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David Mawson

Disastrous figures for low budget UK films

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https://stephenfollows.com/highest-grossing-uk-low-budget-films/

  • Between January 2008 and August 2014, there were 1,419 films made in the UK budgeted under £1 million
  • Only 7 of these grossed over £1 million in cinemas worldwide
  • 0.17% of the 1,190 UK films made on under £500k grossed over £1 million worldwide.

 

Does anyone have similar figures for US low budget films?

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That's not surprising.

I would like to think it would look better if you looked at non-cinema release, but I suspect not much better, at least not for most films.

Bear in mind that 0.17% of 1190 films is two productions...

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Posted (edited)
14 hours ago, Phil Rhodes said:

That's not surprising.

It surprised me because with those odds I can't see why investors stay in the game.

Re. non-cinema release, for most films this will mean Amazon Prime. Amazon's new revenue rules would seem to work heavily against low budget productions - they actually pay less per hour if a film doesn't include name talent:

https://variety.com/2019/digital/news/amazon-prime-video-direct-cut-royalty-fees-1203163736/

...So call revenue 4-7c an hour - probably 10c for watching a whole film. So a million views in a year - which is doing amazingly well - is $100K. Perhaps we can be optimistic and assume that 0.5% of films are profitable after 5 years of Amazon Prime and the 25% tax credit are taken into account...

Edited by David Mawson

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This is very interesting. First there is a reasonably detailed breakdown of costs for a real 1M film - and for cinema and VOD revenue. (Both were tiny, but the producer believes that the film is a long term asset - which I think is crazy, but so it goes. The VOD was mostly Netflix.)

Secondly there is information on the tax breaks in the UK -

https://stephenfollows.com/full-costs-and-income-of-1m-independent-feature-film/

Quote

The SEIS scheme is for films of up to £150,000 (or the first £150k of a larger film) and it gives investors 50% of their investment back almost straight away. Then, if they fail to see any profits after three years they can claim a further 28% of their loss back from the taxman. The EIS scheme can support projects up £15 million and give investors slightly less back.

 

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It's not really an investment. They're not investors. It's not a business, and it never really has been in the UK.

It's a vanity project, whether people choose to admit that to themselves or not.

I think there are a few, really a very few tiny productions that form part of a business; I've heard tell of genre gangster movies set in London that keep some people employed, but I couldn't actually name one.

The economic conditions required to make feature production an actual business barely exist in the UK. It can be done, but it's vanishingly rare.

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2 hours ago, Phil Rhodes said:

It's not really an investment. They're not investors. It's not a business, and it never really has been in the UK.

But with tax breaks that huge, it's almost puzzling why it isn't. You get 78% of your investment back if you don't go in to profit: that's phenomenal. 

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27 minutes ago, David Mawson said:

But with tax breaks that huge, it's almost puzzling why it isn't. You get 78% of your investment back if you don't go in to profit: that's phenomenal. 

It's relief agaisnt tax on other income not money in the bank. Hardly the sole basis of an industry.

Your example only shows it as income because Markou had income to set it off against.

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41 minutes ago, David Mawson said:

But with tax breaks that huge, it's almost puzzling why it isn't. You get 78% of your investment back if you don't go in to profit: that's phenomenal. 

What Mark said.

In a broader sense, there probably are financial incentives available to indigenous production in the UK, but:

- Relying on tax breaks is hardly a reason to celebrate the success of film production as a going concern.

- Actually applying for and using many of these mechanisms will require a lot of very expensive legal and financial expertise, putting them out of reach of many small indigenous productions. 

- It's not that puzzling. The problem is not, as you've said, the ability to attract "investment." The problem is that even if these productions are watchable, professionally-made films, there is no market for them. Netflix will not consider them. Amazon pays effectively nothing. Among the very small, very low budget feature films I've been involved with, I've seen exactly one of them available at retail exactly once - and that was at the pound shop. I have no idea what the deal is with release DVDs, but when the punter is paying £1 for the packaged disc at the end of a long chain of distributors, there isn't going to be a hell of a lot left for the people who made it.

It's commonly felt that the solution to the UK's complete lack of a film industry is to promote production. People tend to feel that's the solution because what they actually want to do is production. Unfortunately, that isn't a solution. The solution is to promote distribution, which will consequently create a demand for production. But the only way to do that at this point is government intervention, and no government we're likely to get in the UK is ever likely to take the sort of action it would require. In any case, at best, it would create a situation analogous to the one which exists in France, where a comparatively large number of really, really boring dramas are cranked out (they generally look like an episode of a BBC detective show set in a permanently-overcast early nineties) just for the sake of creating a thoroughly French film and satisfy the numbers. Other problems with this approach exist in publicly-funded arts in the UK, where a small cabal of well-connected people become familiar with the politics and bureaucracy of the system, and exploit it carefully; there's hardly any egalitarian reason to do it this way. Quite the opposite, in fact. 

