PREAMBLE: 
We had a conversation the other day with a prospective new client about the value of a motion picture library that they were looking to acquire – and the comparative value of the company that owns those films.  That conversation reminded us how outmoded the thinking is for many entertainment professionals who see the value of their film assets as unchanging. 
____________________________________________________

​As appraisers, we look at valuation differently than the creators of movies and docs do.  We are most interested in the remaining economic life left in the assets, and less interested in the critical success of the film when it was first released in theaters.  Yes, the cast, director and box office success of every film does play a part in its Future Value, but how exploited the film was upon release, and the state of the distribution rights, weighs heavily on its Present Value. 

Let’s explain by way of an example:  If you have two movies, one was critically acclaimed and sold extensively around the world under long term contracts, it may not be worth as much as a lesser known film of equal quality, that was not widely released.  The reason is that the second film can still be sold in global markets where it has not yet been exposed. And, the first, better known film could have exhausted 90% of its territory avails. 

​The Present Value of any asset is directly proportional to its revenue producing future. 

Even a great motion picture, or documentary, that has been heavily sold around the world under long-term contracts, can have very little future economic value – just a few years after it was released.
​

​Beware of long term commitments. 

If you sell a motion picture to Netflix or HBO under an exclusive, world-wide, 7-year distribution deal, you might like the initial pay day, but the value of the asset could be diminished because the distributor (or producer) loses the right to then sell the film elsewhere.  Increasingly, the big OTT channels - like Netflix and Amazon - are demanding world-wide, long-term contracts to acquire films and series.  If you are getting top dollar from these broadcasters then by all means make the deal, but remember what you are losing – long-term income from incremental sales.  It’s a trade off that you need to consider.
 
Back in the day of disks and video stores, it was easier to continue selling film assets into an ever-expanding, global marketplace (piracy issues aside).  But today the free market for movies and documentaries has narrowed, with only a few global players dominating the digital channels of distribution.  Many film distributors we know are beginning to question why they are even attending the global sales markets.  With fewer international rights to sell, and low prices being paid for their legacy film assets, the costs of attending film markets may not be justified by the revenue generated.
​ 

​The value of any intellectual asset is measured by its ability to return an income to its owner. 

If all the income has been drained out of an asset upon its original release to the marketplace, don’t expect that asset to spontaneously manufacture value simply due to its existence.
​

​The marketplace for films is forever changing.  

Examples of asset value changes: you might have a film that featured Chris Pratt or Emilia Clark when they were still unknowns, and another with Mel Gibson or Kevin Spacy when they were well-knowns.  The value of every motion picture is dynamic and changes every year based on market forces, and the value of the underlying movie stars, directors, and producers (think Harvey Weinstein).  New markets (like China) are opening to English-language films that have previously been closed, and that can create new revenue from older IP, resulting in a higher asset valuation.
​

A film library is not a bag of rocks – nor is it necessarily a bag of diamonds.  
 
Each production needs to be assayed for its commercial value and compared to other films of a similar quality, age and marketability.  Only then can intellectual properties be accurately appraised. 
 
If you are curious as to the current value of a library, or individual film, please contact us.  
___________________________________________________

Let us help you.

Our firm, Bel Âge Médias (B.Â.M.}, is a company specializing in developing film, television, and other media properties, as well as providing business development, branding guidance, and investment banking services.

Bel Âge Médias • Santa Monica, California
Call Us - or Visit Us Online - or Email Us:
+1 310 666-6474 
https://belagemedias.com/ 
Stephen(@)BelAgeMedias.com • Sarah(@)BelAgeMedias.com 

Endnotes / References: 

1 – So What Exactly Are Film Libraries Worth Now? by Nikki Finke - https://deadline.com/2010/02/what-exactly-are-film-libraries-worth-now-25222/ | DEADLINE - February 11, 2010.

2 –  Film Library Acquisitions - Valuation and Strategy by Pras Chaudhuri -  http://prasenjitchaudhuri.blogspot.com/2010/09/film-library-acquisitions-valuation-and.html |OBSERVING ANALYTICS-DRIVEN TRANSFORMATIONS - September 29, 2010

3 – Valuing a Single Film or Entire Film Library By Stephen J. Kerr - http://www.bizmark.net/blogs/valuing-a-single-film-or-entire-film-library-updated |BMC Online - May 17, 2016

4 – How Much Are Films Worth? By Stephen J. Kerr - http://www.bizmark.net/blogs/how-much-are-films-worth | BMC Online - April 4, 2017

Image Credits:
 
WIKIMEDIA-Film_archive_storage_(6498619601).jpg – By DRs Kulturarvsprojekt from Copenhagen, Danmark (Film archive storage Uploaded by palnatoke) [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

PHOTO_Sarah&Stephen.png – by BelÂgeMédias

(Big Screen, Small Screen – they all scream “TV”)

PREAMBLE: At the most recent American Film Market, we met with more than 25 film distribution companies.  About one-third of those companies said that they have no plans what-so-ever to enter the television series space, another third are just now starting to consider developing TV series, and the other third of the companies are actively developing series for the television market.

​We wrote this article because 99% of the films that independent distributors sell to the world will never see the inside of a multi-plex.  In fact, few will ever be released in theaters in any form.  So why are some indie movie producers and distributors still telling themselves (and telling us) that they’re only in the movie business?  Studios have long known they are in both the film and television businesses, and in this article, we explain why Indies should acknowledge that they are too.  

Stephen J. Kerr (SJK): Netflix, Amazon, Hulu, HBO, Cinemax, Epix, Vimeo, Sling, Google Play, Crackle, YouTube, TruTV, Hallmark Channels, Oxygen, BBC, TF1, TFD, IFC, AMC, Pivot, Starz, Showtime, SyFy, A&E, MTV, Univision, NatGeo, USA Networks, Bravo, Smithsonian, BET, Discovery, FXX, CMT, OWN, Spike, TLC, VUDU, Comedy Central, soon Apple and Facebook, and of course ABC, NBC, CBS, and FOX – in actuality – are all the places people watch movies… and are all essentially television.  By television, of course we mean the screens of actual televisions, plus laptops, smart tablets, smartphones, gaming platforms, and airplane screens.  

Even those 1% of films that get a limited or wide theatrical release are in movie theaters for – at most – three to four weeks of their entire lifespan.  So, it’s time to ask yourselves, what business are you in?  The movie business or the television business? 

​The answer is, of course, both.

SJK: Yes, excellent comparison.  A single TV series can run 10 to 12 hours, and thanks to binge watching, they are now the banquets, while movies are simply the appetizers.  Two-hour motion pictures are hard to stop half way through and then come back the next day to finish – like we can with serialized content.  Diminished attention spans have made it more difficult for people to concentrate on any program for more than an hour at a time. We now see movies and serials playing side-by-side on most networks.  There is a reason that Netflix, Amazon and HBO dove into original series, they found out quickly that people didn’t want to watch two-hour movies - one after another - anymore.  Viewers prefer a mix of both short, long-form, extended-form content, and the ability to binge on them at-will.

SJK: It doesn’t have to be.  When you stop thinking that there is a difference between them, and you begin to embrace limited television series as just another form of filmed entertainment, then you can start to incorporate serialized content into your development, production, and distribution plans.

​TV series are bought by almost all the same networks and foreign buyers that acquire movies.  Often the acquisitions person in charge of TV content will be different, but they all work for the same companies. 

SJK: Nowadays, the risk associated with selling a television series can be much less than a movie.  With a series, respected showrunners sell the concepts with either a “pitch bible” or a “pilot.”  On movies, you usually need to finish the film, and a trailer, before you can get a financial commitment from domestic and foreign buyers.  Veteran movie sales people can often obtain an indication of interest from the film buyers, but it’s getting harder and harder to secure advances and minimum guarantees.  If you are an Indie movie producer, you must make and deliver the finished movie before you get paid.  It’s the same with most TV movies, too – you get an order for it, but you usually don’t get paid until the day it airs.  

​SJK: If the 1960s were the “Golden Age” of television, today must be the “Platinum Age” of TV.  Shows like Game of Thrones, Fargo, House of Cards, Westworld, Breaking Bad and The Handmaid’s Tale have helped transform the networks and the OTT channels that created them.  Movies used to be the staple at HBO, Showtime and Cinemax, not to mention Netflix and Amazon.  Now the core content is anthology, limited (and unlimited) television series.
We read that the move toward the “anthological miniseries that can reinvent itself every season is a better fit for writers who have a strong story to tell over a small number of episodes but not 65 to 100 as in the traditional series format.”

“I’m starting to feel like the process of making television can be much more fluid. Production timetables and episode counts can follow the voice, the timing, the schedule and the needs of the creative people rather than mold themselves into a predetermined business structure where they have to be creative on demand. To me that’s a recipe for mediocrity.”
​– John Landgraf, FX Networks CEO

​Limited television series are especially fluid to create. These small-episode order shows – with a beginning, middle and conclusive end – can wrap up their stories. They are created without the pressure of officially coming back for a second season.

SJK: Sam Sokolow, a veteran Indie television producer, an executive producer of Nat Geo’s scripted anthology series GENIUS, and a former Indie filmmaker who we work with, points out that the television industry has been experiencing a metamorphosis. He also reveals that even though the term “independent film” is a common and familiar one, “there now exists an opportunity to invest in - and co-produce - independent television programming.”
His company produces and shoots ten-minute “mini-pilot” presentations, with the star of the show (sometimes an A-List movie star) and head-writer / showrunner attached – and he presents these mini-pilots directly to the networks, studios and OTT channels.  Sokolow bypasses the laborious process of pitching a series and then having to rely on the network to fund a pilot.  
The mini-pilot presentation cuts through the red tape of selling television properties to networks.  These basically look the same as the series, and they give network execs a clear picture of the scope, and the feel, of the show.  The costs of these mini-pilot range from $100K to $300K… or about the same investment as an ultra-low budget movie. Doing it this way means that, if the series gets picked up, you could have a $10 to $20 million-dollar production on your hands – and that’s only Season One. 

With traditional television studios, the process can be very frustrating to top show creators and writers, and can take a very long time, and then if… IF… a network orders a pilot, and they pay for that pilot, all parties share creative control and have oversight of production.  The project can get watered down at every step if decisions have to be made by a committee.
– Sam Sokolow, President & CEO of EUE / Sokolow Entertainment -
​the content division of EUE / Screen Gems

​Conversely, smart TV showrunners working with Sokolow can “cut to the front of the line” with a mini-pilot in hand, and offer a more unique television series that serves up the unfiltered creative vision to the networks. 

SJK: In the traditional “development hell” sense - you can. Once you, Indie film producers, make the decision to invest in, co-develop and pitch television series with a proven television co-production partner, you are diversifying your company just like Disney, Warner Bros, Universal, Twentieth Century Fox, Paramount, MGM. and Lionsgate did 40 years ago.  The movie studios embraced the new medium of television and they were rewarded for their vision. 

​When you co-develop, co-produce, and sell television series, as well as movies, you now have the luxury of serving an entire meal to viewers – not just an appetizer.

​SJK: No one is saying that breaking into Indie television development, production and distribution is easy.  It takes a sincere commitment, just the right kind of content, and a seasoned co-production partner to get a series up on-air and then to sustain it over years.  But if you start small, co-produce and co-pitch just one or two mini-pilots for limited series per year, it will move your company in the right direction.  Being in the television series business should be seen as a long-term content building strategy, not as an overnight “game changer.”

​SJK: Many Indie film producers and distributors have access to great talent and know how to make and sell compelling content. You just need to know the right showrunners and the network buyers who acquire television content.

This process creates a more successful and quicker path to presenting television shows to content buyers, broadcasters, and/or distributors.

​Of course, we can give you a boost in the right direction.  Just like making and marketing movies, it all starts with inspired concepts – articulated by great writing and a sound marketing plan.  Entertainment is entertainment, whether it is (long-form) movies or (extended-form) television series.  The greenlight process may be a little different and the buyers may be new to you, but great entertainment will find an outlet with the right people on board. 

If you would like to discuss how Bel Âge Médias can help your company explore ways to work in the television content business, please give us a call.

Let us help you.

Our firm, Bel Âge Médias (B.Â.M.}, is a company specializing in developing film, television, and other media properties, as well as providing business development, branding guidance, and investment banking services.

