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F ILMED E NTERTAINMENT Industry introduction and overview.

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Presentation on theme: "F ILMED E NTERTAINMENT Industry introduction and overview."— Presentation transcript:

1 F ILMED E NTERTAINMENT Industry introduction and overview

2 Agenda Who are the players? How does a film or TV show get made? How are films and TV shows distributed? – Markets – Market & advertising a film – Theatrical distribution – Home entertainment – Television distribution – Licensing & merchandising

3 Agenda Ultimates and cost amortization – overview Participations – overview Residuals – overview

4 W HO ARE THE PLAYERS ?

5 The Studios (“Majors”) Studio Parent Broadcast Television Cable Television Viacom Universal Pictures, Focus Features NBC, Telemundo Disney News Corp. Comcast Time Warner 20th Century Fox, Searchlight Warner Bros. Walt Disney, Buena Vista, Pixar, Marvel Paramount ABC Fox CBS broadcast assets spun off Fox, Fox News, Fuel TV, National Geographic, Speed, STAR, Stats Bravo, Chiller, CNBC, MSNBC, MUN2, Oxygen, Sleuth. Syfy, USA, The Weather Channel ABC TV Network, Disney Channel, ESPN, SOAPNet, ABC Family BET, CMT, Comedy Central, Logo, MTV, Nickelodeon, Spike, TV Land, VH-1 Cartoon Network, Cinemax. CNN, HBO, HLN, TBS, TCM, TNT, TruTV Sony Columbia, Screen Gems, Sony Pictures, TriStar CW (joint venture with CBS) CW (joint venture with CBS) Bing; BitTorrent; CinemaNow; Dailymotion; Facebook; Google (including YouTube); iTunes; Joost; Kazaa; Morpheus; Napster; Netflix; Playstation 3; Qlipso; Twitter; Veoh; Vudu; Xbox 360; Yahoo! TV New Media GameShow Network (with Liberty Global) Various international cable stations GameShow Network (with Liberty Global) Various international cable stations Addicting Games, Atom.com, GameTrailers.com, Neopets, ParentsConnect, Shockwave Club Penguin, Disney Interactive Media Group, Disney Online, Hulu (JV) AskMen.com; Hulu (JV), IGN Entertainment, Milkround, The Daily Daily Candy, Fandango, Hulu (JV), iVillage, Xfinity Flixster, HBO Go, The Smoking Gun, Warner Bros. Interactive Entertainment Crackle, Gracenote, Sony Entertainment Network, Station.com Alternative New Media Distribution

6 Other players Mini-majors: Smaller companies that produce major motion pictures and may distribute their own films Independents: Smaller companies that may produce films for others and rely on others (majors or mini-majors) to distribute their films Amblin Entertainment DreamWorks Animation DreamWorks Studios Imagine Lakeshore Lions Gate Entertainment (recently purchased Summit Entertainment) LucasFilm MGM New Regency Overture Films Relativity Spyglass Village Roadshow

7 Studio market share – 2012 vs 2011 Source: and * Includes Summit

8 What was the highest grossing film for 2011? What was the highest grossing movie so far in 2012? What was the highest grossing movie in 2011?

9 Top films of 2012 – domestic vs int’l Film (through July 5, 2012)WW gross ($M)US gross ($M)US vs Int’l The Avengers$1,452$61142 / 58 The Hunger Games / 40 Men in Black / 71 Madagascar 3: Europe’s Most Wanted / 57 The Amazing Spider-Man / 59 Snow White and the Huntsman / 56 Journey 2: The Mysterious Island / 68 Dr. Seuss’ The Lorax / 31 Wrath of the Titans / 72 Prometheus / 58 Source:

10 Top films of 2011 – domestic vs int’l FilmWW gross ($M)US gross ($M)US vs Int’l Harry Potter and the Deathly Hallows Part 2 $1,328$38129 / 71 Transformers: Dark of the Moon1, / 69 Pirates of the Caribbean: On Stranger Tides 1, / 77 Twilight: Breaking Dawn Part / 60 Mission: Impossible – Ghost Protocol / 30 Fast Five / 66 Hangover Part II / 56 Cars / 66 Sherlock Holmes: A Game of Shadows / 66 Rise of the Planet of the Apes / 63 Source:

11 H OW DOES A FILM OR TV SHOW GET MADE ? (T HE PRODUCTION PROCESS )

12 Pre-production Principal Photography Development/ Packaging Post- production Script Development Crew Selection Set Design Costume Design Casting Location Scouting Budget ActorsProducers Directors Writers SoundstageSet Construction WardrobeLabor Film Editing Dubbing ScoringSpecial Effects Titles and CreditsSoundtrack Concepts Books, Screenplays Rights Film production: Direct production costs Greenlighting

13 Pre-production Principal Photography Development/ Packaging Post- production Script Development Crew Selection Set Design Costume Design Casting Location Scouting Budget ActorsProducers Directors Writers SoundstageSet Construction WardrobeLabor Film Editing Dubbing ScoringSpecial Effects Titles and CreditsSoundtrack Concepts Books, Screenplays Rights Film production: Direct production costs Greenlighting

14 Pre-production Principal Photography Development/ Packaging Post- production Script Development Crew Selection Set Design Costume Design Casting Location Scouting Budget ActorsProducers Directors Writers SoundstageSet Construction WardrobeLabor Film Editing Dubbing ScoringSpecial Effects Titles and CreditsSoundtrack Concepts Books, Screenplays Rights Film production: Direct production costs Greenlighting

15 Pre-production Principal Photography Development/ Packaging Post- production Script Development Crew Selection Set Design Costume Design Casting Location Scouting Budget ActorsProducers Directors Writers SoundstageSet Construction WardrobeLabor Film Editing Dubbing ScoringSpecial Effects Titles and CreditsSoundtrack Concepts Books, Screenplays Rights Film production: Direct production costs Greenlighting

16 Pre-production Principal Photography Development/ Packaging Post- production Script Development Crew Selection Set Design Costume Design Casting Location Scouting Budget ActorsProducers Directors Writers SoundstageSet Construction WardrobeLabor Film Editing Dubbing ScoringSpecial Effects Titles and CreditsSoundtrack Concepts Books, Screenplays Rights Film production: Direct production costs Greenlighting

17 Television production life cycle ConceptSyndicationFull SeasonPilots 1-hour series (dramas) 30 min series (sit coms) TV Movies Miniseries (8-12 hours) 30+ pilots ordered for the start of each TV season Introduce main themes and characters < 50% picked up for regular season Sold to network for distribution Typically 22 episodes/season (12 for cable series) Avg production costs vary depending on format/talent Episode fees increase 5-10% each year – higher if a hit 50-60% lose money during first few seasons Sold to TV stations and cable programmers At least 60 episodes Only 20% of new series make it to syndication Typically for certain number of runs within 3-5 year period

18 Film of TV production costs Above the Line Rights acquisition Writers Stars Director Producer Below the Line Crew Set decoration / construction Location Hair/makeup Camera / cinematography Non-star talent “Negative costs” Classified as “film inventory”, “production costs”, etc

19 Film or TV production costs - other Interest – Allocated to films based on current period spending – Beginning with principal photography through “answer print” Overhead – Allocated to films based on current period spending – Departments/individuals with “exclusive or significant” responsibility for production – Beginning with principal photography through “answer print”

20 Cost minimization Forming partnerships with investors (non-film companies) to share risk Splitting production and marketing roles (co- productions) Sharing risk with key talent (participation agreements) Tax incentives – other countries or states

21 H OW ARE FILMS AND TV SHOWS DISTRIBUTED ?

22 Film markets Theatrical Home entertainment Pay-per-view (PPV) / Video on Demand (VOD) Pay TV Network / free TV Syndicated TV Merchandising / licensing Digital Media

23 (months) Theatrical Home Entertainment (DVD, Blu-ray) Free TV (network & syndicated) PPV/VOD Pay TV Current release windows of a film Licensing and Merchandising Digital Media

24 TV show markets Network Cable Home entertainment Syndicated TV New media Digital Media

25 M ARKETING AND ADVERTISING A FILM

26 Marketing and distribution costs aka “Prints & advertising” (P&A), “exploitation” Prints – film prints that are made and sent to theaters for projection on screen – $2,500 - $4,000 per print – 1,500 – 4,000 prints at initial release – Digital cheaper, but exhibitors slow to convert

27 Marketing and distribution costs Advertising – Media: air time and print space costs TV and radio advertising time Billboard, bus / bus stop space Newspaper, magazine ads – Basics: creative and promotion costs Creation of advertising campaign Printed materials (posters, standees) Promotion (premieres, junkets) Award show promotions Trailers