I am not aware of any plausible solution to any of this. We're a service industry, and there's bugger all we can do about it.

P

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7 minutes ago, Mark Dunn said:

It's relief agaisnt tax on other income

Yes. This is what tax relief is. And, again, 78% is a staggering figure.

Quote

 Hardly the sole basis of an industry.

Nothing is "the sole basis" of any business. But 78% tax relief on your losses is off the charts. It means that if you make 10 films for 150K and eight are losers, one breaks even, and one makes a couple of mil then you end up with about 800K + 150K + 2000K => 3 mil. Troma or Corman would have gone crazy for a deal like that.

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4 minutes ago, Phil Rhodes said:

- Relying on tax breaks is hardly a reason to celebrate the success of film production as a going concern.

You're confusing "celebrating" with questioning. I didn't say "Yay!", I said "Why isn't this working?" One thought is that the tax breaks are so advantageous that, after some careful accounting, they don't require films to be serious attempts to succeed - that the financial engineering dominates over everything else. This was certainly the case with earlier attempts -

https://inews.co.uk/news/uk/hmrc-tax-avoidance-film-making-scheme-little-wing/

Quote

It's commonly felt that the solution to the UK's complete lack of a film industry is to promote production. People tend to feel that's the solution because what they actually want to do is production. Unfortunately, that isn't a solution. The solution is to promote distribution, which will consequently create a demand for production

Honestly, I don't think it's a problem that needs solving. TV is much more important culturally than film now. To the extent that perhaps the best film of the century so far, There Will Be Blood, is arguably inferior to a couple of episodes of the most comparable TV show, Deadwood. I'm just surprised that with tax breaks that high something isn't coming out of the system.

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16 minutes ago, David Mawson said:

Yes. This is what tax relief is.

.

I know that. It wasn't clear from your first post that you did.

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Posted (edited)

Low budget indies will always look bad when you crunch the numbers after release but typically titles will gain it back over time through streaming revenue.  If a film is good, word of mouth will make sure eyeballs catch it on increasingly wide ranges of platforms and devices.

In the U.S. we are undergoing a major industry shakeup with platforms and producers/writers.  The issue is centered around talent agencies and their packaging fees.  The conflict of interest involves agents lowering wages for writers in their negotiations with networks because they're true interest lies in backend from networks and platforms.  Even though their primary fiduciary responsibility is to the writer clients.   Apply that logic across the board and you have many people distrusting agents period. 

Perhaps this will result in greater transparency of the revenue reporting from platforms and agencies and we can start to have realistic expectations and set business plans accordingly.  Though I suspect this may take legislation to actually occur.  Keeping everyone in the dark on what their films  actually earn benefits those at the top in platforms, networks, studios, and agencies greatly.  So they don't want this to change.  This is where we need a tech solution to disrupt a disruption. haha.

Edited by Michael LaVoie

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Posted (edited)
21 minutes ago, Michael LaVoie said:

Low budget indies will always look bad when you crunch the numbers after release but typically titles will gain it back over time through streaming revenue.

I see any reason why any sane person would believe that. Do you have data to support your case? Looking at the film I found figures for, the budget was 800K and VOD is 30K. Those are horrible figures. Most films will only get VOD through prime and under the new deal it will likely be 5c per streaming hour. Do you have evidence that the typical $1M indy is going to get 10M streaming views on Prime? Because I'd say numbers like that would be absolutely exceptional.

Edited by David Mawson

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1 hour ago, Mark Dunn said:

I know that. It wasn't clear from your first post that you did.

It might not have been clear to you. In which case I shudder to think what else won't be....

And again, I still don't think you understand what tax relief like this means in financial engineering terms. I'd have killed for breaks for investors like this when raising money in the past. 

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1 hour ago, Mark Dunn said:

I know that. It wasn't clear from your first post that you did.

..Actually, seeing you obviously don't understand the real implications, I should probably explain.

Someone comes to me with an idea that needs 100K. The upside is 200K, the downside is I lose the 100. I need odds of much better than 2 to 1 to justify the gamble.

Someone else wants 100K. But this time if we lose I get 80K back. So I'm risking 20K to make 100K profit. That's a gamble worth taking at any odds better than 5 to 1. This a huuuuge shift in the investor's favour.