Bel Âge Médias • Santa Monica, California
Call Us - or Visit Us Online-  or Email Us:
+1 310 666-6474 
https://belagemedias.com/ •
​Stephen(@)BelAgeMedias.com • Sarah(@)BelAgeMedias.com

Endnotes / References: 

1 - 17 Execs Explain Why They Keep Renewing Limited Series – HBO's Big Little Lies. Netflix's 13 Reasons Why.  HBO's The Night Of. AMC's The Night Manager.  Each of the above dramas were designed (and promoted) as limited series — small-episode-order shows with a beginning, middle and conclusive end that wrapped the story. And yet all four of them are either officially coming back or in talks to return for second seasons. – NOVEMBER 09, 2017 
http://www.hollywoodreporter.com/live-feed/big-little-lies-13-reasons-why-17-execs-why-they-keep-renewing-limited-series-1056663 
 
2 – The 18 most anticipated TV shows of 2018. Breaking through in a Peak TV world of more than 500 scripted originals is a challenging task, so top showrunners and stars continue to be in high demand as broadcast, cable and streaming platforms look to cut through the cluttered landscape with familiar faces, writes Lesley Goldberg (including the small-screen series regular debut for Oscar winner Sean Penn). – DECEMBER 01, 2017  
https://edit.hollywoodreporter.com/live-feed/18-anticipated-new-tv-shows-2018-1063308
 
3 – How Streaming Giants Are Spending Money for TV Push – AUGUST 23, 2017  
http://www.hollywoodreporter.com/news/how-streaming-giants-are-spending-money-tv-push-1031885 

4 – What if more TV shows were anthologies? Viewers might be less overwhelmed.
The Genius of Genius Anthology Series – Courteney Monroe (National Geographic): “It’s easier to expand an existing brand than to create one in the first place. When we see a spark of success, we always consider how we can nurture it into something bigger. With Genius, we knew we wanted an anthology series. Einstein worked. Picasso is up next. And you’d be safe to assume we are thinking about who else’s life and story will stand up to the Genius treatment next.” – JULY 31, 2017  https://www.washingtonpost.com/entertainment/tv/what-if-more-tv-shows-were-anthologies-viewers-might-be-less-overwhelmed/2017/07/31/7b8d3f56-760c-11e7-8839-ec48ec4cae25_story.html

5 – Tim Goodman: The Best of TV 2016 and the "Platinum Age of Television"
http://www.hollywoodreporter.com/lists/tim-goodman-best-tv-2016-955668/item/chance-tim-goodman-picks-2016-955686
 
6 – FX’s John Landgraf on Competition For TV Talent: ‘It’s Moneyball’ http://variety.com/2016/tv/news/john-landgraf-fx-moneyball-tca-1201681533/

Image Credits:

IMAGE_entertainment.ie_netflix-50s/372706 via entertainment.ie/news 
PHOTO_Sarah&Stephen.png via Bel Âge Médias

#####################################################
SIMULTANEOUSLY PUBLISHED AT:

LinkedIn-Stephen J. Kerr – https://www.linkedin.com/pulse/… stephen-kerr/
LinkedIn Sarah Nean Bruce – https://www.linkedin.com/pulse/… sarah-nean-bruce/

​PREAMBLE:
We wrote this piece for entertainment professionals who own a film and/or television content distribution business, because they know what challenges impact their businesses. Challenges like lower revenue from foreign sales; disintermediation due to self- distribution; rising acquisition costs for quality productions; the need to invest earlier in films in order to lock up distribution rights; increased risk from foreign competitors, and more.  It has never been easy to be in the film distribution business, but lately the hurdles seem to be growing, and a clear path forward more challenging. 

​

Stephen J. Kerr (SJK): The last few years have been tough for film distributors, but it has also been one of the best of times to distribute content.  There are more places today to sell movies, documentaries and television serials than ever before.  The world is a smaller place, with previously insignificant markets like India, South America, Africa and Southeast Asia now becoming viable markets for American entertainment.  With 500+ cable channels and as many OTT channels blooming on the internet and on your TV, there is an audience for almost every conceivable form of entertainment.  The challenge is that with all those choices, the audiences for each movie and show are smaller, and therefore content is less valuable.    
Being a film distributor has its rewards: lunch on the Cours Masséna in Cannes with actors, auteurs, and producers; red carpet photos with beautiful people at Sundance and Tribeca Film Festivals; pitching film buyers in Santa Monica, Berlin and Hong Kong.  That’s the fun part.

​SJK: The less fun parts are disgruntled producers, collecting money, paying advances, battling lawsuits, hiring and firing, monetizing 4K, reporting, trying to keep up with digital technology racing ahead at breakneck speed… and more.  Much more.

​Soon all distribution will be digital, with producers simply selling their films directly to digital outlets –without the help of middlemen at all.  It is already happening.  People may argue over the timing of this, but there is no argument over the certainty of it. 
In the 1990’s our firm advised many book publishers and music labels on how to sell their businesses – many heeded our advice and walked away with millions of dollars.  Others held on to the “bitter end” and got little or nothing for their companies and titles.  In the 2000’s, we helped several home video entrepreneurs cash-in on the equity they had built up in their companies.  Today, we are witnessing many of the same warning signs that indicate that film distribution, as a business, is reaching its twilight years.

​SJK: What was once an oligopoly of large and mid-sized independents is now a hodgepodge of micro, medium, and maximum sized content distributors.  This is the sign of an industry that has seen its halcyon days and has probably reached its apex.  Direct-to-consumer marketers like Amazon and Netflix, Showtime, Cinemax, HBO, HULU, VUDU and Starz are not only customers and producers, they are competing head to head with film distributors for the best product.  How long before the producers decide that they no longer need film distributors to get their films in front of the public?  For small producers, distributors still serve a purpose as aggregators of entertainment content for the broadcast and digital outlets.  But this is not the game they want to be in when only the rich are getting richer. 

​SJK: Often, the most beneficial way to exit a distribution business is to sell to a much larger company.  In the home video era, our firm assisted more than a dozen DVD distributors sell their companies to friendly competitors and other media companies.  In some ways it is easier these days to sell a media company, without boxes of DVD’s sitting in a warehouse somewhere.  At their core, film distributors are basically a collection of contracts, connections, and digital content sitting on servers somewhere.  Companies that want to merge or otherwise consolidate, don’t have to worry about moving their physical product – only moving their contracts and transferring their media.  The digital video revolution has definitely made some things easier. 

​SJK: A smaller distributor may have a niche market that the larger company wants to get into.  They could also have direct put deals with one or more key digital channels (think Netflix).  They might have highly-prized, branded properties that could turn into a franchise.  Or they may just have great relationships with notable producers and directors that would benefit any larger company.  The fastest way for a big distributor ($40 to $100 million) to grow quickly is to acquire other companies.  The most lucrative way for a small distributor to exit their business is to sell to a big one.

SJK: Merge with another, equally successful, distributor. (2)  Sometimes this can result in making one strong company out of two weaker ones.  Our firm has helped many media companies travel this route, especially with Canadian, UK or other foreign houses.  Combining film catalogs and marketing relationships can give both companies a boost.  Merging two or more companies can help insure the survival of both houses.  Each company brings its strengths to the table and by combining those strengths, can mitigate their weaknesses.
Once merged, the now one, stronger company may become an attractive acquisition target for a large publicly held company or private equity group.  

SJK: The value for most distributors rests in its people and its relationships.  The catalog of past films, acquired over the years and sold to the world markets, is usually not a big value driver. (3)  We recently valued a 20+ year veteran distribution house with over 250 good movies and documentaries in their backlist.  The market value of their catalog was only $1.3 million, because they had sold off most of the world territories, and the remaining economic life of their titles was nearly exhausted.  Strong relationships with both domestic and foreign film buyers, and access to new and better films in the future, are the hallmarks of a valuable distributor.  Another potential way to squeeze out any remaining value on titles from the last few years is to consider re-releasing to OTT or others in 4K because that market is starting to become significant. (4) 

​There appears to be a glass ceiling for film distributors at the $4 to $6 million level.  It is difficult for a company that reaches this revenue peak to get much bigger simply by working harder without the infusion of fresh capital to pay minimum guarantees, executive produce their own movies, and/or negotiate “put” deals with the big digital players like Netflix, Amazon or HBO. 

SJK: It is a still good idea to have an Exit Strategy even if they have no plans to put it into action for years.  There may be moves a film distributor can make to enhance the value of their company and make it a more attractive now, and in the future.  One of the most beneficial, and yet overlooked, improvements to any distributor is knowing where all their contracts and elements are, keeping them up to date, and exploiting any unused rights.  It’s amazing how this much-needed piece of housekeeping can increase the value of any business. 
Another way to build value is to sell off non-performing assets (titles) that weigh catalogs down, but don’t  generate much value for the company.  A third, value-building move is to negotiate an exclusive “put” deal with any major OTT or cable channel.  Exclusivity, of practically any kind, can create a higher perceived value of that distributor.  Of course, there are many more ways to help enhance a distribution company’s value. These are just a few where we have guided companies.  

​If you would like to discuss ways that Bel Âge Médias can help your company To Exit or Not to Exit, please give us a call.

​Let us help you.

Our firm, Bel Âge Médias (B.Â.M.}, is a company specializing in developing film, television, and other media properties, as well as providing business development, branding guidance, and investment banking services. Additionally, under our ongoing 4K / Ultra HD initiative, we continue pursuing strategic alignments with high-end, entertainment technology providers, and explore low-cost alternatives for theatrical, televised, and online distribution of 4K (and 2K) films and television programs globally.

Bel Âge Médias • Santa Monica, California
Call Us or Visit Us Online or Email Us:
+1 310 666-6474  
http://BelAgeMedias.com • skerr@bizmark.net • belagemedias@ME.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Reference List: 
1 - ARE THERE STILL TOO MANY FILM/TV DISTRIBUTORS? | BMC Online – 03/06/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/are-there-still-too-many-filmtv-distributors

2 - BUY SELL MERGE OR VALUE A FILM DISTRIBUTOR  | BMC Online – 06/06/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/how-to-buy-sell-merge-or-value-a-film-distributor

3 - VALUING A SINGLE FILM OR ENTIRE FILM LIBRARY (Updated) | BMC Online – 04/04/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/valuing-a-single-film-or-entire-film-library-updated

4 - WHAT IS YOUR 4K / UHD STRATEGY? | BMC Online – 01/05/2017 by Stephen J. Kerr
​http://www.bizmark.net/blogs/what-is-your-4k-uhd-strategy

Image Credits:
IMAGE_ToExit-NotToExit-Vortex.png by Bel Âge Médias
PHOTO_Sarah&Stephen 2.png via Bel Âge Médias
##################### 
Simultaneously Published at:
LinkedIn-Stephen J. Kerr – https://www.linkedin.com/pulse/exit-strategies-film-distributors-stephen-kerr/ 

PREAMBLE:  For more than 25 years our company has developed film, television, and other media properties – as well as provided business development, branding advice, and investment banking expertise. However, our primary service has always been advising business owners on how to value, buy or sell their media companies.
 
Some of the most challenging assignments we get are advising film distributors and sales agencies. 
We will refer to both film distribution companies and sales agencies as simply film distributors. The reason is that the line between what the entertainment industry has historically defined as a distributor and a sales agent has blurred to the point of being indistinguishable from one another.
 
Around the world, distributors often provide the same basic functions as do foreign sales agents; and, sales agencies sometimes provide complete film distribution services, both worldwide and in their home territory.

Buying, selling, merging and valuing film distributors is not impossible, in fact, it is done all the time. For the health of the film industry it is critical that media entrepreneurs know that they can buy other companies, sell their own businesses, or merge with strategic partners. 

​The Value Drivers
 
Key to these transactions is knowing how to properly value film distributors. What makes these companies more of a challenge is the degree to which each distributor controls the films they take to market and release.  Distributors that have only short-term representation contracts to films and documentaries have an assumed lower value than companies that have long-term, or perpetual rights to films. Companies that Executive Produced, or otherwise own all distribution rights to their film properties, are perceived as more valuable than companies that have long-term, but (eventually) expiring distribution rights. On the other hand, even a foreign sales agent, with limited, territorial specific rights to major films with gravitas, has value.

Analyzing Value Factors
 
The analytical keys to determining the value of any distributor are knowing what the company’s revenue drivers are. A foreign sale agency could have a high value, because it sells films with large budgets and big name stars. A global film distributor, with the same annual revenue, which represents mostly small, indie films and documentaries – without the A-List movie stars – might have a much lower appeal. Value is not just a factor of whether a company has long-term or short-term rights to its film properties, or whether they control the films or simply represent them – it is more complicated than that.
 
A distributor’s value is often dependent on the quality of the films they own, control or sell.  Likewise, a company’s value is not just a matter of how many films it has under contract, or how long they have been in business. A distributor that has been in business just a few years, with thirty very current and significant films in their inventory, can be more valuable than a distributor that has been around for twenty years, and has more than 300 movies under contract.

The Economic Lifespan of Film Properties

One of the most important factors is the age of the films in a company’s inventory. Our firm has found that - other than award-winning or “legendary” titles - movies and documentaries that are over two or three years old typically have an extremely diminished value. Standard definition and public domain movies (except for “classics”) often have a very low, if any, asset value. A single film’s worth has a lot to do with the number of unsold territories that it has around the world. 

The Valuation Methods
 
Determining the value of any distributor is not difficult. Our firm uses several proven methods to appraise the value of companies in the entertainment industry. Paramount among these techniques is the “Income Approach.” There are several methodologies to apply the Income Approach, but the goal is to determine the Present Value of the future revenue and cash flow of a company. We take a weighted average of the past years’ earnings, and create a predictive model for how the company should perform in the future. On this projection – we apply a discount based on volatility, market forces, the-state-of-the-industry, and the historic financial performance of the business. The Income Approach is almost solely based on the future cash-flow generating ability of the distribution company – not on its Balance Sheet.   
 
One of our preferred valuation techniques is called the “Excess Earning Approach.”  This valuation method utilizes the Weighted Average of a company’s historic revenue and earnings, and then adds to that - the company’s Net Worth (Total Assets minus Total Liabilities).  The Income Approach works well when valuing many media companies, but we also utilize the Excess Earnings Approach, especially for companies that have a lot of cash, or other assets, on their books. Disregarding a company’s positive balance sheet completely can result in an inaccurate appraisal of the distributor’s true worth.
 
We often perform both methods of valuation for a client.

Diligent Documentation
 
Merging or selling any distribution company is not difficult if they have been well managed. This means that all the producer statements, financial records, chain-of-title documents, and required reports have been properly maintained. Plus, whether, or not, the owners have continued to aggressively acquire new, high quality titles. Regrettably, some distributors that are “For Sale” lack in one or more of these areas. Some have stopped acquiring new films, their film rights are a mess, they have let key people go, or sales tracking is non-existent.  Absent good financial reporting, new acquisitions and uninterrupted payments to producers, a company can be rendered unsellable. 

Transactional and Reputational Benefits
 
Successfully buying, selling or merging distributors has a lot to do with the strategic value of the conjoined companies.
 
Many companies are acquired because of their key personnel and their industry reputation.  These are often the greatest assets that a distributor possesses.  It is hard to put a direct value on experienced personnel and a good reputation, but these aspects are often reflected in higher earnings, better quality films, and company longevity.  Relationships are the key to success within the movie industry – and many companies have been pursued for purchase, or merger, because others covet their great relationships with both producers and buyers. Keeping the company heads and the employees around who built those strategic and worthwhile relationships is an important aspect of any successful transaction. As we all know, film producers and film buyers like coming back – again and again – to do business with people they know and trust. Building those lasting bridges with producers, and buyers, takes years for veteran entertainment professionals to accomplish. 
 
