Unlocking Film Financing Secrets: Exclusive vs. Original Models in the Dynamic Film Industry
Welcome once again to this series of PRO TIPS for creatives and emerging producers. Today we’ll touch on a topic that will help you understand (a bit more) how the audiovisual industry really works and how the future strategic partner you need to bring your project to life thinks: The Producer.
Just like artists need to build a reputation, producers also need to tread a path towards visibility and relevance. Imagine you’re a screenwriter; your path to visibility could involve crafting an impressive script, validating it with a third party, and participating in various script competitions. Gradually, your name starts resonating in the industry until you achieve a certain relevance. But if you see yourself in the role of a producer, especially if you aspire to executive production, the path is somewhat different.
In this article, we will explore the two funding models that are currently in effect and explain how a production company can gain relevance to be attractive to streaming platforms.
First, it’s important to understand the Current Audiovisual Landscape. It’s evident that we can no longer talk about a market without considering streaming platforms, so it’s crucial to stay updated with emerging changes and understand where the business opportunities lie.
Certainly, while the streaming system has driven accelerated growth in the industry globally, it has also generated a new distribution system that is transforming the market at a dizzying pace.
This can create complicated situations, but that doesn’t mean there are no opportunities. It’s essential to be prepared and demonstrate adaptability. A constantly changing market can increase barriers to entry for traditional opportunities, but at the same time, it can open up new opportunities in emerging market entry systems.
Now, let’s be realistic and acknowledge that the era of limitless funding is likely at its peak, and we are now in a stage where the value of being well-prepared is incalculable. In other words, it’s a stage where the producer must demonstrate a high degree of relevance compared to others.
The environment is becoming increasingly competitive. For example, let’s look at Amazon, the only platform that has remained strong throughout the economic slowdown and writer strikes. Their approach to Originals is very different from platforms like Movistar, Disney+, or Netflix. Amazon rarely releases more than 3 or 4 Originals a year, and all indications suggest that other platforms might adopt a similar strategy.
Are you curious about what all this implies? This translates to a trend of buying more and producing less by the platforms, so the responsibility of generating innovative content falls on studios and production companies.
So, get ready! Let’s delve into the pros and cons of film and series financing models, based on the Production Models that are currently in effect.
Exploring the Production Model: Originals
Imagine presenting your idea to a Streaming Platform and having them decide to fully finance it. This is the concept behind the Original model. In this scenario, the platform becomes the total owner of the Intellectual Property (IP), including all exploitation rights and more.
This model may seem attractive from a financial perspective. The platform provides the money upfront, and the producer only has to deliver the final product and collect their fee, usually around 10%. Once the product is delivered, the problems are over!
But what are the disadvantages of this production model? First, the barrier to entry is extremely high. Have you ever wondered why there are so few production companies working with streaming platforms? The platforms have very advanced risk control, making it a real challenge to get on the list of companies producing Originals. Typically, only the most relevant production companies in each country are selected.
Another downside is that by handing over 100% of the IP of the project, the producer gives up all rights to the work, despite having developed the creative part. This means that even though the employees of the production company (the authors) have created and developed the script, and the rest of the creative team has carried out the production, the platform becomes the absolute owner of the project.
And finally, it’s the platform that determines the budget, not the producer. Although the exact calculation is not known, it is believed to be based on the potential of the production to attract new users, taking into account the countless variables in their data.
Decoding the Production Model: Exclusive
Let’s unravel the concept of Rights Acquisition, a term that actually has the legal aspect of a Coproduction.
The financial model of Exclusives operates in the opposite way to Originals. Financing management here can be a real puzzle, as it is primarily based on Rights Purchase, that is, the platform rewards you once you have delivered the series. Additionally, the payment method of these platforms is usually quarterly and extends over three years.
What does this mean in practical terms? Imagine that as a producer, you have pre-sold a series for €2,000,000 to a platform. You need to find those €2 million from other funding sources, which involves very complex banking management.
Working with a bank can be complicated, as they don’t just lend money, they charge interest. The level of these interests depends on your relevance and that of your production company. To illustrate, if you and I go to the bank tomorrow and apply for a mortgage, they’ll probably offer us an interest rate of over 4%, and if you also have a debt, they won’t grant you the loan. However, companies like Movistar, which owe the banks over 27 billion, not only get more loans, but they also get them at an interest rate of 2%. This is because Movistar has the ability to repay it all, as the company’s value far exceeds that amount.
Therefore, a key strategy in this production model is to partner with entities with an attractive track record for banks, such as production companies like Onza Capital, Morena Film, and others.
What is the big advantage of this model? The production company retains the intellectual property of the project. This means they can sell the rights to Netflix in Spain and to Amazon in the UK, which can generate much higher profits than in the original production model, as they benefit, upon completion of the production, from International Sales and potential adaptations.
This is how relevance is achieved.
So, what about Gross Margin? Let’s talk about Gross Margin.
This is crucial, not only for your pocket but to have a better budget to develop the next production.
What happens in the Original model with Gross Margin? Platforms increasingly optimize production costs, leaving an average Gross Margin of 10%. For example, in Spain, Social Security represents a high cost of 15% of the total budget of a film, so after deducting costs, there’s that, a 10% gross margin.
In the Exclusive Model, this aspect must be carefully considered because it’s not a relevant cost.
Looking at opportunities in this constantly changing market In an audiovisual landscape where the Originals Model is becoming increasingly fit, the Exclusive Model emerges as an interesting alternative to consider. Although the financial structuring can be more complicated, the industry has modernized, and there are now more funding opportunities to support this process, such as attracting private investment through tax incentives.
But we’ll discuss that in the next post.
Now it’s your turn, what do you prefer? Do you give up the rights to your content for someone else to benefit from it, or do you prefer to retain your intellectual property? We’d love to hear your opinion in the comments.
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