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How Much Are Films Worth?

5/17/2016

10 Comments

 
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
10 Comments
Robert Baruc
5/19/2016 08:43:08 am

I think you hit the nail on the head, too much quantity and not enough quality. The market can no longer absorb the sheer number of low budget films being made each year, lowering the value on all low budget films.
Thanks so much for sending my way.
Robert Baruc
Big Air Studios

Reply
Eric Stein
5/20/2016 08:06:27 am

Thanks much Stephen, very interesting and validates many of the themes that I've been noting in the marketplace.

Eric B. Stein
Impact Global Media

Reply
Annmarie Aronoff
5/20/2016 08:31:45 am

Great article, Stephen! I appreciate your informed perspective and the fact that you've posted it for others to see. As a former distributor, it was always a challenge for producers to 'accept' the real value of their film or catalogue. You've detailed all of the pertinent reasons why, which producers should consider when they make their next film. And, it's all the reasons why we're producing our next film with the elements to ensure a long shelf life with cyclical revenue potential. :-)

Reply
Robert Blair link
5/20/2016 02:06:55 pm

Good perspective, Stephen, as always! It is sad but true; the old formulas of the business no longer work. Good content is king, and should always rise to the top, no matter what the budget. Your advice to produce better product, not more product, is worth repeating.

Reply
Lise Romanoff link
5/21/2016 05:42:28 pm

Hi Stephen and Saraah,

If you are creating a BLOG about this subject - here is my two cents

First of all, Bravo! And very well said! Except there are 2 concepts within this one article which I think it might confuse the Producer.

1) The concept of selling a library that has had already had its first run sales by a good sales agent. The remaining value as you say may be on average under 10K, but the return to the producer may have been anywhere from 100K to 500K already. So the under 10K number is very misleading. On that same library, can you please tell your readers what was the Gross Sales already made?

2) The concept of the “value to the production budget" is totally right on! Cast is Key and good story-telling a second Key, because now with information via the internet so plentiful a film MUST get good reviews to be successful on VOD.

The “take away” from this part of your story from a producer’s point of view, is please consult with a Sales Agent BEFORE you cast! And then provide your Sales Agent with good images for marketing, so at least you can capture what is left of the DVD market, which is still based on good key art.

Thanks again for a great article.

With warm regards,

Lise Romanoff
Managing Director/CEO Worldwide Distribution

Reply
Robert Blair link
5/23/2016 07:23:19 am

Both good points, Lise!

Reply
Joseph Sinda
5/21/2016 05:45:04 pm

Dear Stephen:
Good Show excellent article. Important for proof of value for Sales, Insurance value and Intellectual Property for Tax value. I did this Worldwide for 30 years.
Be Well,
Doc Joseph P.Sinda
Dragon Thunder Entertainment

Reply
Philip Knowles
5/22/2016 09:27:53 am

Stephen,
Excellent article well researched and bang on point!
Best regards,
Philip Knowles
CEO
Topaz Distribution, LLC

Reply
Michael Klein
5/29/2016 09:51:22 am

Steve, Good job. But Prior Sales Revenue from all windows important as basis for NPV $4800 per avg. film. Also, Dates of Production 250 films. And, Copyright or PD?? Key to new Films is fundamental change in distribution windows last 10 years. Collapse DVD Retail and Creation Online VOD Rev Share market bad for all Independents with limited volume Film Library. Quantity more important than Quality. Only beneficiaries Major Studio Oligopoly and oligopoly Amazon/Hulu/Google, etc. All new independent Films require Theatrical Release for access to Traditional Media cash license revenue. Requires additional expense Advertising/Digital Masters. Asset value 250 Film Library avg. NPV $4800 declines next year if no license this year. Business value proposition top 10% (25 films) package. Content is King only for Major Studios. Quantity and price is King for independents. Word from the frontlines. Mike

Reply
Dawn Jacobs link
6/5/2016 12:55:53 pm

Stephen and Sarah,
Great article, I appreciate the insight into this end of a films life cycle.

Reply



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    Stephen Kerr is president of BMC (Business Marketing Consultants), a subsidiary of Bel Age Medias. 

    He has 30 years experience in the media and entertainment industry. 

    ​See more on his LinkedIn profile.

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