Many distributors have told us, 

When 2 x 2 = 22
 
Merging two or more distributors is often synergistically beneficial.  Rarely do two distributors sell to the exact same buyers at the major film markets; or have deals with the same cable/satellite companies, over-the-top (OTT), video-on-demand (VOD), electronic sell-through (EST), or DVD wholesalers/retailers.

By joining forces, distributors can trim overheads while growing market share. They can also combine the long-term industry relationships that made each company unique and successful. The resulting amalgamation can be exponentially advantageous because complimentary assets can represent multiple opportunities times multiple transactions. Additionally, companies can consolidate their back-office activities (servicing, reporting, legal, and accounting), plus their sales activities (film markets, advertising, marketing, and public relations).

Mission: Possible
 
In a highly fragmented industry, like film distribution, consolidation is one way to survive, and then thrive.  It is not difficult for business owners to have their individual worth professionally appraised, and then create a new entity for the combined companies. 
 
Our firm has advised numerous media companies on their mission to merge (legally, financially, strategically).  When entrepreneurs are honest with themselves, rational in their thoughts, and unconcerned with their ego or “legacy,” they will often see that combining their strengths with another (sometimes a continent away) will give their organizations a major boost (and even an advantage) in the global entertainment market. Sometimes they need look no further than their biggest content supplier or content buyer for that strategic partner. 

The Challenges & Opportunities

Our firm continually reports on the rapid changes confronting the global film distribution industry.

These marketplace changes include:

• the added competition of companies like Netflix and Amazon;
• the demise of DVD revenue, and the lack of commensurate digital revenues;
• the vanishing value of catalog film titles;
• the technological sea change that 4K / UltraHD / High Dynamic Range content represents. 

While film distributors face a host of new challenges to their businesses, they still provide producers with the vital service of bringing filmed entertainment to audiences around the world.  Now may be one of the best times to contemplate making a change.  Film distribution is in a transitional state and those who make smart financial and transactional moves now will be the winners tomorrow.
 
Every company that makes a profit, employs smart people and acquires new titles – has value.  As we wrote earlier, no two film distributors are exactly alike.  It is not difficult for us to determine an accurate market value for these kinds of companies.  Similarly, buying, selling or merging film distribution and sales agency companies is a core competency for our firm.  It has taken training, knowledge, experience, reputations, relationships, and good information for us to do this well. 

Transactionally Driven

Our firm has been involved in the sale of over 50 media companies, and while each offered their own unique challenges, all transactions were completed successfully, to the benefit of both buyer and seller.  Mergers are sometimes our most taxing, but most rewarding transactions, because we get to witness how two, or more, entrepreneurs use their strengths to build one, better company.  

The value drivers of a film distributor take some detective work to be ascertained, but every company has them. There are tried and true techniques that we can use to arrive at an accurate appraisal of film rights and companies, when all the facts are known to us. A company’s human assets are sometimes more valuable than their movies.  Every distribution company represents a patchwork of assets.  Sometimes it’s worth is found in relationships, sometimes it’s found in rights and titles, sometimes it’s a result of longevity and good management, and sometimes it is anchored in geographic significance.  
 
No company has just one value. Value is often a question of “to whom?” Our job has been to help company owners determine what that value is and how to best maintain it, multiply it, cash-in on it, or capitalize on it.    

Let us help you.

Our firm, Bel Âge Médias (B.Â.M.}, is a company specializing in developing film, television, and other media properties, as well as providing business development, branding guidance, and investment banking services. Additionally, under our ongoing 4K / Ultra HD initiative, we continue pursuing strategic alignments with high-end, entertainment technology providers, and explore low-cost alternatives for theatrical, televised, and online distribution of 4K (and 2K) films and television programs globally.

Bel Âge Médias • Santa Monica, California
Call Us or Visit Us Online or Email Us:
+1 310 666-6474  
http://BelAgeMedias.com • skerr@bizmark.net • belagemedias@ME.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Reference List: 
ARE THERE STILL TOO MANY FILM/TV DISTRIBUTORS? |
BMC Online – 03/06/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/are-there-still-too-many-filmtv-distributors  

Winning Before You Show Up | BMC Online 07/24/2014
by Stephen J. Kerr
http://www.bizmark.net/blogs/winning-before-you-show-up  

How Much Are Films Worth? | BMC Online – 05/17/2016
by Stephen J. Kerr
http://www.bizmark.net/blogs/how-much-are-films-worth   

VALUING A SINGLE FILM OR ENTIRE FILM LIBRARY (Updated) | BMC Online – 04/04/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/valuing-a-single-film-or-entire-film-library-updated

Even If You're On The Right Track... | BMC Online – 06/28/2014
by Stephen J. Kerr
http://www.bizmark.net/blogs/even-if-youre-on-the-right-track

Image Credits:
GRAPHIC_BUY, SELL, MERGE, VALUE by Bel Âge Médias
IMAGE_SYNERGY-MERGINGS-CIRCLES.png by Bel Âge Médias
PHOTO_Sarah&Stephen 2.png via Bel Âge Médias

Simultaneously Published at:
LinkedIn-Stephen J. Kerr – https://www.linkedin.com/pulse/how-buy-sell-merge-value-film-distributor-stephen-kerr

Advice for companies venturing to Cannes 2017,
and what it can mean for them
_____________________________________________
REPOST of our LinkedIn Article PUBLISHED at:
https://www.linkedin.com/pulse/still-most-important-thing-remember-cannes-stephen-kerr 
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Absolutely True Stories of Indie 
STORY-TELLING & STORY-SELLING 
A series of conversational articles and brief essays on
The Art & Science of the Entertainment Media Business
Written by Stephen J. Kerr & Sarah Nean Bruce

​PREAMBLE: Three years ago, before our colleagues were heading off to Cannes, we posted a short article about branding. We find now, in 2017, that our advice is the same: Go to build your brand. As an investment banker, brand adviser, and appraiser of entertainment properties - we have witnessed film sales companies and distributors make many of the same mistakes. They continue to acquire (and sell) movies and documentaries based on the metrics of the deal, and not based on a long-term strategy to build their brand, nor to establish a recognized global presence.

Our firm is all about helping companies build and realize their highest value: whether it is in film, television, music, video games, publishing or online.  As you get ready to go to Cannes, we want you to think about what makes your company valuable, and to consider what you can do to enhance that value as you do your work of buying and selling films. 

Many companies go from show to show, building their catalogs and selling territories without giving much thought to their overall company image or “brand.”  But a company needs a brand.  It needs to be known for something more than just an “eclectic collection” of films. 

That is, in fact, what a lot of the foreign sales (and distribution) companies have become: A mixed assortment of movies and documentaries.  We cannot discern much of a plan or corporate image from their list of titles accumulated over the years.  Most titles were picked up because they were priced right and expedient, and the acquisition team knew they could sell them to a certain number of buyers.  Not much thought was given to how this or that title fits into the overall company “brand,” or how a title will enhance the value of the corporation (and its library), as a whole.  It often gets down to price, terms and sell-ability.  Deal done.

But that is not the end of the deal.  That title will become part of the company’s long term identity.  We know the phrase “you are what you eat,” well… 

We realize that building your corporate brand is crucial to the long-term successful growth and financial health of your company.  What are you known for?  Why do buyers want the films that you take to market?  When you want to recruit top talent for your team, why do they want to work for your company? 

​Let’s picture in our minds some of the following companies: EuropaCorp, Fortitude International, MarVista Entertainment, Lakeshore Entertainment, IFC, STX, Archstone, A24, Participant Media, and Electric Entertainment.  We pretty much know what type of films (and television projects) they create, buy, sell, and release.  They are brand conscious.

​Buying and selling films is more about personal relationships than it is about moving inventory.  Often a film you acquire from a producer is because you sold their last film – and you may want their next one.  But how does that relationship and property help your company build your brand?  What is your long-term strategy, and how does this film help you?

Ten years from now, will you look back and be glad that you acquired and sold this or that film, or will it be just another brick in the wall?   

We advise you to build your brand.  Establish your niche in the vast entertainment business.  Movies are not bricks. 

​Acquire only films that will enhance the overall value of your company, and give you a catalog of titles that others would admire and wish they had acquired.

When we compromise our values for what is financially expedient, we lose sight of why we are in this business in the first place.  Sure, we want to make money.  But in the end, we want to be remembered for having done more than just making a profit – we want to have done something great.

In June 2014, we wrote:

It does not matter if you have the best collection of creature features, Anime, Sci-Fi, romantic comedies, rock docs, international spy thrillers… or kid vid.

A lot of people talk about branding. Few companies (and we know who they are) in our business actually do it. 
 
As you get ready to embark for France in 2017, think about your long-term goals and objectives. Carefully consider what you want your company to be known for; and what you - yourself - want to be remembered for.

Let us help you.
 
Our firm, Bel Âge Médias (B.Â.M.}, is a company specializing in developing film, television, and other media properties, as well as providing business development, branding guidance, and investment banking services. Additionally, under our ongoing 4K / Ultra HD initiative, we continue pursuing strategic alignments with high-end, entertainment technology providers, and explore low-cost alternatives for theatrical, televised, and online distribution of 4K (and 2K) films and television programs globally.
 
Bel Âge Médias
Santa Monica, California

Call Us or Visit Us Online or Email US:
+1 310 666-6474 | www.BelAgeMedias.com 
skerr@bizmark.net | belagemedias@ME.com  
 
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Reference List: 
“The Most Important Thing To Remember At Cannes” | BMC Online – 04/27/2014 by Stephen J. Kerr - http://www.bizmark.net/blogs/the-most-important-thing-to-remember-at-cannes

“The Search for Relevance” | BMC Online – 6/6/2014 By Stephen J. Kerr - http://www.bizmark.net/blogs/the-search-for-relevance

​Image Credit:
logo_cannes.jpg

If you want to buy or sell all the rights to a film, you do not necessarily have to call an appraisal company to arrive at a fairly accurate value of the property.

My firm has been valuing book, music, software, film and television (intellectual) properties for more than 25 years and we have also studied the valuation techniques of many other firms as well, and for the most part, it comes down to “apples to apples”.

Step One
Break down the film, or films, by director, star(s), genre, original box office (or DVD) revenue and foreign/domestic exposure.  

Step Two
Contact other producers or distributors with similar genre films (with the same director/stars if possible) in their library.  These are your “comps”.  Find out how those films performed over their lifetime.  Once you have a great enough sampling of “comps”, determine an average baseline value for similar titles.  If you ask the right people, you might be surprised how forthcoming most rights holders are with this information, they have nothing to hide and often gain valuable information about their own films in the bargain.                                            

Researching the past sale price of similar films is a bit tricky, but there is a lot of published and unpublished information about past film sales available on the internet.  Again, it is wise to turn to your friendly competitors and other rights holders.  You will probably find, as we do, that you can develop a consensus of thought about any particular film based on its genre, star and director.  Example: If you find that 5 to 8 year old films (like yours) were sold from one rights holder at $7,000, another at $9,000 and another at $12,000, then you can form a consensus market value of similar titles at about $10,000.  That is your baseline value. 

Step Three
Our firm gives each film in a library a rating (1 Worst – 4 Best) depending on the film’s past financial performance, the presence of known “movie stars”, the age of the film, and the film’s director, producer and debut reviews.   We total the points for each of these factors and create an average (Example: 2.3).  So, if the consensus, general market value of films of a similar nature is $10,000, then you apply your multiple (for example purposes only: 2.3).  Fair Market Value $23,000.

Step Four
Applying a discount.  You may need to discount the film’s value based on many possible factors; among them are the number of territories sold/unsold (and currently still under contract), the availability of clear chain-of-title information, and the quality of the original print.  If the print has not been digitized and is not in high definition (standard def), then that becomes a factor too. In one recent valuation, we had to give standard definition “B” and “C” titles zero value.   We add up the discounts and apply them.  It usually comes in at .50 to .80.  This is your discount rate.  For example purposes only, let’s assume that we have created a discount of .67.  We multiply our film’s gross value of $23,000 times .67 to arrive at a Fair Market Value of $15,410. 

That is a very accurate assessment of the value of this property.    

You may be wondering why we first create a rating point system and apply it to an average industry consensus of similar films, and then discount that gross value to arrive at a Fair Market Value.  We do this to make sure that we are treating each film fairly and accurately.  Just because a similar Kevin Sorbo or Mark Harmon picture sold for $22,500 in 2013, that does not mean that's what your film is worth.  You will need to rate all of the elements of the film and apply any discounts to be accurate.   

The days when DVD was king are over, and films today are very much valued on their digital distribution rights.  If those rights, or elements, are not available, then the value can fall to the floor.  

We understand that this is not a cookie cutter valuation method, but it forces you to look at all the positive and negative aspects of a film and apply a numerical value to them.  I promise you that if you use this process you will feel that you have a handle on the true market value of your film property, or properties.  ​

If you need any help with this process, or would like us to conduct an impartial valuation for your company, please do not hesitate to contact us. 

Reference List: 
DIAMONDS & RUST,
BMC Online, Stephen Kerr, 03/24/2013

HOW MUCH ARE FILMS WORTH?,
BMC Online, Stephen Kerr, 5/17/2016

VALUING A SINGLE FILM OR FILM LIBRARY,
BMC Online, Stephen Kerr, 04/14/2014

Image Credit:
STOCK-IMAGENES-ES-SFTCDN-NET_multiplex-1.jpg​

In 2014, I wrote the article TOO MANY FILM/TV DISTRIBUTORS.  Looking back, I still agree with the premise, but not necessarily all the conclusions.  Three years ago I said, “Consolidation is the only solution to a chaotic marketplace.  We need fewer, stronger, better financed distributors, able to purchase quality films, and let the flotsam and jetsam sink to the bottom where they belong.” 

