Distribution Paradigms Today and Proposed
In a world of FAIR distribution, the very people responsible for creating and financing independent motion pictures from sources OUTSIDE the film industry, would be held in higher regard. Unfortunately, as Lee Garmes and the ISPA pointed out EARLY, and as countless other victims (through their law suits) and researchers with the courage to speak out (such as John Cones) have pointed out RECENTLY -- this is not the way it is in Hollywood at all with today's distribution paradigm.
When you buy a movie ticket at a box office, for let's say $8 (to use a round number), the movie theater (the Exhibitor) immediately takes about 60% of this $8 (known as the "Box Office Gross") and turns over $3.20 to the studio/distributor who released the movie. Many times the movie theater is fully or partially, directly or indirectly, owned by the studio/distributor.
Then the studio/distributor charges its "distribution fee" of about 30% - 40% against this $3.20. We'll use the conservative figure of 33% which leaves $2.14 from the original $8 ticket sale.
The studio/distributor THEN reimburses itself out of this $2.14 for anything it spent on prints and advertising (P&A), and all other expenses relating to distribution, for the movie. This is an area where distributors have traditionally inflated their costs and is usually where any cash flow back to the producers and production financiers stops dead as expenses can be anywhere between 20% and 50% or more. Using a mean figure of 37.5% for expenses such results in the sum of $.80 charged against this $2.14, leaving a puny $1.34. This means that from the $8 ticket sale, only $1.34 is available to turn over to the Production Company, provided the studio/distributor does not ALSO have participation rights in this sum as well, reducing such cash flow to zero. This $0.00 to $1.34 is what is known as "Points" or, in certain circumstances, known as "Producer's Net" (or, as Eddie Murphy called it in connection with the Buchwald v. Paramount suit, "Monkey Points").
The Production Company, thankful that it has received its Monkey Points, now has to split them (that $1.34) with its film production Investors, usually 50-50. So, wow, that leaves a whole $.67 for all you Producers/Writers/Director/Talent/Development Investors AND $.67 for all you Production Investors, from that original $8.00 ticket!
The Investors, who BELIEVED in the Production Company (and who may have believed in promoting culture as well) enough to finance the movie (and who may have millions invested), go away praying that these little puny chunks of $.67-here and $.67-there will someday add up to (recoup) their total multi-million dollar investment (plus a reasonable return on investment) at the very least.
As mentioned above, The Production Company, now gets to pay its producers from this $.67 for the years of hard work they put in (as many as 10); and they get to pay back any sums deferred by the Cast or Crew and lastly; they get to pay back the Development Investors, those gutsy people that put up THE VERY EARLIEST MONEY (probably to put a few sandwiches in the refrigerators of a starving writer and producer) -- yet don't get paid back until NOW, if at all.
No wonder investors believe the myth that "movies are risky." To be more accurate, one should say "studio/distributors are risky." You don't hear the studio/distributors complaining about how "risky" the business is unless they are trying to avoid taxes or "creatively account" someone out of their profit participation.
The above scenario is EXTREMELY optimistic and, pursuant to John Cones' research (explicated in vast detail in his book, The Feature Film Distribution Deal) "The truth is that only about 5% of the major studio/distribution deals actually result in the payment of net profits to anyone, regardless of how much money the film makes (that's the best estimate of a profit participation auditor who is out there on the front lines every day auditing the studio books)."
Thus my estimate of $.67 per ticket is exactly $.67 too high in 95% of the cases, and significantly high in most of the other 5% of the cases.
THIS is Today's basic Distribution Paradigm. This is the "PLAN" the current studio/distributor-driven movie industry has waiting for YOU (as an independent producer, writer, director, actor or investor).
Rationale for Today's Paradigm
Whether or not, the advent of digital delivery requires less energy be expended, i.e., money, to move matter around on the planet's surface (i.e., truck cans of 2,000-ft reels of 35mm motion picture film: that action of a studio/distributor) - is not the reason why a new paradigm is needed.
In Today's Distribution Paradigm above each level of the marketing chain, from exhibitor to distributor to producer to development financiers has the opportunity to "divert" or "siphon-off" money before turning it over to the next group. I don't like to use the word "steal" because we usually reserve this word for people who DON'T have the money to afford $250 per hour accountants and lawyers.
Today's system of studio-type distribution is based on the unwritten word: YE WHO GETS THE GOLD FIRST, GETS TO POCKET THE GOLD FIRST.
