Film Economics 101

Reference: Found here

Content is Not King . I have often heard the phrase, "Content is King." Baloney. Due to the law of supply and demand mentioned above, distribution is king. Whoever controls distribution has far more leverage than the legions of producers given the plethora or films looking for limited distribution alternatives. For most of my forty years of practice, the studios were the 800 pound gorillas because they controlled distribution, and they were so cocky that most of their offers were "take it or leave it." Indeed, the head of distribution at one studio once threw a contract I drafted across the room because I had the temerity to think the studio might agree to something fair. But oh, how the mighty have fallen, since streamers now control distribution, and many studios have become the beggar production companies on their knees to the streamers. No wonder that so many studios have been sold.

Implications. The economics discussed above have profound implications for the film industry, including the following:

Projections . You need a jaded eye when reviewing projections of future income. I have not yet seen projections for a new independent production company that did not show a rosy picture of ever-increasing profits. If the projections were based on historical averages, the chart with the projections would be turned 90 degrees clockwise.

Single-Film Investment . You must have a high risk tolerance to invest equity in a single film only, or even in a small slate of films, particularly where the film company does not control distribution.

Tax Planning . You should be wary of spending a lot of time and money setting up a complex international tax plan to shelter all those boatloads of cash that will be rolling in. It would be wiser to spend the time and money setting up a structure that will permit the owners to deduct the tax losses that will likely occur.