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16 minutes ago, David Mawson said:

 Do you have evidence that the typical $1M indy is going to get 10M streaming views on Prime? Because I'd say numbers like that would be absolutely exceptional.

There have been published case studies showing VOD revenue returns that eclipsed the budget many times over.  To be clear though, there's a big difference between just anyone putting up their movie on Amazon and the actual features that Amazon buys and then puts on Prime.    I was referring to the latter.

For 1 million indies, you can look at Leave No Trace.  It earned 7 mill at the box office against a 1.6M budget and the VOD is TBD.  I agree it would be awesome to be able to look at that as that's a benchmark for success.

Also a film like Hearts Beat Loud.  2.4M gross against a 2M budget.  But Bleecker Street didn't disclose what it bought those for at Sundance and finding the VOD revenue is impossible.  You have to assume that those films earned something significan't being that they hit theaters, were critically acclaimed and got a widespread highly pushed release online.  But yeah, what is the mystery figure?  Would love to know.  Hello Burn Later and Park Pictures!, Bleecker Street! Chime in!

Amazon spent $10M on acquiring Manchester by the sea and it went on to gross much more than that in Box office figures.  Now how much it earned on VOD probably also eclipsed it's budget greatly.  But yeah, will Amazon disclose that?  Probably not.  MBTS is definitely considered low budget.   It's just not a microbudget indie with no name stars and no marketing budget.  Those films shouldn't expect to earn anything back.   To earn revenue there has to be a few names and a marketing plan.  Leave No Trace is the bare minimum you want to pull together on a shoestring for there to be any hope of revenue.

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Bear in mind that the situation is massively different in the USA. There is at least some tradition of making and selling low- or very low-cost features to DVD and cable TV. In the UK this market simply does not exist at anything other than a microscopically tiny level; a handful of productions a year will do it.

David, I'm not quite sure what conclusion we're seeking here. There are tax incentives. They seem generous. You ask why people are not using them. My suggestion is that there are two main reasons:

First, because an unprofitable production can use these tax incentives and will still lose money, and I am comfortable assuming that the vast majority of indigenous UK feature films, by simple count of productions, are unprofitable, and are predictably unprofitable. It's not really a matter of improving the odds. The odds are so terrible for the "investor" that one would hesitate to risk a half-eaten apple, let alone the £20K you mention.

Second, I haven't checked, but tax incentives like these generally require extensive work by legal and financial professionals. This is likely to be very expensive, probably exceeding the money saved on small productions.

If you can show your working and demonstrate that a (say) sub-£500K feature film can deliberately be made to fail then turn a profit solely by using some sort of financial manoeuvring which involves no sale, I'll be absolutely astonished, but I'll agree with you that it's a bit odd nobody's doing it. But of course, if they did, any such route to riches would be recognised as a terrible mistake and shut down overnight.

P

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7 minutes ago, Michael LaVoie said:

There have been published case studies showing VOD revenue returns that eclipsed the budget many times over... Leave No Trace... Hearts Beat Loud... Manchester by the sea

Everyone knows a rock star.

These cases are well-publicised because they are vanishingly rare, and they do not constitute a reasonable basis for an investment plan. Are there thousands of counterexamples? There are certainly hundreds. By the numbers given above, there's hundreds in the UK, and there's only something like a fifth the number of people here.

Also, consider the funding gap. At the US$1M level it's possible to do reasonably decent work in a reasonably structured and professional manner. A lot of UK low-budget features are much lower than that, perhaps a quarter that. I once wrote an article estimating the absolute minimum amount of money required to do anything even vaguely watchable, making a huge amount of assumptions about the multi-skilled talent of those involved, and came up with about US$100K. I would not attempt it personally for less than, say, three times that, and I'd still be aware that I was doing something with effectively zero chance of financial success. But a lot of productions here do it: pull together a few hundred thousand on the basis it's going to start a business. Overwhelmingly, it isn't going to start a business.

The sad fact is that most startup businesses, in any field, are horribly underfunded, and film production companies are no exception.

P

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Posted (edited)

I can't honestly fathom why anyone making a movie with no name talent and no distribution plan or marketing plan would ever even expect to earn a dollar back on their movie.  They are delusional.  It's hard enough to earn a profit even if you have stars in your movie.   Look at the problems Annapurna faced recently.  They had a ton of great films with stars and they're nearly bankrupt. 