​In 2017, I still think that while the film industry would benefit from stronger, better funded distributors and sales agencies, the ones that remain have proven themselves highly adaptive to the new digital delivery marketplace.  Over the past three years some distributors and foreign sales agencies have consolidated with competitors or simply gone out of business, and still more have cropped up in their place.  While revenue from foreign and domestic film sales is still down (compared to the 2000-2008 “high water” period), many distributors are still clawing out a living – others are thriving.  Some global sales agencies are benefiting from the emerging markets in Asia, Latin America and Eastern Europe – while others are concentrating on domestic delivery only and letting others handle the foreign.

Today, our advice to small/midsize distributors and sales agencies is: specialize in a specific genre, seek out global partners, find a company to merge with, and educate yourself on the global 4K content marketplace.  Our advice to the large, better funded distributors and sales agencies: consolidate your market niche, build strategic alliances, and own outright more of the films you release.

Now, we realize better there is room for everyone in the entertainment industry.  And, one need only maximize what one has.  Moreover, the coming explosion of 4K content should be of keen interest to everyone.  While the 4K / Ultra HD revolution is still in its early days, we not only encourage everyone to get ahead of the curve, we are eager to facilitate it for ourselves and others (WHAT IS YOUR 4K / ULTRA HD STRATEGY?).

And the future? There may come a time that all distribution rights to new motion pictures and documentaries are put up on some giant online auction site and the world’s film buyers and broadcasters will simply bid on those territorial rights like some entertainment industry version of EBay. 

​Until then we have a system of global film markets and film festivals that we must all attend to sell, titillate, and cajole the buyers to pick our films from the thousands of other offerings.  We trade heavily on our personal relationships and our reputations to get this job done.  It is an important job because thousands of producers, directors, investors, actors and crews are counting on us to succeed. And ultimately, there are millions of consumers around the world who seek our film and television content.

MG RISKS AND REWARDS
The Benefits of, and Issues with, Offering Minimum Guarantees
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Absolutely True Stories of Indie
STORY-TELLING & STORY-SELLING
A series of conversational articles and brief essays on
The Art & Science of the Entertainment Media Business
Written by Stephen J. Kerr & Sarah Nean Bruce

We wrote this essay after we recently interviewed six of the top independent feature and documentary distributors about the status of MGs today.  What we learned and synthesized for this piece is the collective knowledge and opinions of those veteran film distributors, along with our company’s 35+ years of experience in the film, television and entertainment medias industry. Here is what we found.

➜Distributors now take on more risk with Features and Documentaries.
Nearly everyone knows that the landscape of independent film distribution has forever changed, both in North America and around the world.  The line between film producers and their distributors keeps blurring as distributors and sales agents become more involved, and earlier, in film/doc financing, production and marketing.
 
➜These days, there is nothing simple about the Home Entertainment industry.
The explosive growth of companies like Netflix, Hulu, Amazon, HBO, Showtime and about 500 other direct-to-consumer (over-the-top/OTT), and subscription movie services (SVOD), has made the job of distributing features, documentaries, and limited television series, both easier… and harder.
 
➜Producers are Distributing and Distributors are Producing.
A feature or documentary producer can finance, self-distribute and even sell their content directly (via YouTube, or Vimeo) to consumers.  A distributor might play a significant role before, during and after the production of a feature/doc, and then distribute through all the usual windows. Or they might decide to go directly to the consumer as well.  Most of us know that Netflix, Hulu, Amazon, Crackle, HBO, Showtime, Cinemax, and The Movie Channel no longer just offer consumers filmed entertainment.  They initiate, develop, produce, finance, and proliferate productions on all platforms around the world – including (sometimes) theatrically, at retail, and on competing channels.  That’s not even touching on what the television channels like A&E, SyFy, Lifetime, Hallmark, NatGeo, and Discovery are doing. 
 
➜Established distributors hire firms like ours to help attract and set-up multi-million dollar “Minimum Guarantee Funds” to enable them to acquire better productions.
Sometimes, projects are acquired by distributors years before they are made and distributed to the theaters or broadcasters. This trend of distributors acquiring projects early on has turned many ‘Heads of Acquisitions’ into ‘Heads of Development.’ There was a time that a global film distributor or international sales agent could simply wait for good features and documentaries to come to them at film markets like AFM, EFM, MIPCOM, Hong Kong – or they would bid on completed projects at one of the dozens of film festivals that go on – seemingly every week – around the world. 

However, when companies like Netflix, Amazon and HBO began snatching up the best projects from the top festivals and markets, and started paying prices that no indie distributor could possibly match – it most definitely changed the game.  No longer can independent distributors and international sales agencies afford to bide their time to pick up feature films that the big studios (or Harvey Weinstein) passed on. 
 
➜Often today, distributors need to lock up foreign and domestic rights by connecting with producers while their projects are still at the script stage, and sometimes even before there are any cast attachments.
Distributors do not always have to make investments directly into the film projects, or even make advance payments based on Minimum Guarantees, they can sometimes make sizable P&A commitments in the project’s theatrical, or day-and-date, distribution.  Securing a theatrical release of 1000 screens, or more, can do wonders for foreign and domestic sales.  Distributors and Sales Agents have told us that quotes from foreign buyers can be as much as 300% higher for a US theatrically released movie.  Assuming of course it was not panned by the critics, then it will only be slightly higher.
 
➜The Producer’s Dilemma.
Many film producers have not woken up to the fact that revenue estimates for international sales and domestic OTT or pay cable pickups are often unreliable.  Some distributors/sales agents are not entirely truthful and just want their market fees, so they give producers grossly overstated sales estimates.    This makes it more difficult for the scrupulously honest distributors who give their producers the real numbers.  The producers are torn between: giving their investors the lower estimates, and risk not getting their movie made; or giving their investors inflated numbers, and just hope that it all works out.  Distributors who make early investments into films have to be sure of their sales estimates because they are sharing the risk that their numbers will prove out.
 
➜Life can be difficult for a distributor’s Head of Acquisitions who travels to film festivals with empty pockets.
Distributors have told us that it is definitely an advantage to have a fund set aside to offer filmmakers advances and make early stage investment into worthy feature films and documentaries.  Niche players who specialize in campy horror, foreign, art-house, Christian, Latino, urban, gay/lesbian features, or music docs, may not encounter these issues as much.  The major OTT’s, broadcasters and Pay-TV outlets do not focus on, or pre-buy, most genre films.  Some genre product will find its way onto Netflix, Cinemax or SyFy, but specialty distributors rarely have to compete with these broadcasters for the distribution rights on niche films. 
 
➜The challenge for international feature film distributors and sales agents is finding product that is “bankable.” 
Distributors know this means features have strong enough casts, directors and genres that the banks will lend on the distributor’s revenue estimates.  One can count the number of distributors on their fingers and toes whose sales estimates are considered reliable enough for bankers to lend against.  Producers use to be able to walk their signed territory sales agreements into the bank and get up to 70% on those estimates.  These days, they are lucky to get 30% on estimates… and then - only from the top territories like Germany, UK, Australia, France, and Japan. 
 
➜Currently, most film buyers around the world want to see the finished movie before they will make a financial commitment. 
The reluctance of foreign film buyers to make a pre-release commitment to even better quality feature films has made providing Minimum Guarantees very dicey.  The better healed companies like A24, IFC, Bleeker Street, Magnolia, Roadside Attractions, STX, Freestyle, FilmRise, Archstone, The Orchard, e-One, and others, still pay advances and/or put up P&A money for top shelf theatricals.  The foreign buyers are more apt to take a pre-release risk on their pictures, than on others.   
 
➜The benefit for distributors, and their investors, to pay advances to producers is that they are usually last money in and first money out. 
As soon as the first big territories are sold, MG money is often repaid.  In some cases, filmmakers arrange for some cash to go back to their investors from early territory sales (“corridor”). But in most cases, a film’s investors recoup well after the distributor.  Film distribution has always been the world of HAVES… and HAVE NOTS.  The most successful companies have sizable acquisition and production funding, often provided by a hedge fund, venture capitalist or high net worth individual.  This is not the game that one can successfully play without cash.
 
➜Companies hire us to quietly and privately seek out, and arrange, strategic partnerships.
While a lot of money is still pouring into indie film productions by investors all over the world, a number of the more savvy financiers are placing their bets on distributors.  Our firm works with investors from China, Dubai, Germany and right here in the USA who recognize that owning a piece of an international sales agency or film distributor is the way to go.  Financiers have found out that making several smaller bets on movies and documentaries is better than making one big bet on a single production.

In 2014, we wrote an article entitled Too Many Film/TV Distributors (see link below) which suggested that through a series of mergers, the proliferation of small distributors and sales agencies could be consolidated into fewer – but stronger ones.  Investors are looking for opportunities in film distribution, but they are mostly attracted to larger companies ($10 million and up) and insist on an equity stake.  We have found that loans, or revenue sharing, do not appeal to financiers.  It’s most often equity, or nothing. 
––––––––––––––––––––––––––––––––––––––––––––––––––––––

​Let us help you.        
Our firm, Bel Âge Médias (B.Â.M.}, continues to align itself with investment groups and high-end entertainment companies domestically and abroad. We have also been retained by investment groups to seek out entertainment companies to invest in, purchase, or merge with.
 
Bel Âge Médias
Santa Monica, California
+1310 666-6474
skerr@bizmark.net / belagemedias@ME.com

Sarah Nean Bruce (SNB): Why should film distributors be interested in hearing about 4K / Ultra High Definition content and delivery platforms?
Stephen J. Kerr (SJK): To deny the onrush of 4K/UHD as the new standard in motion picture, online and television delivery makes about as much sense as denying climate change. You can ignore it all you want, but to your own peril… Both are coming anyway. 

SNB: How come 4K is in your forecast? 
SJK: For several years now, virtually every major motion picture and most television shows have been shot on film, or on 4K, 6K, and even 8K - digital cameras. Almost every significant post production house around the world has already upgraded their editing equipment and software to the new 4K standard. According to an April 2016 article in Home Media Magazine,  

PREAMBLE:
Stephen Kerr, has been an appraiser of film and television properties for more than 25 years.  He recently finished the valuation of a major film library for the owners/distributors of those titles.  What Kerr gleaned, about the state of the film industry and current market value of independently produced movies, by interviewing almost a dozen highly respected domestic and international film distributors might surprise people.  It is not easy for most filmmakers to be objective about the documentaries and movies that they just spent two years of their lives and millions of dollars to make.  Distributors have to be objective, they know that films are a product that gets consumed and then put on the shelf like every other entertainment or intellectual property, including books, music and videogames.  Sarah Nean Bruce interviewed Mr. Kerr to get his take on the current state of the film industry and respective value of film assets – past their release dates. 
*****************************************************

Sarah Nean Bruce (SB): Our company just finished appraising more than 250 films properties in a film library? Can you explain if these films were older properties or more recently released films?
SK: The vast majority of the film library was purchased less than 10 years ago with a large percentage having been acquired within the past five years. 

SB: Can you tell us whether the distributor own limited rights or worldwide rights?
SK: Yes, the company owned most of the films in perpetuity and all world, all media rights.  Some of the films had been released theatrically, but most were of the “straight-to-video” variety with one minor, known actor, or no “name” stars in them at all.  I should point out that almost all of these films had already been sold to multiple international territories before, and had been released on DVD, on broadcast or cable television, and online. 

SB: What were your unbiased conclusions about the film library?
SK: When we valued each title against similar films that had been purchased by other companies, we determined that, on average, the 250+ films owned by our client had a value of a little bit less than $7,000 each.  Some of the newer movies had values of up to $45,000 and some of the older, Standard Definition films and 4x5 format films had almost no value what-so-ever.  When we factored in the present value of the future income potential of the entire film library, based on the past four years’ sales trend line, we lowered the average value of each property to about $4,800.  Both the $7,000 valuation and the $4,800 valuation numbers are correct: the first is the market value of the titles against all other movie titles of a similar age and quality; and the second value is what we call “operating in place” value, or the present economic value that these titles represent to the owners, if nothing in the marketplace changes.[i]

SB: Is it unusual for you to give your clients two different values of the same intellectual properties?
SK:  Not really.  If you take a diamond ring in to be appraised, you may get more than one value from the Gemological Appraiser.  The first value is the “market value” of the diamond as determined by the world market for all diamonds of a certain cut and quality, and a second value if you want to sell your diamond ring to the jeweler right then and there.  The Jeweler has to factor in how long that ring might sit on the shelf before being resold to someone, and the risk they are taking with the money they are paying for it.  Both values are correct in their own way.

SB: I understand that movies and documentaries are only worth as much as people are willing to pay for them. But why are values so disparate?   
SK:  All movies and television shows have both an intrinsic value and an extrinsic value.  The intrinsic (or subjective) value represents what was spent to make the program/film, the “entertainment” value of the property, and the lasting social or cultural impact that film has left.  The extrinsic (or objective) value represents the pure international, commodity value of the film – against all other films.  Movies and television shows are bartered around the world to foreign distributors, DVD retailers (think Redbox), cable networks, OTT, and television broadcasters every day.[ii]   

SB: Can you elaborate on why one film is more or less valuable than another?
SK:  What we continually find in our research is that the number one value driver in a film is its cast; more than the director; more than the price paid to make it.  In most cases, movie stars sell films, and that is true for movies sold to Argentina, Australia, Austria, or Alabama.  Cast has remained the single largest value driver for films.  Having said that, poor storytelling in a movie with big stars is going to perform poorly.  Audiences are savvy.  Just ask the Walt Disney Company about Johnny Depp and “The Lone Ranger”.  The film’s intrinsic “entertainment value” was so low as to render the extrinsic value of the property close to zero.  Quality, “high value” films are more than the sum of their parts, or their actors.

SB: What kind of movies and documentaries seem to have a more enduring value?
SK: According to the distributors that we interviewed for this valuation: films that have remained perennial sellers in their catalogs have been family films (especially animation), international-set spy thrillers and intrigues, historical dramas, biographies, science fiction, films about/with music, some “creature” features, and war/combat films.  The genres that seem to be presently out of favor with international film distributors are horror/thrillers, romantic comedies (rom-coms), urban/ethnic films, westerns, low-end religious themed movies, and ‘animal-centric’ family movies.  

