hundreds of millions.  Making a movie is hard – and finishing it is even harder.  Even when I don’t like a movie – and I liked PATH OF THE BEAST – I still respect the accomplishment of the filmmakers.  So mad props to Justin and to all the other filmmakers out there who manage to pull together a feature.  I’m working hard to join your ranks.

So, there’s our two endpoints.  AVENGERS ENDGAME, huge budget, backing from a giant corporation, ginormous revenue.  PATH OF THE BEAST, almost no budget, driven entirely by one creative dude, earning whatever revenue Justin can scrape out of it.  So where do I plan to end up?

Well, neither of those.  I don’t have anywhere near Marvel resources and don’t imagine ever having them.  And while I have huge respect for what Justin did, there’s a few reasons I don’t want to follow his path.

A big one is, I don’t feel entirely comfortable having people working on my film for free.  I intend to pay everyone.  I have no problem with Justin doing it – there’s no problem with not paying people when they know they’re not being paid.  And making a movie is a lot of fun.

But that’s not what I want to do.  I intend to pay people, which in itself is going to make the movie a lot more expensive.

How much more expensive?  Maybe not as much as you think.  I know another guy who managed to make a fairly impressive cop action drama for around $30 thousand.  And he paid everyone who worked on it.  So it’s possible to pay everyone and still do things on the relative cheap.

And I’ll note: aside from the question of how comfortable I am with free labor, I have a sincere hope that if I pay people, they will be more reliable.  I know Justin had some problems with people being unreliable. 

On one of the days when I worked on his film, we spent most of the day shooting scenes with one actor, with plans to shoot a couple of his key scenes the next day.  But the next morning, the guy texted Justin and told him he didn’t want to do it anymore.  He just dropped out without any real excuse.  Justin had to recast at the last minute and reshoot all the scenes we had shot the day before.  A serious bummer – and one that I hope is less likely to happen if I’m paying professional actors.

Not impossible, but less likely.  An important distinction.  Heaven knows there’s plenty of stories of actors who got sick or dropped out of a project for some other reason.  It happens even in the biggest productions.  Just ask Terry Gilliam.

But note: paying actors puts SMART HOUSE into a different business model than PATH OF THE BEAST.  It’s going to cost more, which means that to make a profit I’ll have to find a way to make more.

And note, the making more part is another key element of the business model considerations.  I need to figure out what are the elements of my film that I can sell.  I talked about that a lot in episode 18 where I discussed how I went about figuring out what script I should make.  The short version is that horror is marketable, and with the right connections and a little luck I can probably make enough money off horror to make a profit on an ultra-low budget movie.  All I have to do is come up with a good trailer, a good poster, and the right genre.  Make a movie good enough to get some good word of mouth and I’m golden.

So there’s one business model that I’m considering.  Ultra-low budget, something in the $50,000 to $100,000 range.  Unknown actors.  Relatively cheap crew – pay them, but don’t pay them Marvel-level rates.  Do a lot of the work myself.  Sell the movie based on genre and some good marketing hooks.  And people that I trust suggest that for a movie of this type, I might be able to get $100 to $200 thousand in revenue.  So not a bad little money-making machine.

Now I’ve had a fairly nice little career in tech, and tech workers are paid absurdly high compared to what we actually contribute to society.  I mean, I’ve built a lot of cool and useful software in my time, and there’s a good chance that if you’ve spent any time on the internet, you may have used something software that I built. 

But I’m not sure anything I’ve done has contributed as much to society as the average teacher or nurse, even though I’ve been paid a lot more than they are.  And I’ve come out of that career with enough savings that I could probably pay that $50 – $100 K bill to make a movie.  It’ll be a stretch, but I won’t have to mortgage the house.  So that’s another consideration: following this model means I don’t have to raise money.  And who really wants to raise money?

But let’s look at another business model.  Suppose I want to make more money off the film.  Then I need to think about what’s going to make me more money.

