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.
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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
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
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