SB: What information and advice can you give filmmakers, and film distributors, based on the information that was compiled while doing this valuation study?
SK: What has become apparent to everyone in the industry is that there are simply too many poor quality films made each year.  The sheer number of movies hitting the market drags down the value of all films.  Overseas filmmakers are doing a better and better job fulfilling the needs of their own domestic, film going customers; so-much-so that North American films are not getting the reception they once enjoyed, which lowers the international market value for Canadian and American productions. Just a few years ago a decent American-made movie could count on getting up to 80% of its revenue from foreign sales.  Today, that figure is probably less than 20%.  Movies made for less than $5 million, with low or no recognizable cast, are the most vulnerable in the global film marketplace.  There is a reason the studios have all but stopped making comedies, dramas and thrillers, and have concentrated their efforts on making “tent-pole” animated, science fiction (Star Wars), comic book heroes, and disaster movies.  They sell.  My advice to would-be filmmakers and film distributors is “less is more”.  Better to make or sell fewer films with lasting, social and entertainment value, than more “forgettable” films without recognizable actors or universal themes that will stand the test of time – in there lies the value.

SB: Most filmmakers cannot afford to make movies with big-name movie stars, historical dramas or lavish sets.  What advice do you have for them?
SK:  Sarah, as you know: great film making has always been about telling great stories.  You don’t need Leonardo DiCaprio or Denzel Washington to tell a great story.  Nor do you need twenty million dollars and exotic locations. Movies that have long lasting value are movies that touch people’s lives and hearts.  The original Rocky was not a big budget movie; Little Miss Sunshine was not an expensive movie; and Beasts of the Southern Wild was not a big budget movie.  But they all had themes and performances that resonated with countless millions of movie goers around the world. 

The proliferation of low quality films that was brought on by the rise of the DVD market in the 1990’s did not do filmmakers any service.  It simply encouraged them to make more low quality films.  The DVD as a medium is all but dead, and over-the-top delivery services like Netflix and Amazon are not replacing that lost revenue.  Movie makers are better off making one great film every three years than three poor quality movies every year.  We hope what the client learned from our evaluation of their film library was that maybe they should focus on having 25 really good movies in their catalog instead of 250 so-so ones. 

The Absolutely True Stories of Indie
STORY-TELLING & STORY-SELLING
 
A series of conversational articles and brief essays on
The Art & Science of the Entertainment Media Business
Written by Stephen J. Kerr & Sarah Nean Bruce
 
Stephen J. Kerr and Sarah Nean Bruce operate
Bel Age Medias in Santa Monica, California USA
 
[i] Diamonds & Rust, Stephen Kerr, March 2013
[ii] Valuing A Single Film or Film Library, Stephen Kerr, April 2014

Absolutely True Stories of Indie Story-Telling & Story-Selling 
PREAMBLE: 
We wrote this conversational piece for entertainment professionals who raise money for, or pitch finished entertainment properties – whether they are film, television, live performances, or online. 


The seminal issue in this article is that we often do it wrong.  
You see, it’s all about perspective.  The other person’s, not ours.  
And when we come to understand this fully and we learn to change the dialog from what we want – to what they need, then our success rate goes up.  
Way up.  ~ SJK & SNB 

self-interest/ˌsɛlfˈɪn tər ɪst, -trɪst, ˈsɛlf-/ 
noun 
1.   one's  personal  interest  or  advantage
2.   the  act  or  an  instance  of  pursuing one's  own  interest 

Sarah Nean Bruce (SNB): Stephen, why did you write an article about Economics and specifically about people acting on their own self-interest – for the entertainment profession?

Stephen J. Kerr (SJK): My undergraduate degree was in Economics, a subject I didn’t personally have much interest in at the time (in my early 20s) and one that I did not think I would use much in life.  I thought all that theoretical non-sense about “supply and demand” was for pale little men working in darkened rooms of the corporate machines. 

Of course, like many opinions we form in our youth, I was wrong.

SNB: What does economic theory have to do with entertainment?

SJK: As a financial, business and marketing adviser to media companies for these past 35 years, I have drawn on my knowledge of both micro and macro-economics almost every day.  One of the greatest lessons we learn in Economics is that humans perform fast economic calculations every time they act and their goal is always to maximize their payout.  People will quickly figure out the “payout table” and work to maximize their “economic advantage.”

SNB: What is the practical advice of this theoretical economic ‘payout’ concept? 

SJK: When we approach an investor or distributor to back our movie, play or television show, it is good to remember people act in their own self-interest. 

The conversation we are having is, “This is a great plot with fabulous actors that we’re going to shoot in Australia for $20 million.”  But, what the investor is thinking is, “Wonder if I can double or triple my money, meet Charlize Theron, and get to walk the Red Carpet at the Oscars?”  When a US film distributor is pitching our movie to a regional distributor in France, the American distributor is saying, “This is a fantastic action film with Charlize Theron and Ben Affleck, directed by Antoine Fuqua, and should do big numbers in France. Pay me a lot of money for it.”  But what the French distributor is thinking is, “I wonder if I can get Charlize Theron to come to Paris if I pick up this chien.”

SNB: So you are saying people don’t act so much on best intentions as they do on self-satisfying motivations?

SJK: It is self-deluding to think that the people we are pitching care about “art” or “great cinema”. It is often more about “How much can we make off of this movie” than it is “How good is this film.” There is nothing wrong with acting in one’s self-interest. Once we understand we are all acting consistently, it is simply a matter of aligning personal interests with someone’s broader objective.

SNB: Are you implying that selflessness and generosity are not genuine or sincere intentions?

SJK: If you want to argue that people sometimes do things out of the goodness of their hearts and for selfless reasons, I would contend that even seemingly altruistic actions stem from a self-serving place: When we give money to charity; when we spend hours helping some young filmmaker; when we speak at conferences pro bono; or when we help some hapless person find their lost dog at the mall – we are all acting in our own self-interest.  It makes us sad to see people in distress, so we give money to charity.  It gives us personal satisfaction to give a young filmmaker a leg up in the business.  It helps our professional development if people see us as a figure of authority at an industry conference.  And, it makes us feel important when we reunite a distraught person with their beloved pooch. 

You see, self-interest.

SNB: So what is the crux of all this self-interest?

SJK: The modern notions of free enterprise and free markets are based on the premise that we can rely on people to solve the complex math that results in the best economic return toward their own self-interests. The truth is, it is much more reliable to count on people acting toward their own self-interest than it is to expect them to act in the interests of a broader, more abstract, sense of community. 

SNB: How does this apply directly to pitching and selling?

SJK: We should remember this (the concept of others’ self-interest) when we write our next Business Plan, Pitch Bible, Marketing Brochure, or Project Grant.  What motivates us and what motivates others can be something entirely different.  It is essential we consider our audience and focus on their needs when developing a pitch.  What is in their self-interest?  What would make them excited about backing our project over the 20 others that they are looking at this month? 

Film financiers like Megan Ellison (Annapurna Pictures) are generally not as motivated by making more money as they are by creating legacies.  Studio execs, like Nick Manzi the head of acquisitions at Lionsgate, are more motivated by keeping their jobs and keeping their studios in the black than they are by acquiring one more picture. 

We closely study the culture of the company that we are pitching to insure that our project is going to the right person and satisfying a need that they have right now.

“Men are Moved by two levers only:
fear and self-interest.”  
―  Napoléon Bonaparte 


SNB: What is the #1 self-interest of working in the entertainment medias business? 

SJK: One enormous self-interest is not to make a mistake.  Betting on the right horses makes us a legend in the entertainment industry, and betting on the wrong ones gets us fired.  We need to keep in mind it is just as smart for us to resolve an acquisition person’s concerns about making a big mistake, as it is for us to convince them that acquiring our film, serial, or rights, is in their company’s best interest.  The more consumer research that we can do to lower a broadcasters or studios perception of risk, the lower their concern will be on making a risky decision. As a producer, investment banker, distributor, or even director, our job is to make other people look good – and smart. 

It is simply acting in our own self-interest.


This is a periodic column called: 
The Absolutely True Stories of Indie 
STORY-TELLING & STORY-SELLING 
A series of conversational articles and brief essays on
The Art & Science of the Entertainment Media Business
Written by Stephen J. Kerr + Sarah Nean Bruce

It’s been more than three years since President Barack Obama signed the JOBS Act creating Rule 506(c) of SEC Regulation D, allowing private placement issuers to use “general solicitation” to raise money from qualified investors. The SEC released final rules under Title IV June 19, 2015. These rules, commonly referred to as Reg A+ and allow for non-accredited investors to participate in private offerings.  According to 2014 data by the SEC, more than $14 billion has already been raised by early adopters who have taken advantage of the opportunity to publicly advertise their offerings. The legislation has three central provisions. The first makes it easier to launch startups through the use of crowdfunding. The second allows venture-capital firms and others seeking investment to make "general solicitations"— appeals via mass media, or social media – to potential investors. The third is called the "IPO on-ramp." This provision makes it easier for a company to go public, in part by allowing its owners to make less onerous disclosures.

I refer to this as the “Poor Man’s IPO.”  It allows companies to raise up to $50 million per year in a SEC registered and reviewed offering.  Shares are freely trade-able upon their issuance, offer lighter financial and non-financial disclosures compared to a full-on IPO, and ongoing reporting requirements which are reduced both in terms of the quantity of information and the frequency of reports.  Rule 506(c) gives you the opportunity to reach a much broader audience and potentially reduce your cost of raising capital. It also gives a whole new group of investors the chance to participate in private placements.

Rule 506(b) is familiar to most of us in this finance industry. Companies using this rule can sell securities to any number of accredited investors, and up to 35 non-accredited investors. You don’t have to verify investors’ accredited status yourself, but you must not advertise the offering publicly in what’s known as “general solicitation.” And, you must take great care to only offer your securities to buyers that you already know and believe to be accredited.

The new Rule 506(c) allows you to advertise your offering. There need not be a prior relationship with the investors who buy your securities. But, you do have to verify that anyone who actually invests is an accredited investor.  When issuers advertise their offering, they can raise more money, faster, by appealing to a wider range of investors. You don’t have to rely on “friends & family” or the traditional gatekeepers to help find suitable investors.  Now you can make your case directly to the market and let the strength of the offering speak for itself.  From the investor’s perspective, an advertised 506(c) placement is a huge new opportunity, too. Investors can more easily search for placements that suit their needs, and they don’t have to have any kind of insider connections to uncover the best offerings.  It’s much more a level playing field now.

For entertainment entrepreneurs you now have two attractive options to raise large amounts of money for your movie, television show(s) or slate of projects: Tier 1 allows issuers to raise up to $20 million, but you cannot make general solicitations to the public; Tier 2, allows you to raise up to $50 million and advertise your offering.  In both Tier 1 and Tier 2 offerings issuers must submit, and have approved, an “offering circular” to the SEC.  For Tier 2 offerings, the SEC included a provision that allows you to ‘test the waters’ — allowing you to validate investor demand prior to preparing a full-blown offering circular.  Tier 1 offerings (up to $20 million) are not exempt from blue sky filings, which require issuers to file documentation with each state that they plan to raise capital in. While Tier 2 (up to $50 million) offerings are exempt from blue sky filings, Tier 2 issuers must make semi-annual and annual filings with the SEC that include audited financial statements for the two most recent years, along with narrative disclosures.

These new fundraising tools work best for companies with highly recognizable brands and market awareness.  But the process is there for everyone to take advantage of.  All you need is a good securities lawyer and experienced CFO, and you could raise up to $50 million using the Reg A+ system.  For example: If you are Michael Mann and you wanted to make the sequel to Hancock - you could simply set up a production company under Tier 2 guidelines and raise up to $50 million from the public, without having to file all the onerous IPO paperwork or submit to tedious Sarbanes Oxley accounting requirements.   

It should be noted that if all you need is less than $5 million, Reg D 504 and 505 offerings are still the best way to go. No blue sky provisions, no need for audited statements and no reporting requirements.  All you have to do is file a Form D with the SEC and you are in business.  504 offerings can be advertised to the public, but you can only raise up to $1 million in 12 months.  505 offerings allow you to raise up to $5 million in 12 months from accredited investors and up to 35 non-accredited investors – but no general solicitations are allowed.

So, times have changed... Entertainment entrepreneurs who don’t at least consider the new Rule 506(c) are leaving valuable options on the table.  And as fundraising efforts continue to shift online, becoming more transparent and efficient, entertainment fundraisers will win as they enjoy better, faster, cheaper access to the capital they need to thrive.

If you’ve embarked down the road of raising money, following your road map (sometimes referred to as a business plan) and packed your knapsack with stock, the next stop on the money trail should be the Private Placement Memorandum.  The PPM is beautiful in both its simplicity and in its purpose.  This one short document (about 10 pages) is both an executive summary of your business plan and an action call for cash.

If you have completed your business plan and are now ready to raise money you need a PPM.  Unlike the article I wrote last month about seeking loans that are convertible to stock, this is a straight up offering to sell stock in your company. You can download various versions of the Private Placement Memorandum off any legal website or contact me and I’ll email you a blank copy in WORD.

Why I love the PPM…let me count the clauses.

INTRODUCTION
First things, first; tell them who you are, where you are, and how your company is organized:  [your company] is an [blank] company based in [blank], [your state], organized [when] ago by [your executive team] who currently serves as its officers and board members. The principal business of [your company] is [what….] [your company] was incorporated under the laws of [state] on [date], and has its principal offices at [your legal address]

DESCRIPTION OF OFFERING
The company hereby offers an aggregate of [#] shares of its common stock for sale at a price of $___ per share.  The Description of Offering is a three paragraph overview of the deal, how many shares are being offered at what price.  It also sets out how many shares have already been issued to the founders and current stockholders.  Most PPMs escrow the funds.  Let’s say you are raising $3 million:  The investors’ money is held in a bank escrow account until at least $1 million has been collected and deposited. That is referred to as the “threshold”.  Once $1 million has been raised the funds can be released to the company for its use.  If the offering fails to produce a minimum of $[000] by [specific date], the sale will be cancelled and the deposits will be returned to the subscribers, with interest at a rate of __% from the date of deposit. This protects the interests of the early investors should the offering fail to raise the threshold amount.  