Thus, those who created and financed the works of filmic art get the gold LAST, if at all, because all the people who truck and futz and display the films are in the equation FIRST and hence in a position to levy charges for THEIR "invaluable services" against the newborn cash flow, a cash flow generated by the filmmakers' ability to thrill audiences.
Of course the bloated industry of studio/distributor executives, truckers, exhibitors, boxers, popcorn sellers, postal service delivery boys, building maintenance crews for marketing strategy teams and the thousands of screen credits you DON'T see on the tail of a movie (thank god), will NOT agree with any paradigm other than the current one.
Their view is, it takes MUCH more "skill" to market a movie than it does to "produce" one... AND this is unfortunately TRUE, probably, because today's movies are so POOR and UNORIGINAL - it DOES take marketing GENIUS to RAM all this "lousy" (i.e., remake, sequel, violence-oriented, exploitation) product down the public's throat.
Under a FAIR system of distribution, one where more of the creators were supported and validated, (not just 100 over-paid stars and executives in Hollywood) something unheard of might happen: more original, better-made, more creative pictures might be produced and they would SELL THEMSELVES through word-of-mouth (the most natural, hence powerful, advertising "technique" known to Humankind).
In other words, if starving filmmakers the world over, were not being robbed by Today's Distribution Paradigm, they might be able to spend more time making movies of higher, more original, quality - than having to pump out more of the same SAFE stuff to please their slave-master, studio executives' thinking, thinking based in the rationale that they (the executives) GENERALLY can't afford to take chances on "unproven" concepts or talents, because the costs of distribution are SO high. Their justifier. ;- ) Hence all the people in the above line up, "must" be in place, hence all these people preempt the cash flow as they get their hands on the GOLD first.
This is part of the rationale behind Today's Distribution Paradigm: Everybody is
fighting for first dollar, because THEY "deserve it more."
A New Paradigm
A New Distribution Paradigm is based on the change of two major factors in Today's Distribution Paradigm (as explicated in two previous posts):
A) WHEN everyone gets paid; and,
B) WHAT everyone gets paid.
Since it is clear that everyone connected with exhibition or distribution or production of a movie feels that THEIR contribution to the "thrill of an audience" is most important, all will feel their justifications for getting their hands on the newborn cash flow from first dollar are valid.
So, rather than argue forever about this, why not PAY everyone from first dollar. This would never have been possible in Lee Garmes' day, but now with computers, credit/debit cards, electronic banking and the internet, it is quite possible.
Just think, Writers, Producers, Talents and Development Investors, no one (having the opportunity to siphon) would get THEIR hands on the GOLD before YOU. Just think Distributors and Exhibitors and Truckers, you STILL will get paid your fair share, only sooner and without ANY temptations connected with touching the cash flow. :-)
Once all parties in the production/distribution/exhibition chain agree on WHAT everyone should get, modern electronics can make it instantaneous to wire-transfer these sums directly, AND SIMULTANEOUSLY, into bank accounts of the TWO camps in the movie industry: the Creative Camp and the Business Camp. First dollar, from a ticket sale or the click of a button on the Internet, can be transferred to a "film revenue collecting and allocations agent" who is a type of escrow agent we'll refer to as a "Parsing Agent." This phrase has been coined from the word "parsing" as such is used in CGI/Perl scripts which control/direct the flow of data (such as inputs, emails and credit card numbers) on the world wide web. This Parsing Agent will immediately divide the sum of money authorized on a credit card authorization for the purchase of a movie in accordance with the new distribution paradigm and transfer each agreed-on sum to all parties, in both camps, who built and marketed the movie. Thus all will be effectively paid out of first dollar gross.
This is the first, and most important, part of the New Distribution Paradigm.
Forgetting some of the mechanics for now, if one can agree with the basic philosophy that the distribution and display of a product is NOT more important than the CREATION of that product, but actually less important . . . then part two of a proposed New Distribution Paradigm may make sense.
As we saw in previous posts, Today's Distribution Paradigm provides that from an $8 ticket sale, the people who create a movie end up with about $1.34 (if they are the lucky 5%) and the people who distribute/exhibit that same movie end up with about $6.66. About a 17/83 split.
Thus Today's Paradigm is a reversal of the above philosophy and a reversal of what reality could BE, especially in a digital and electronic Era.