28 T HEATRICAL DISTRIBUTION

29 Box office trends – U.S./Canada Source: MPAA 2011 Theatrical Market Statistics

30 Theatrical – U.S. Movie release pattern: – Limited (less than 1,400 screens) – Wide (3,000+ screens) – Roll-out (platform) Release season – Summer (Memorial day weekend – August) – Holiday (generally November/December) Film rentals – Studios’ box office share – Negotiated settlement rates

31 Box office trends – International Source: MPAA 2011 Theatrical Market Statistics

32 H OME ENTERTAINMENT

33 Home entertainment Sell-through Rental Revenue share Correlation to box office success (“conversion rates”) Big box retailers vs independent retailers (Walmart – loss leader model)

34 Home entertainment trends Source: “Video intelligence,” Screen Digest, March 2012

35 What was the biggest selling DVD title in the past week?

36 T ELEVISION D ISTRIBUTION

37 Television distribution - Films Pay-per-view (cable & satellite providers) SVOD (cable, Netflix) Pay TV (e.g. HBO, Showtime) International TV (BBC, TF1) Network TV (NBC, ABC) Syndication / cable (TNT, USA, AMC) Digital media (Netflix, Hulu, streaming, downloads)

38 Television distribution – TV shows Network International TV Syndication Cable Internet

39 U.S. TV ratings “Share” Share =.33 (2 out of 6 houses with TV sets on watching Jersey Shore) 2 homes watching Jersey Shore “Ratings” Rating =.20 (2 out of 10 houses with TV sets are watching Jersey Shore)

40 Broadcast TV trends RankProgramNetworkRating/ShareViewers 1AMERICA’S GOT TALENT – TUENBC7.0 / 1111,668 2AMERICA’S GOT TALENT – WEDNBC6.4 / 1110,662 3AMERICA’S GOT TALENT – MONNBC6.0 / 1010,452 4US OLYMPIC TRIALS – SUN 9PMNBC5.9 / 1010, MINUTESCBS5.5 / 118,444 6NCISCBS5.4 / 98,034 7US OLYMPIC TRIALS – SUN 8PMNBC4.8 / 97,886 8US OLYMPIC TRIALS – FRI 9PMNBC4.7 / 97,785 9BIG BANG THEORYCBS5.1 / 97,695 10US OLYMPIC TRIALS – WED 8PMNBC4.4 / 87,091 Top 10 Broadcast TV Shows – Week ending July 1, 2012 Source:

41 Licensing and merchandising Contractually driven May require minimum guarantee (MG) plus overages (royalties) Revenues dependent on statements received from the licensees Revenue recognition may be cash driven

42 U LTIMATES AND C OST A MORTIZATION - OVERVIEW

43 What is an ultimate? Management’s estimate of the “ultimate” gross profit of a film (accounting standards give 10 year limitation) Judgmental and high risk area Used to amortize capitalized film costs to cost of sales

44 Amortization calculation Year 1 Year 2 Ultimate costs Costs to amortize Yr. 1 revenues Ultimate revenues Ult costs to go Costs to amortize Yr. 2 revenues Ult revs to go

45 P ARTICIPATIONS AND RESIDUALS

46 Participations – overview Contingent compensation for creative talent (actors, writers, directors, producers) Expensed using IFF method (based on ultimates) Amounts paid, if any, are based on contractually agreed-upon formulas and cash received (not revenue recognized) Formulas vary depending on star power of talent (gross deal vs net deal)

47 R ESIDUALS

48 Residuals – Overview Additional compensation for “ancillary” markets (DVD, pay TV, cable, network TV, etc) Residuals based on percentage of gross revenues received by a distributor from ancillary markets Residuals for TV shows based on original salary paid during the production and are not paid on the initial airing of the show (only on “re-runs”) Union or “guild” specific Payments made to individuals or to the guilds on behalf of members

49 Residuals – Overview Pro-ration for filming outside the U.S. Some states are “right-to-work” states (non- union) SAG/AFTRA applies no matter where actor works Range from 12.5% - 20% of revenues generated in ancillary markets Fringe benefits (payroll tax, pension, health & welfare benefits) can add another 25% surcharge to residual payments

50 C ASE S TUDY INTRODUCTION


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