USE OF PROCEEDS
The proceeds of the offering will be budgeted for a variety of different purposes. Management presently contemplates the following allocation of the proceeds from this offering:  This is a clear and succinct statement of how you plan to use the money.

CONTROL & DILUTION
The shares of stock that are being offered through this prospectus represent __% of the total shares of the company. If the offering is completed, [current stockholders] (who currently own 100% of the outstanding shares) will own __% of the shares, and will remain in control (usually) of the company.  This section goes into the details of who currently holds the stock and the value of those holdings.  It also lays out the rationale for the current stock price and the price point of the offering being made.

DESCRIPTION OF THE BUSINESS
This is information that is excerpted from your business plan.  It is usually no more than a page or page and a half.  It covers the origins of the company, a short description of its product/service, the compelling reason for its existence, sales and marketing aspects, and competitive landscape.  Again, brevity is beautiful here.  This is basically your “elevator speech”.

MANAGEMENT, BOARD OF DIRECTORS  & KEY EMPLOYEES
This is the easiest section to fill out.  It should have three sub sections, your executive management team (usually the founders), your board of directors (if any) and your key employees; [company] currently employs __# individuals, in addition to [management], and hires other individuals on a part time or commission basis for sales, editorial work, production, design and other matters.  Once again it pays to be brief here, no more than 200 words to describe the background of each person. You are not trying to impress your potential investors here, that’s what your business plan is for.

DESCRIPTION OF COMMON STOCK
The authorized capital stock of the company consists of [#] shares of common stock, the only class of stock authorized to be issued. Each share of common stock of the company, when validly issued and outstanding, is entitled to one vote on all matters to be voted on by stockholders, to equal dividends and to a pro rata share in the company's net assets in the event of dissolution, liquidation or winding up of the company. Shareholders are entitled to cumulative votes for the election of directors. The common shares, when fully paid, will be non assessable and are not subject to any liability for further call and have no pre emptive subscription rights as to any securities of the company. This clause basically sets forth the rights of the stockholders.

Under this section you also provide a “Cap Table” which sets out the capitalization of the company prior to the offering and after the offering, assuming that you will attract sufficient capital to sell out your entire offering.

INVESTMENT CONSIDERATIONS
This is the part of your offering where you try to scare your potential investors off.  It states that this is NOT a tax shelter; the market for the shares will be highly limited; that the company does not plan to pay “significant dividends” in the near future; that the investors should be prepared to hold this investment for a very long time; and that this venture is almost entirely dependent on the talents, experience and business relationships of the founders – and should anything happen to them that this entire business could close up shop.  Still want to invest?  You also have to explain in this section that the founders hold a vast majority of the shares and therefore almost 100% control over the business.  Any rights that new shareholders have must be set forth in a separate shareholder’s agreement. 

That’s about it.  The Private Placement Memorandum is your business plan in a nutshell, with a very specific request for funds attached.  Your PPM needs to be accompanied by a Subscription Agreement.  The Subscription Agreement is the document that the investor fills out and states among other things that they are a “Qualified Investor” with substantial financial holdings and know the risks that they are taking with this investment.  The investor can either attach a check to the Subscription Agreement, or more often wire funds directly into your escrow account. 

For those of you unfamiliar with corporate finance even these simple documents can seem complex, but for financial professionals like us, and most attorneys, these documents are simply tools of the trade.  If you have a compelling business venture you will want to attract investors — and they will want to give you money.   My beautiful little PPM is one of the tools you will need to get this done.  If you feel that you could use some guidance through the process, please feel free to call on us.

Would you like to raise investment capital from friends, family and people who don’t even know you yet?  This article will show you how we accomplished this quickly and efficiently for one of our clients.

Our firm was retained by a Northern California entertainment start up to set up and raise from outside investors up to $1.5 million.  The company had been in business for about one year and had completed their business plan along with the first phase of their product development.  There were three founding executives, each of whom had put in about $175,000 of their own capital.

Our first job was to restructure the company.  Like most small startups the founders had established the business as a Limited Liability Company.  The problem with LLCs is that the owners hold “membership shares” in the company, not stock.  Instead of selling stock we suggested that investors make “Bridge Loans” to the new “C” corporation that could be converted into common stock at a future date.  There is really no good mechanism to do this as an LLC, so we converted the original LLC into a Nevada based “C” corporation.  

Once the company was converted into a “C” corporation all sorts of options opened up for fundraising.  For example, “C” corps may have more than one class of stock.  You can have founder’s shares, common voting shares, common non-voting shares, preferred voting and non-voting as well.  Even the common and preferred shares can be priced differently depending on when the shares are purchased.  Example: “A” round common stock could be priced at $1 per share; and later “B” round common stock could be priced at $2 per share (or more), depending on the overall increased value of the company.  Note: the difference between common and preferred stock is that preferred stock always pays a fixed dividend, which must be paid to the preferred stockholders before any common stock dividend may be paid out.

Upon setting up the initial “C” corporation with 10,000,000 shares, we issued 6,000,000 shares to the three founding executives, plus another 225,000 shares, unevenly divided, among the first 5 employees, depending on their rank and length of employment.  An additional 1,275,000 shares were set aside as an incentive stock pool for new officers and employees.  A block of 1,500,000 shares of the initial stock was set aside for the Bridge Financing warrant holders.  The final 1,000,000 shares were put in reserve for new common stock holders and strategic partners.

Three important documents needed to be created to enable us to move forward:

• Bridge Financing Agreement – This is a seven page memorandum that sets forth all of the terms of the Bridge Loan, including the issue of warrants, valuation, rights, representations and warranties (if any), governing law, assigns, and timing.  The minimum loan amount allowed was $25,000;
• Warrant To Purchase Common Stock – A warrant is a right to convert a loan into common stock and establishes the price that the Bridge Loan can be converted, and when.  In this case, we established that after two years the Bridge Loans could be converted into common stock at the transfer price of $1 per share.  The Bridge Loan terms do not require that the loan holders convert their loans into company stock, but they do establish the mechanism and the timetable to do so;
• Promissory Note – This is the loan document.  In this case, the company agreed to pay the Bridge Loan holders 2% interest only, per annum, on their note for two years. After two years the note could be converted to common stock at the note holder’s discretion, through the exercise of the warrants.  The Note also establishes that “Maker may prepay all or any portion of the principal indebtedness without penalty at any time.” But also that “Maker shall not pay any dividends to its shareholders until all principal and interest on this Note has been paid in full.”

Once all the financing documents were completed, we were ready to meet with investors and accept checks and wire transfers.  My team, which included the three founders, was able to meet with about 36 groups and raised $1,115,000 from 24 investors.  The entire process took about 12 months to complete.  The two single largest investors were invited to join the board of directors as representatives of all the note holders.  As note holders, the investors had voting rights and some “super majority” rights that prevented the founders from making any business altering decisions that the note holders would not approve of (like giving themselves huge raises or changing the fundamental business of the company). 

After two years almost all of the initial 24 warrant holders converted their warrants into common stock.  The value of the initial stock went up from $1 per share to $2.50 per share for later investors. 

We are not saying that this is the only way to raise money for young, start-up companies, but it was an efficient one for these entrepreneurs.  What made this effort successful for this company was the fact that their project was based on a bestselling book by two of the founders, and they had already created a large and ardent following by the time they engaged my firm to do fundraising for them. 

Crowdfunding is becoming so (for want of a better word) crowded, and raising money from institutional investors often costs more and takes longer.  This method allows companies with a good business to raise fairly large amounts of money from investors in a way that benefits everyone.

If you too have a compelling venture and well thought out business plan, then this road map for raising capital may get you on your journey as well. 

Let us know if you need an experienced guide.

In the world of horse racing the handicappers look at how the racehorse has performed over the past season and then match that up with the track record of the jockey to determine if it is a winning combination.  They weigh that against all the other horses and jockeys in the race to determine if it is a good bet.  

When considering what films to make, producers have to make critical choices about selecting the genre, plot and the characters.  Due to marketing and financing considerations, it often comes down to a choice between betting on a genre specific project such as a thriller, scifi, action or horror movie, without any recognizable stars in it, or going with a bankable movie star and/or director.  So, do you bet on the horse (genre+plot+script) or the jockey (highly recognizable actor)? 

Distributors can sometimes establish a market value for genre films before they are completed, thus making the likelihood for pre-sales far greater than ‘execution-dependent’ films.  It is more difficult to assess the audience appeal of execution-dependent films based on the concept alone, as their success is contingent upon a number of unpredictable factors, such as reviews and release timing.  Such films have historically achieved lower pre-sales as the market tends to wait and see the finished product; hence, the need to rely on bankable stars and/or a name director to promote these films at the markets.

Unfortunately, this has also resulted in a glut of low-budget, genre driven movies; so much so that the distributors/foreign sales agents are now starting to reject these projects unless they also have a movie star attached in a lead role.  No longer will Eric Roberts or Gary Busey fit the bill.  An oversupply of low budget films has pushed down demand and allowed the international buyers to be more selective. 

I would have to also add that the person who bets on the horse and jockey also needs to consider what kinds of race they are running.  Is it a steeplechase, quarter horse, or thoroughbred race? Different races call for different kinds of horses and jockeys.  The bottom line is that money can be made in each kind of race, if you know what you're doing.1

Such is film.  The films sold at Cannes are vastly different from those sold at Fantastic Fest. Direct to video horror movies may surpass an Oscar nominee with a small theatrical release in earnings.  An Oscar winner may outpace the summer blockbuster over years of VOD and TV deals.  It's all relative as long as you position yourself well in the race of your choosing.  No matter what race you run, make sure you know what you are getting into.  That way you can increase your chances of winning every time.1

Investors often see genre driven films as low risk, quick turnaround opportunities, but they are also drawn to the higher quality projects with internationally bankable stars and directors with an attractive risk/return profile.  Everything depends on the distribution that the producers can line up.

So, do you bet on the horse or the jockey?  Increasingly, the answer is both.  Just like in horse racing, the handicappers are putting their money down on the combination of the two and comparing that to all the other horses and jockeys in the field.

Today, filmmakers run the risk of making that $250,000 scifi thriller, without finding any sales agent that will take it.  It’s kind of like building a mansion out of cardboard, just because you could do it, does it mean that you should?  That does not mean that a $100 million high concept film starring Johnny Depp and Morgan Freeman is a sure bet either, just look at what a disaster Transcendence was for Warner Bros.  As Mark Lágrimas says, “…money can be made in each kind of race, if you know what you're doing.”

-----------------------------------------------------

1 Contributed by Mark Lágrimas, a former Disney, MGM & CBS film & television analyst.  Now an independent filmmaker with Best Served Cold Productions.

I was walking down King’s Road in London one day, dodging the throngs of people propelling themselves forward with their heads bent down over their phones; just wanting to shout out at the top of my lungs, “LOOK UP!” That would of course been both useless and embarrassing, but it did make me think about how our minds are being reprogrammed to see the world in terms of screens, not landscapes.   

The human race is quickly losing its ability to focus on any one thing for more than a few minutes (or seconds) at a time.  In fact, there have been numerous studies that have shown that the attention spans of children, adolescents and adults are getting shorter and shorter.  This is having a profound effect on how we consume education and entertainment.  No wonder that the publishing industry, which has relied for centuries on humans consuming their information in books over hours and hours of reading, has been in a deep decline.  People are simply losing their ability to read for long periods of time. 

The motion picture industry has been drastically impacted by this phenomenon in two ways: First, audiences are drawn to action, animation and horror films where the scene changes every 15 to 30 seconds, mitigating their attention deficit; and Second, movies about people are getting crowded out by comic book superheroes, creatures and cartoon characters: The top 10 box office performers this year have been: Transformers, X-Men, Maleficent, Captain America, Spider-Man, Godzilla, Planet of the Apes, Rio 2, How To Train Your Dragon and The Lego Movie. Compare that to the top 10 movies of 1990: Ghost, Back To The Future, Die Hard 2, Pretty Woman, Home Alone, Presumed Innocent, Teenage Mutant Ninja Turtles, Total Recall, Dances with Wolves and Kindergarten Cop.  Not one of the films from this year is arguably about a human being, whereas 8 of the 10 films in 1990 were stories about people.

It begs the question, “Are we losing touch with our humanity?”

Film producers, distributors, and everyone else in our industry have to be concerned over this shift in consciousness.  It is no wonder that high quality television series have seen such an explosion in popularity.  People do not have to sit in a movie theater for two hours to get their entertainment fix when they can flip on their 50 inch flat screen TV’s and watch a 55 minute episode of Game of Thrones or Breaking Bad.  How can stories about real people, real heroes and real events compete with flying creatures, supernatural beings and dystopian worlds? 

This radical shift in attention spans has happened over just the past generation or two.  The world's first known movable type printing technology was invented and developed in China by the Han Chinese printer Bi Sheng between the years 1041 and 1048. In Korea, the movable metal type printing technique was invented in the early thirteenth century during the Goryeo Dynasty.  In the West, the invention of an improved movable type mechanical printing technology has been credited to the German printer Johannes Gutenberg in 1450.  So, for approximately five centuries we have been consuming our entertainment and information from books.  Movies have been around for just about 100 years and television for less than 60. 

Emailing and texting has been with us for less than 20 years, but in that time we have been transformed.  Long-form entertainment and information consumption has been replaced with the staccato rhythm of Tweets, YouTube videos and Snapchats.  I myself am finding it harder and harder to sit down for two hours with a good book or a classic film without feeling the need to check my email or the 12 texts that came in on my phone. 

This affects every one of us in the entertainment and educational sectors.  People have changed the way they consume the content we create and we have had to change the way we make it, sell it, and ship it to them. 

And, this is just the beginning.    