On paper the company continually loses money though they are producing excellent films with widespread release and very well known stars.   So even the top producers are either getting screwed by the system or even they can't figure out the system or it's not the system at all.   It could be that it's internal accounting somewhere as film financial structures are byzantine puzzles with multiple moving parts to say the least and even pros fail at this on a regular basis.

So no. I have no sympathy for any new filmmaker that charges ahead with no marketing or distribution plan for their movie other than hoping for some 6 - 7 figure sale at Sundance cause that's truly ridiculous.

Edited by Michael LaVoie

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This thread, including the links, has turned out to be an extremely valuable one (pun intended) and perhaps it will be continued and more light shed on film finances. 

As regards the tax credits, apparently huge percentages of the cost of films could be deducted from an investors personal income tax, taxes due to income from other jobs or businesses completely unrelated to the film. Clearly, the higher ones income from their primary occupation, the more the movie tax benefit would benefit them. (The "starving artist" would see very little benefit.) No wonder this scheme was ripe for corruption.

 

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15 hours ago, Michael LaVoie said:

There have been published case studies showing VOD revenue returns that eclipsed the budget many times over.  To be clear though, there's a big difference between just anyone putting up their movie on Amazon and the actual features that Amazon buys and then puts on Prime.    I was referring to the latter.

No, you weren't. You might have meant to, but what you wrote was

Quote


Low budget indies will always look bad when you crunch the numbers after release but typically titles will gain it back over time through streaming revenue.  If a film is good, word of mouth will make sure eyeballs catch it on increasingly wide ranges of platforms and devices.

 

My bold. Typical indy titles don't get bought by Amazon - it's extremely rare. 

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Posted (edited)
15 hours ago, Michael LaVoie said:

I can't honestly fathom why anyone making a movie with no name talent and no distribution plan or marketing plan would ever even expect to earn a dollar back on their movie.  They are delusional.  It's hard enough to earn a profit even if you have stars in your movie.   Look at the problems Annapurna faced recently.  They had a ton of great films with stars and they're nearly bankrupt. 

 

1. You're confusing your personal ignorance-based opinion with evidence.  They're not the same thing

2. Quoting an example where a movie had stars and lost money doesn't actually prove that you need stars to make money. This is appalling logic - you're arguing that because A does not always equal B then Not A can never equal B. It's a logical fallacy so silly I don't think it even has a name.

Corman and Troma - and Hammer to some extent - ran on the no-stars model for years. Stars certainly increase revenue, but they have agents who negotiate aggressively to take that revenue. There is, in fact, no statistical correlation between star power and profit.

Edited by David Mawson

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Posted (edited)
13 hours ago, charles pappas said:

(The "starving artist" would see very little benefit.) No wonder this scheme was ripe for corruption.

The benefit the artist sees is that he gets to make a film and he is paid to do so. Yes, the tax relief goes to the investors - but it's to cover money paid to crew and cast members, and without the tax relief, that money probably wouldn't have been available.

Edited by David Mawson

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15 hours ago, Phil Rhodes said:

At the US$1M level it's possible to do reasonably decent work in a reasonably structured and professional manner. A lot of UK low-budget features are much lower than that, perhaps a quarter that. I once wrote an article estimating the absolute minimum amount of money required to do anything even vaguely watchable, making a huge amount of assumptions about the multi-skilled talent of those involved, and came up with about US$100K. I would not attempt it personally for less than, say, three times that,

My estimates were about the same. There are some freak cases - if you have a great script for a Rope one-roomer you can do it for a lot less. And El Mariachi was shot for $8K, but that required extraordinary talent and a lot of unpaid-for preparation. Which you're not going to get on a production line basis.

But $300K after those taxbreaks isn't a lot of money. It falls to $150K almost immediately, and then the government covers another $100K of your potential losses. That should be somewhat attractive. You could shoot Faster Pussycat or Phibes (if you were imaginative with your location scouting instead of building sets) or Carry On Screaming for only a $50K risk.

I suspect that the problems are -

1. Talent drain, especially of writers. You need good scripts, there isn't much talent to go around, and it goes to the US. And then TV and now Netflix get what's left. The idea that there are lots of good un-made scripts floating around is laughable to anyone who has ever had to read them.

2. You only get the tax breaks for theatrical release(?) Which means making prints. Expensive.

3. Unless you're careful with your concept, you pay a big penalty in the US for not being set there. You can work around this by eg shooting cheap period horror like Hammer or "An American Werewolf In London" plots or maybe even faking being in America, but it's a  complication

4. Supervision cost. You need someone competent representing investors to make sure money isn't being mis-spent. This adds a lot of overhead to lower budget productions.

 

 

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