From the first dollar of an electronically parsed "ticket" sale, and especially from an electronically delivered movie with Automaticly Parsed Royalties certainly no more than 50% of the ENERGY (money) earned should be allocated, directly or indirectly, to the distribution/exhibition of that product. In fact it should be no more than about half of even this, or 25%, a little less that the 30%-distribution fee generally levied by Today's Distribution Paradigm. This would leave 75% for the production-side of the equation and 25% for the distribution/exhibition-side.
In other words, in a digital Era, the people who distribute and exhibit a movie should ultimately receive 25% of the ticket price. The people who develop and produce that movie should receive 75% because these people are the source point and creators of the product; they are more important than the distributors and exhibitors of that product because without them, there would be no movie distributors or exhibitors, and no jobs for all the other service industries (film, processing/printing labs, camera and light rentals, post houses, completion guarantors, film offices, etc.).
The creators of a movie also create the jobs for the distributors and the exhibitors as well. In other words, NO MOVIECREATORS = NO DISTRIBUTORS, TRUCKERS OR EXHIBITORS because there is NO movie in existence.
Thus, the New Distribution Paradigm calls for, after all the dust and futzing settles, the people who develop, package and produce movies to have 75% of the cash flow generated from audience excitement and the people who distribute and exhibit movies to have 25% of the cash flow generated from audience excitement. A 75/25 split, not a 17/83 (or more probably, a 00/100) split as in Today's Distribution Paradigm.
Also, 25% rather than a 33% distribution fee because movies can now be "simply" highly-ordered arrangements of bits, rather than 2,000-foot reels of silver halide ions and hence can be "distributed" with a flow of electrons rather than a flow of trucks.
And, forgetting some more of the mechanics for now, if one can agree with the basic philosophy that the ENERGY to build a product prototype (each feature is a prototype because it is a unique creation, a debatable statement with all the remakes these days) equal to the KNOW-HOW in creating that product . . . then part two of a proposed New Distribution Paradigm may make more continued sense.
In other words, the people that provide the ENERGY to build a movie: the money, the finances, the funds, the guarantees, the budget, the-what-ever-you-want-to-call-it, as opposed to the people that KNOW HOW to build it, the producers, the writers, the directors the actors, the production managers and First Assistant Directors are equally important. A pile of dead energy, (i.e., dollar bills sitting around) will simply evaporate into the hands of frauds and flakes unless it is spent into KNOW-HOW and managed efficiently.
Therefore the New Paradigm posits that the investors connected collectively with the development, production, distribution or exhibition of a movie, are JUST as important as the people who bring it all off, those KNOW-HOW people from BOTH Camps, creative and business.
Thus 25% - 50% from every dollar collected from a newborn cash flow should go to Investors, especially those Investors who believed in the creation of the movie the earliest when there was the least TANGIBLE evidence of a possible success.
Thus the New Distribution Paradigm's WHAT-aspect is that 100% of the cash flow generated from first dollars is AUTOMATICALLY, SIMULTANEOUSLY and IMMEDIATELY parsed as follows:
The theory here is that the four large groups responsible for the picture's existence and marketing share equally. These four parts are the people who manage the picture, the people who finance the picture, the people who create the picture and the people who market the picture. All get 25% out of gross, simultaneously as automatically parsed.
- Production Company gets 25%
- Production Investors get 25%
- Writer(s)/Director/Talent/Other Participants get 25%
- Distributor gets 25%
AND EVERYBODY PAYS FOR EXPENSES CONNECTED WITH THEIR SERVICES, THEIR SIDE OF THE PARADIGM I.e., expenses are not endlessly "slipped in" or "charged to" everyone else's segment in the manufacturing/marketing process, as is done Today. Why should the producers have to pay for all of the marketing people's prints, advertisements and transportation expenses, especially when they are the ones that have jurisdiction over those expenses and may even over-order or pad their budgets thus killing the cash flow completely just to keep "their people" paid first?
Once the Financiers have received 200% return on their investment (or x% return on investment), the creators and distributors of the movie have paid everyone back substantially for use of their ENERGY and now should NOT have to continue to pay more.
This is the proposed New Distribution Paradigm: Everyone gets automatically paid at the same time, from first dollar gross such sums that are more in line with each element's overall contribution to the "excitement of the audience."
What Filmmakers, Talent or Investors would want to continue to support Today's Distribution Paradigm if a New Distribution Paradigm such as the one postulated (not only by MEC, and others, but by Lee Garmes and the former-ISPA) is possible? I would like to hear from you if you are out there.
(1) Examples of studio distributors are Paramount Pictures, MGM, Universal, Disney, Fox, Warner Bros., Columbia Pictures.
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