Whether we want to admit it or not film making and film distribution is a competition.  A competition for money, a competition for resources, and a competition for the attention of the public.  Most of us who have been in the trenches convincing investors, cajoling actors and directors, corralling production resources, and coercing distributors to hustle for our films, know that this is a dog-eat-dog, competitive business. 

Winning at the game of filmmaking is something like winning the lottery.  The odds are only slightly better.

The good news is that there is a lot that we can do to improve the odds significantly in your favor.  I don’t like to waste my time, or that of my team, my investors or anyone else, so I like to stack the deck in my favor before ever pitching a project.  By ‘stacking the deck’ I mean lining up all the resources before you talk to your first investor about your film project.

The following is a list of five things that you can do to greatly increase your chance of success:

1.      Get advice from the smartest people that you know in show business.  Talk to film distributors and foreign sales agents first about your concept before you even write the script.  Once you have gotten all of their input on the genre, characters, location and plot, then go talk to other producers, casting, production veterans, screenwriters, and actors before completing your first version of the script.  If you already have a script you need to go through the same process to vet the premise and allow others to shoot holes in your grand design.  Avoid getting feedback from friends and family members who will only tell you what you want to hear. 
Making movies that people want to watch starts with talking to experts.

2.      Once you have vetted your script and polished it to a shine, now build your team.  Unfortunately, most producers pick team members that will (A) Work for free (insert % here), (B) Will not challenge them in the room, and (C) Agree that they (the producer) is, if not God Himself, very near to him.  So what you have ends up looking more like a personality cult than a production company.   Don’t do that.  Choose the most powerful, dynamic and connected people that you can find.  If you have money pay them, if you don’t, elevate them to the same status that you enjoy… and give them the respect that they deserve.  Remember – you, and your project, are only as good as your team.

3.      Bring gravitas to your picture.  Gravitas could be in the form of Martin Scorsese, Tom Hanks, Mark Cuban, Sandra Bullock, Spike Lee, or His Holiness the Dalai Lama – but it better be someone who brings some serious weight to your project.  Because without gravitas you are just another wannabe producer with a script.  Remember – the title of this article is Winning Before You Show Up, not Show Up And Pray For the Best.  Bring enough gravitas to your picture and it gets made.   No one in our business ever turned down a meeting with  JJ Abrams, Stephen Spielberg, Oprah Winfrey or Catherine Zeta Jones. 
The more power you bring to the project the higher your chance of success.

4.      Line up your distribution early.  Wouldn’t you agree that producers with studio output deals get their films green-lit and into production faster than those who do not?  Producers with a domestic (North American) distribution partner, plus P&A money committed to their project also tend to get their movies made.  Producers who have strong foreign sales relationships and can get their films pre-sold at Cannes, AFM, Sundance, Toronto, and EFM/Berlin get their movies financed and into production.  Producers who have none of these things mostly sit around and talk about how they want to make movies.   Distribution deals get movies financed and made. 

5.      Have a reputation for taking care of your investors, your cast, your crew and your distributor.  If your film projects are not getting funded then maybe it is time to look in the mirror and ask if you are a good investment.  A bad reputation in the film industry follows someone around like stink on a skunk.  If making your next movie ever becomes more important than taking care of the people who helped you get here, and believed in you in the past, then maybe it is time to get out of the business and go open a restaurant.
Take care of people on the way up and they will  be there for you now.

Winning Before You Show Up is all about knowing your business, having the right team, bringing gravitas to your project, lining up distribution, and lastly… being the kind of person that others will trust with their money, their time and their talent. 

 In the film industry we are constantly put in the position of having to manage someone else's expectations.  Producers have to manage the expectations of their sometimes pessimistic financial backers; sales agents have to manage the expectations of the often overly optimistic producers; and the publicists, foreign buyers and legions of sub-distributors have to manage the expectations of the fee dependent sales agents. 
 
‘Managing expectations is a vastly underutilized skill, in my opinion. Not everyone does it, but maybe if more did, we could avoid a lot of the day-to-day drama that goes on in every business.’1

Producers have to live, breathe and eat the films that they make; often having to live with their creations from cradle to (hopefully not) the grave.  Epidemic to the profession is a tendency to believe one’s own press.  As a producer you have to believe.  Believe that you will make money for your investors; believe that you will make a good (if not great) film; believe that you can bring the project in on time and on budget; and believe that people will want to watch your masterpiece when it is done.  But a producer has to manage their own expectations for a production, as well as others.

What many producers sometimes fail to understand is this: What the world entertainment markets are willing to pay for a film or television show has very little to do with what the budget was to make it, or how long one labored to get the project made. To the television/cable, online, DVD, and theatrical exhibitors a film/program is just another slot in their schedule.  Most producers and financiers need to manage their own expectations about how long it will take to realize an ROI on their fully finished productions.   
 
“One of the best ways to manage expectations is to make sure you communicate with everyone on a frequent basis. In the early stages of a new project or as a key milestone or deadline approaches, you may want to even over-communicate…  By holding frequent check-ins throughout the course of a project, you also have the chance to provide real-time status updates and manage any delays, risks, or blockers. When you're proactively honest and transparent in your communication, you have room to put a Plan B in place, if needed, or the flexibility of making new decisions as you move toward the finish line. Being honest about a delay is a thousand times better than promising to deliver and then missing your deadline.”1

Distributors and sales agents are a more sanguine lot.  They can afford to be picky and usually will not distribute a film unless they sincerely believe that they can sell it… but even they are always working on a hunch.  They have to anticipate the appetite of the buyers at film markets spread from Los Angeles to Berlin to Hong Kong, often six months to a year in advance.  Who knows what the Australians, Germans or Chinese will be looking for next winter?  What was hot at the last market may be as dead as a doornail the next.  Films and television programming follow the laws of supply and demand just like any other consumable commodity. 

Producers and creatives alike need to be more realistic about their expectations and should conduct proper research prior to greenlighting any project, and not pin all of their 'Hail Mary' hopes on the distributor.  Learn directly from the distributor what foreign buyers are saying in those Cannes and AFM bunkers before you shoot that heartfelt film about a vampire transvestite with Asperger's.  Discover what films are succeeding in the VOD space by talking to the aggregators. Meticulously keep aware of the latest industry trade winds so you're not caught with a genre trend that ended a year ago.  If your direct discussions with a broadcaster or home video connection tell you that cable TV and DVD is a brutal sale these days, don't be afraid to LOWER projections on your film business plan (or even zero a media or territory out where warranted).  You don't have to constrain your originality - just don't back yourself into a financial corner with insanely unachievable expectations. 

While honesty is the best policy…one can be too honest with those dependent on you.  A producer telling the investor that he or she will possibly lose all their money – is usually not going to be productive.  A distributor telling a producer that their film is a derivative pile of horse pucky is probably not a smart move.  A foreign territory movie buyer telling a sales agent that no one in their country gives a damn about a kid in Kansas and his dog… is probably not a good relationship builder.  So, we use discretion, and diplomacy/tact. There are a lot of delicate and blustery egos in the entertainment industry.  Since motion pictures and television programming are consumable entertainment, if we were always, brutally honest with each other, very few of our movies and serial television programs would ever get made. 
 
“A huge piece of managing expectations is the actual expectation, right? You have to be comfortable that the expectations are realistic and achievable. If they're not, you can--and should--push back. The key here is pushing back in a way that balances the organization's needs and the team's abilities. Being open about what can be delivered and what the plan is to bring in the rest can go a long way towards instilling confidence and getting the go-ahead. If you can nail the fine art of pushback, you've won half the battle of managing expectations successfully.”1

Managing expectations is what we must do to get films, documentaries and television programs made, distributed, and seen by an audience.  And managing expectations is all about communications.  As a business consultant to the entertainment industry, I constantly have to assess, interpret and manage the expectations of my clients.  This means that I have to listen carefully to what they are saying and then find the best way to help them achieve their goals.  I can be brutally honest when I have to be, but most often I find that a deft touch works best with the majority of my clients. 

Uncovering the true expectations of the other person or organization is key to meeting their needs.  Sometimes they are unsure, or simply do not know what outcome to expect.  Vague goals such as “make money” or “get on air” or “tell an interesting story” don’t help you very much.  You need to dig deeper to find out what is driving the motivation to make this film, at this budget, with this cast – now.  

Because you can’t very well manage expectations unless you know what they are. 
 
A special thanks to Larry Goebel, Keith Birkfeld and Lise Romanoff in the writing of this article.
1Managing Expectations: The Most Underrated Leadership Skill
 By Janine Popick, March 2014, Inc.

Will Rogers said, “Even if you're on the right track, you'll get run over if you just sit there.”

No film or television distribution company can afford to just keep putting one foot in front of the other and hope to survive this chaotic business.  You need to move.  Which direction to jump is another question.

It seems that most film distributors and sales agents are moving in one of four directions.  Some that I know are moving ‘upstream’, that means that they are helping to finance films earlier than ever before.  Some at the script stage.  They are doing this to secure the long term distribution rights to films by producers that they know and trust.  Also, many distributors were once (and still are) movie producers in their own right, and this is a comfortable path for their companies to take.  By supplying production, or finishing funds for films, the distributor secures the distribution rights, gets executive producer credit and often back end participation (if any).  It is a smart move if you can afford it, but it takes deep pockets to do this.

Another large group of distributors are moving ‘downstream’, that is, they are developing channels of distribution to sell films directly to the consumer, be it via Hulu, YouTube, etc. or their own internet portals. These film distributors see the benefit of bypassing the traditional markets to go directly to the end user.  They still attend all the major film markets, mostly to acquire product and cement international relationships, but they are not there to necessarily sell films to the foreign buyers.   Most of these distributors have deep catalogs in specific genres; perhaps horror, sci fi, Christian/family, classic movies/TV, or documentaries.  The problem with the move ‘downstream’ is that revenues have not yet caught up with the costs.  You need to have staying power to build a brand and hold out until the consumers finds your channel(s) and are willing to pay for the convenience.

The third way that I see distributors jumping is (in keeping with the stream theme) to the left or right bank of this business.  On the left bank (Rive Gauche) is the vertical integration model.  In this model the sales agent, turned full service distributor, acquires all rights to the films they sell, both foreign and domestic… or they simply buy some films outright.  The distributor handles everything, including television, HBO/Showtime/Cinemax, RedBox, Amazon, Netflix, foreign sales at the markets, and even DVD.  This is what I call soup to nuts distribution.  All markets, all mediums, all world.  In the vertical integration model the distributor also handles the theatrical release of the movie (if any).  Many distributors have found the financial rewards of doing day and date releases for their films. It is a way to get better exposure for their movies to foreign buyers, and to potentially hit a home run in North America. 

The fourth jump out of the typical sales channel is to the right (Rive Droite). In this move the foreign sales agent or distributor chooses to partner up with other compatible film and television distributors, sales agents, producers, or even their biggest customers, into something of a coalition. In some cases they simply merge.  Many of these companies have downsized as much as they possibly can and some have even given up their fine offices in favor of working out of their homes.  Gone are the big staff and acquisition team, in favor of a more streamlined operation.  These companies have been living off of market fees and meager commissions (sometimes for years) but have now seen the wisdom of creating a partnership with other companies that provide a synergistic service to the industry.  This is taking advantage of the power of long term relationships and segmenting the channels of distribution.  We see this most often in the digital distribution space, where a US company will partner with a European company, or perhaps a Chinese company, to gain market access and create a supply chain that both companies need.  There is often strength in numbers and no independent sales company can be all things to all people.  But, by partnering up with companies of common interest, you can complete a loop that benefits the producers, the buyers and the consumers. 

Will Rogers was right. You can’t just sit down on the tracks and wait for the money train to run you over.  Every company in this industry has to be on the move.  Some are moving upstream, some are moving downstream, some are jumping to the right and some are jumping to the left… and unfortunately, some will be road kill. 

Which way are you moving?   

rel·e·vance
noun: The condition of being relevant, or connected with the matter at hand. Meaningful.   from Medieval Latin relevans , from Latin relevāre  to lighten, from re-  + levāre  to raise, relieve

It does not matter whether you entertain the masses with major motion pictures; pump oil out of the ground to fuel our economy; or save people’s lives on the operating table; we are all searching for relevance in this world.  The best and the brightest of us, most of all.

For 26 years I have worked with some of the smartest, most talented and very, very accomplished human beings on the planet.  My firm buys and sells media companies and I have had the fortune to know the men and women who started them, grew them and made them such a success that others wished to own them.  I have been fortunate indeed.

That is why I wanted to write this blog, it is about how each of us is searching for relevance. 

It does not matter if you have a fine home in the hills, drive the latest model luxury car, and have a ski chalet in the mountains… if you are unsure of your relevancy on this planet, you will be discontent.  Accumulating nice things does not give you the satisfaction of feeling accomplished.  More often than not our possessions just make us feel trapped.

Angelina Jolie, a woman who gives away more than one third of her enormous income to the poor, was being interviewed on television recently, and she said; “I am paid a ridiculous amount of money for what I do. Why shouldn’t I give it those less fortunate than me.”  She, the highest paid actress on the planet, is still searching for relevancy in this life. 

Like myself, many of my client’s have never made millions of dollars, but they have built good and stable companies that employ talented, hard working people.  They help creative people reach their potential by bringing their artistic talents to an audience – whether it be on the stage, on film, on the internet/ television, or even between the pages of a book.  These people are the backbone of the communications industry.  They develop, nurture and promote the most talented writers, directors, artists, filmmakers, singers and actors that they can find and risk their money and time so that the world can know their art.

It is an old and noble profession.  We are the impresarios of our age.

Why is it then that so many of my friends and clients, especially those in their late 50’s and 60’s, seem so discontent with their accomplishments?  They have what many would deem “interesting lives”.  They lunch with actors and writers; they strut their stuff on La Croisette in Cannes; they have interesting conversations about creating books, films, music, art and stage plays with people who know how? 

So, what is the source of their malaise?

