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Filmed Entertainment

Filmed Entertainment. Industry introduction and overview. Agenda. Who are the players? How does a film or TV show get made? How are films and TV shows distributed? Markets Market & advertising a film Theatrical distribution Home entertainment Television distribution

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Filmed Entertainment

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  1. Filmed Entertainment Industry introduction and overview

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

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

  4. Who are the players?

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

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

  7. Studio market share – 2012 vs 2011 * Includes Summit Source: http://www.boxofficemojo.com/studio/?view=parent&view2=yearly&yr=2012&p=.htm and http://www.boxofficemojo.com/studio/?view=parent&view2=yearly&yr=2011&p=.htm

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

  9. Top films of 2012 – domestic vs int’l Source: http://www.boxofficemojo.com/yearly/chart/?yr=2012&p=.htm

  10. Top films of 2011 – domestic vs int’l Source: http://www.boxofficemojo.com/yearly/chart/?yr=2011&p=.htm

  11. How does a film or TV show get made?(The production process)

  12. Film production: Direct production costs Development/ Packaging Concepts Books, Screenplays Rights Greenlighting Crew Selection Script Development Costume Design Set Design Location Scouting Pre-production Casting Budget Actors Producers Writers Directors Principal Photography Soundstage Set Construction Wardrobe Labor Dubbing Film Editing Scoring Special Effects Post-production Titles and Credits Soundtrack

  13. Film production: Direct production costs Development/ Packaging Concepts Books, Screenplays Rights Greenlighting Crew Selection Script Development Costume Design Set Design Location Scouting Pre-production Casting Budget Actors Producers Writers Directors Principal Photography Soundstage Set Construction Wardrobe Labor Dubbing Film Editing Scoring Special Effects Post-production Titles and Credits Soundtrack

  14. Film production: Direct production costs Development/ Packaging Concepts Books, Screenplays Rights Greenlighting Crew Selection Script Development Costume Design Set Design Location Scouting Pre-production Casting Budget Actors Producers Writers Directors Principal Photography Soundstage Set Construction Wardrobe Labor Dubbing Film Editing Scoring Special Effects Post-production Titles and Credits Soundtrack

  15. Film production: Direct production costs Development/ Packaging Concepts Books, Screenplays Rights Greenlighting Crew Selection Script Development Costume Design Set Design Location Scouting Pre-production Casting Budget Actors Producers Writers Directors Principal Photography Soundstage Set Construction Wardrobe Labor Dubbing Film Editing Scoring Special Effects Post-production Titles and Credits Soundtrack

  16. Film production: Direct production costs Development/ Packaging Concepts Books, Screenplays Rights Greenlighting Crew Selection Script Development Costume Design Set Design Location Scouting Pre-production Casting Budget Actors Producers Writers Directors Principal Photography Soundstage Set Construction Wardrobe Labor Dubbing Film Editing Scoring Special Effects Post-production Titles and Credits Soundtrack

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

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

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

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

  21. How are films and TV shows distributed?

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

  23. Current release windows of a film Licensing and Merchandising Free TV (network & syndicated) Pay TV PPV/VOD Home Entertainment (DVD, Blu-ray) Digital Media Theatrical 3 6 9 12 15 18 21 24 27 30 33 36 (months)

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

  25. Marketing and advertising a film

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

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

  28. Theatrical distribution

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

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

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

  32. Home entertainment

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

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

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

  36. Television Distribution

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

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

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

  40. Broadcast TV trends Top 10 Broadcast TV Shows – Week ending July 1, 2012 Source: http://tvbythenumbers.zap2it.com/2012/07/03/tv-ratings-broadcast-top-25-us-olympic-gymnastics-trials-americas-got-talent-top-week-41-viewing/140363/

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

  42. Ultimates and Cost Amortization - overview

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

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

  45. Participations and residuals

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

  47. Residuals

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

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

  50. Case Study introduction

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