One obvious answer: get actors that people want to see, known actors.  But that means more expense.  Both from paying the actors and from a more expensive production, one that is suitable for those higher budgets.

But with known actors, prices go up.  So instead of paying scale rates for actors, which for the Screen Actor’s Guild or SAG at the ultra-low budget level is around $200 a day, figure that I might be paying $10,000 or more a day for someone with a name and reputation.  And really, the sky’s the limit here. 

But clearly, a production with more expensive actors is a more expensive production.

But I have a couple of roles that, for various reasons, have a significant part in the film but would be fast to shoot.  So figure two, three days of shooting for this major supporting roles.  And suddenly I’ve got a more lucrative film for an addition of around $50,000.

See the complications?  See how it all works out?

There are also more distinctions that could be made.  Perhaps I want to find an actor who is big in some other geographic region so that I can sell the movie there based on that actor’s rep.  Say an actor who is loved in Africa.  I have three significant roles in SMART HOUSE: if I cast a big name from Africa in one of those roles, could I make a significant amount of money in African sales?

Or maybe I want to hire some social media star and capitalize on that person’s following.  I’m considering it.

It’s a bit of a game of chess.  I’ve got certain pieces – my characters – that I can move in certain ways.  With the goal being to make a great movie, sure, but also to make a lot of money off that movie.

These are some of the things I’m wrestling with.  When I get a little deeper into the casting process, I’ll probably do an episode on that alone.

But anyway, that’s a second business model that I’m considering.  Still low budget, but not as low budget.  Say $250,000 in budget, with a hope of making $1 million from the film.

The downside is that while I could probably self-finance a $100,000 movie, I can’t self-finance a $250,000 movie.  So this business model requires finding investors and raising money.

There are other bigger business models.  Business models at just about any level of investment from Justin’s no-budget to Marvel’s hundreds of millions.  But for this, my first film, I’m limiting myself to these two models.

The first model: Unknown actors, self-financed shoestring budget of $50 – $100 thousand, hoping to make $200,000 or so from the film.

The second model: Name actors carefully chosen for their marketability, bring in investors to end up with a budget between $200 and $300 thousand, hope to make $1 million or so.

And, of course, with either: dream that I’ll hit it huge, make ginormous revenues.  The next Blair Witch Project or Paranormal Activity.

(But that’s not really a business model.  That’s a dream – and not something that seriously factors into my calculations.)

So which business model am I going to pursue?

And here’s where I tell you a little more about me.  I’m a planner and a plotter.  And I always like to have a plan B in case Plan A doesn’t work out.

In this case, Plan A is the second model.  Try to raise money.  Try to hire name actors.  Make more money on the backend.

Of course, I may find raising money harder than I expect.  And I may find that it takes more time than I want to take.  But if that’s the case, I still have plan B, the first model.  Make a movie with money I can afford, market and distribute it with a target of making a couple-few hundred thousands.  Make a small profit, but a big enough profit that I can make another movie.

And there you go, now I have a business model!

Either way, this is going to be a low-budget movie, and I don’t expect to make a giant fortune from it.  I’ll have to work hard to keep expenses down and have a realistic distribution plan that will allow SMART HOUSE to make a profit, no matter which business model I follow.

So that’s where we are.  I’ve got a script, I’ve got a plan.  And I’ve got a podcast.

Next time, I’ll have on…

Until then, check us out on Storylanes.com for the script of this episode and whatever other links I think are useful.  Like, for example, a link to PATH OF THE BEAST, should you want to see it.  (I expect you can find your way to AVENGERS ENDGAME yourself!)

This is Joe Dzikiewicz, for the Storylanes podcast.  Talk at you later!

 

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The Storylanes Podcast gives a screenwriter’s point of view of the structure of the screenplay of movies and TV shows.  Each episode does a deep-dive analysis of one movie or show, examining how the story is structured and how al the elements come together to create the story.

Each episode also includes a chart of the scenes and other key elements of the script.  You’ll find those charts here, along with the scripts of the episodes themselves.