It all comes back to feeling relevant. Most publishers, record producers, movie makers, playhouse owners and even television executives that I know want, more than anything, to make something important that will last beyond their lifetime.  A lot of that entertainment is basically 'pop culture'.  It is created for a purpose, consumed and quickly forgotten.  Most entertainment companies create pop culture.  Sometimes, if we do it right, even inexpensive pop culture movies, music and literature becomes art.  Think Berry Gordy’s Motown music of the ‘60s, Saturday Night Live, John Carpenter’s Christine or anything from the pen of Stan Lee.  Pop culture can become iconic culture.   

It is that search for relevance that drives even successful pop culture purveyors to strive to make and disseminate better quality, artistic entertainment… they don’t just want to make a buck, they actually want to make a difference.  Touch people’s lives.  Move the world. 

I once asked a real estate developer of storage garages and industrial buildings why his home was so finely ornate, and he answered, “Stephen, I just wanted to build something of quality, not something for the lowest cost per square foot.”  I understood completely.

The search for relevance is the search for meaning in this life.  Our own little corner of immortality.  We are fortunate to have the opportunity to create and promote art, literature, films, music, games and other artistic endeavors.  We actually do get a chance to touch lives and move the world. 

If we do it right.

My firm is all about helping companies build and realize their highest value; whether it is in film, television, music, video games, publishing or online.  As you get ready to go to Cannes I want you to think about what makes your company valuable and consider what you can do to enhance that value as you do your work of buying and selling films.

The single, most important thing that you should think about as you prepare for Cannes is...

What is our brand? 

Many companies go from show to show, building their catalog and selling territories without really giving much thought to their overall company image or “brand”.  But your company needs a brand; it needs to be known for something more than just an eclectic collection of films.  That in fact is what a lot of the foreign sales companies have become:  A mixed assortment of movies and documentaries.  You cannot discern much of a plan or corporate image from their list of titles, accumulated over the years.  Most were picked up because they were priced right and expedient, and the acquisition team knew that they could sell them to a certain number of buyers.  Not much thought was given to how this or that title fits into the overall company “brand” or how a title will enhance the value of the corporation as a whole.  It often gets down to price, terms and sell-ability.  Deal done. 

But that is not the end of the deal.  That title will become part of your company’s long term identity.  You know the phrase “you are what you eat,” well… you are what you sell. 

Building your corporate brand is crucial to the long term successful growth and financial health of your company.  What are you known for?  Why do buyers want the films that you take to market?  When you want to recruit top talent to your team, why do they want to work for your company? 

I started my career at the Walt Disney Company.   Arguably, the most brand conscious corporation in the entertainment industry.  We were always fastidious about building, enhancing and protecting our brand.

You need to do the same. 

Buying and selling films is just as much about personal relationships as it is about marketing entertainment properties.   Often films are picked up from this producer or that one because you sold their last film and may want their next one.  But how does that help your company?  Ten years from now will you look back and be really glad that you acquired and sold that film, or will it just be another brick in the wall?    

Build your brand.  They are not bricks.  Acquire only films that will enhance the overall value of your company and give you a catalog of titles that others would admire and wish they had acquired. 

It does not matter if you have the best collection of creature features, Anime, romantic comedies, rock docs, international spy thrillers… or kid vid.  Be known for something.

A lot of people talk about branding, but few companies in our business are really serious about it.  As you get ready to embark for France, think about your long term objectives and what you want your company to be known for, and do not compromise on that vision.

Poll underscores the fact that unlike in U.S., most global viewers prefer live television.
Almost 90% of viewers prefer watching live television, although other modes of consumption, including streaming or downloading from a computer (27%), streaming from the Internet to TV (16%), using a DVR or other recording device (16%), and via mobile device (11%), are gaining in popularity, according to new data from research firm Ipsos.

The survey of 15,551 adults in 20 countries (including the United States) conducted Feb. 4 and Feb. 18, 2013, found that traditional ‘live’ TV watching is more popular (91%) among older respondents ages 50-64, compared with those younger/middle age 35-49 (88%) and under 35 (81%).

Indeed, watching TV programming on computer and laptop is most popular (35%) among respondents under 35 — a percentage that diminishes as viewers’ ages 35-49 (25%) and 50-64 (17%) increase.

Streaming TV content from the Internet was preferred by 20% of respondents under 35; 16% among respondents 35-49; and 11% among the 50-64 demo. The percentages fall even further watching TV on mobile devices. About 15% of respondents under 35 watch TV on a portable device; 10% among the 35-49 demo; and 5% among those 50-64.

Using a DVR or other recording device is most popular with those 50-64 (18%) compared with 35-64 (16%) and under 35 (15%).

Countries whose residents are most likely to choose watching live TV programming include France (93%), Spain (93%), Germany (92%), Turkey (90%), Argentina (89%), Sweden (89%) and Australia (89%).

Those rounding out the middle of the pack are from Brazil (89%), Italy (89%), South Korea (87%), Great Britain (83%), Mexico (82%), Poland (82%) and India (82%).

Those least likely to watch TV programming live are from Japan (82%), Russia (81%), South Africa (81%), U.S. (81%), China (80%) and Canada (77%).

The results seem to support a recent Rentrak Corp. study that found that nearly 67% of primetime network viewing occurs three days after a show’s initial broadcast.

Watching TV on computer or laptop was chosen most often by respondents from China (52%), Russia (43%), Turkey (42%), India (40%), Sweden (35%), South Korea (31%) and Great Britain (29%).

Less inclined are respondents from Poland (27%), South Africa (26%), Canada (26%), Germany (24%), Mexico (24%), Spain (23%) and Brazil (21%).

Respondents from Argentina (20%), the U.S. (20%), Australia (19%), Italy (17%), Japan (14%) and France (12%) is least likely to watch TV on a computer or laptop.

Streaming from the Internet to TV is most popular among respondents in Turkey (44%), Russia (36%), China (33%), South Korea (25%), India (23%), Sweden (19%) and Great Britain (17%).

Those in the middle of the pack are from Canada (17%), the U.S. (17%), Brazil (15%), Mexico (13%), Spain (12%), Italy (11%) and Australia (10%).

Respondents from South Africa (9%), Argentina (9%), Poland (7%), Germany (5%), France (5%), and Japan (3%) are least likely to choose streaming from Internet to TV.

Respondents most likely to use a DVR or other recording device hail from Japan (45%), the U.S. (40%), Canada (32%), Great Britain (31%), South Africa (27%) and Australia (25%).

Those in the middle of the pack are from Poland (18%), India (16%), Germany (11%), France (11%), China (10%), Mexico (9%) and Sweden (8%).

Respondents from Turkey (7%), Brazil (7%), Spain (7%), Italy (7%), Argentina (6%), South Korea (5%) and Russia (4%) are least likely to use a DVR or other recording devices.

Finally, watching TV programming on mobile device is most popular in South Korea (26%), China (25%), India (21%), Turkey (20%), Mexico (13%), Great Britain (12%) and Sweden (12%). And less so in the U.S. (10%), Australia (9%), Spain (9%), Brazil (8%), Canada (7%), South Africa (7%) and Italy (7%).

Least likely to watch TV on mobile device were respondents from Argentina (7%), Japan (6%), Poland (5%), Russia (5%), Germany (4%) and France (4%).

If you want to buy or sell all the rights to a film, you do not have to call an appraisal company to arrive at a fairly accurate value of the property.

My firm has been valuing film and television (intellectual) properties for more than 25 years and we have also studied the valuation techniques of many other firms as well, and for the most part, it comes down to “apples to apples”.

Step One
Break down the film, or films, by director, star(s), genre, original box office (or DVD) revenue and foreign/domestic exposure. 

Step Two
Contact other producers or distributors with similar genre films (with the same director/stars if possible) in their library.  These are called “comps”.  Find out how those films have performed over their lifetime.   You might be surprised how forthcoming most rights holders are with this information, they have nothing to hide and often gain valuable information about their own films in the bargain.

Step Three
Our firm gives each film in a library a rating (1 Worst – 4 Best) depending on the film’s past financial performance, the presence of known “movie stars”, the age of the film, and the film’s director, producer and debut reviews.   We total the points for each of these factors and create an average (Example: 2.3).  

Researching the past sale price of similar films is a bit tricky, but there is a lot of published and unpublished information about past film sales available on the internet.  Again, it is wise to turn to your friendly competitors and other rights holders.  You will probably find, as we do, that you can develop a consensus of thought about any particular film based on its genre, star and director.  So, if the consensus, general market value of films of a similar nature is $10,000, then you apply your multiple (for example purposes only: 2.3). 
Gross Value $23,000.

Step Four
Applying a discount.  You may need to discount the film’s value based on many possible factors; among them are the number of territories sold/unsold (and currently still under contract), the availability of clear chain-of-title information, and the quality of the original print.  If the print has not been digitized and is not in high definition (standard def), then that becomes a factor too.  We add up the discounts and apply them.  It usually comes in at .50 to .80.  This is your discount rate.  For example purposes only, let’s assume that we have created a discount of .67.  We multiply our film’s gross value of $23,000 times .67 to arrive at a Fair Market Value of $15,410.

That is a very accurate assessment of the value of this property.    

You may be wondering why we first create a rating point system and apply it to an average industry consensus of similar films, and then discount that gross value to arrive at a Fair Market Value.  We do this to make sure that we are treating each film fairly and accurately.  Just because a similar Kevin Sorbo or Mark Harmon picture sold for $22,500 in 2006, that does not mean that's what your film is worth;  you will need to rate all of the elements of the film and apply any discounts to be accurate.  

The days when DVD was king are over, and films today are very much valued on their digital distribution rights value.  If those rights, or elements, are not available, then the value can fall to the floor. 

We understand that this is not a cookie cutter valuation method, but it forces you to look at all the positive and negative aspects of a film and apply a numerical value to them.   I promise you that if you use this process you will feel that you have a handle on the true market value of the property. 

If you need any help with this process, or would like us to do it for your company, please do not hesitate to contact us. 

Recently, I was representing the seller of a very nice business to a qualified and strategic buyer.  My client wanted to sell his business at a fair market price, the buyer was highly motivated to buy my client specifically, and had the money to do so. 

It should have been a marriage made in heaven.  

In this case I was representing the seller, so it was not my place to give M&A etiquette advice to the buyer.  So often, I watch buyers and sometimes sellers shoot themselves in the foot when a deal was there on the table that both sides could agree to.  I have been personally involved in closing the sale of 56 different businesses over the past 25 years and been party to dozens that did not close, for one reason or another.  Often, the buyer and seller had the transaction in their grasp, only to watch it slip away due to ego, self-interest, or just plain misunderstandings.  As an intermediary it is my job to guide both the buyer and seller to a place of mutual agreement, and then get it in writing. 

That is easier said than done.

The biggest mistake that I see buyers make is thinking that they are somehow superior to the seller because they are buying his/her company, and not the other way around.  It’s called hubris.  I’m invading your country and I have a bigger army, therefore you should listen to me. 

Go tell it to the Spartans, Persia. 

My advice to even very large acquirers is to humble themselves, listen carefully to what the seller is saying to them and find a way to meet his or her needs, at a price and terms that you can afford.   It is my contention that when you are dealing with even a modestly motivated seller and a financially qualified buyer, that every deal can get done… somehow. 

Even when the buyer and seller are seemingly miles apart in their valuation of the company, there are often missed “bridges of opportunity” that will span that chasm and eventually satisfy both parties.  One of those bridges of opportunity is discussing the seller’s aspirations after he/she sells the company.  Maybe they want to make films, or direct, or do charitable work.  The buyer should be sensitive to that and see if they can make that part of the compensation package.  The other is looking at the tax consequences of the sale on the seller and finding ways to mitigate the large tax bill they could be facing, perhaps by stretching out payments or reclassifying compensation.  Another bridge is looking at the seller’s skills/experience and employing them for years to come – to the benefit of the combined companies.  Often overlooked by the buyer is that fact that the largest assets they are acquiring are the knowledge and relationships of the seller. 

Even when the buyer and seller like each other and fully agree that a merger/acquisition would be in the best interest of both parties, there are always cross currents that can tear any well intentioned deal to pieces.  Deal killer lawyers, voodoo accounting, disgruntled executives/wives/employees, undisclosed liabilities and legal entanglements, and even the health of the key players… can all derail even the best of transactions. 

It should also be noted that time kills all deals.  If the buyer takes months analyzing the seller's financial statements, cannot seem to figure out the seller's business, and also does not keep in communication with the seller or their agent; then you can probably kiss this one goodbye.  Sellers have no patience for wishy-washy buyers. 

The definition of Fair Market Value is: A price, based on what a knowledgeable, willing, and unpressured buyer would pay to a knowledgeable, willing, and unpressured seller.  When neither is under any compulsion to buy or sell.

If the seller is under no compulsion to sell, then it is the buyer's burden to prove to them that it is in their best interest to do so.  If the seller is 66 years old, has no heirs in the business, and has had health issues, then he is under obvious personal compulsions to sell.  If the seller is 46, has family in the front office, and is in the prime of health… then his motivation may be… different.  That does not mean they do not exist.  Every company can be purchased for the right price under the right conditions.

It is incumbent on the suitor to find the tipping point that motivates the seller to act.  And it isn’t always money.  Often the seller’s company has been constrained for years by its lack of capital, and could benefit from the suitor's greater access to cash.  Or access to markets.  Perhaps the seller has other goals and aspirations outside of the company that are going unfulfilled because they feel trapped by their commitment to their business/family/employees.  Often the seller is simply bored running their small company, day in and day out, and would welcome to chance to play in bigger pastures. 

If after fully analyzing the seller's business, considering all the synergies of combining the companies and making the very best offer that one can, the two sides are still far apart... you might want to consider buying less than 100% of the target company.  Remember that 51% control gets you just as much as owning 100%.  There are dozens of ways to meet the seller's expectations without having to walk away from the deal.  Assuming of course that the seller is a reasonable person and actually wants to sell.

While it is true that it almost always comes down to money.  Money is never the only issue and even the price paid for the business can take a back seat to the transaction when the buyer and seller sit down and really listens to what each other needs.