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Sample Business Plan for a Fictional Company

CRAZED CONSULTANT FILMS INTERNATIONAL:

THE BUSINESS PLAN

CONTROLLED COPY	For Information Contact:
Issued to: ____________	Crazed Consultant
Issue Date: ___________	Crazed Consultant Films Int’l.
Copy No.: ____________	Street Address, City, State
	Phone

Executive Summary

Strategic Opportunity

• The U.S. box office reached $9.5 billion in 2005.
• The U.S. box office for independent films in 2005 was $3.4 billion.
• The worldwide revenue for U.S. independent films is estimated at $7 billion.
• The global box office is projected to reach $23.3 billion in 2005.

Crazed Consultant Films International (CCFI) is a start-up enterprise engaged in the development and production of motion picture films for theatrical release. CCFI’s goals are to make films that will raise the consciousness of the American public about the importance of household cats and that will be commercially exploitable to a mass audience. The Company plans to produce three films over the next five years, with budgets ranging from $500,000 to $10 million.

Management Team

At the core of CCFI are the founders, who bring to the Company successful entrepreneurial experience and in-depth expertise in motion picture production. The team is complemented by a support group of consultants and advisers.

The Films

CCFI owns options on Jane Lovable’s first three Leonard the Wonder Cat books and has first refusal on the next three publications. Currently, one book is in print, another is about to be published, and a third is still in the writing stage. The first book has created an established audience for the films. The movies, based on Lovable’s series, will star Leonard, a half-Siamese, half-American shorthair cat, whose adventures make for entertaining stories that incorporate a strong moral lesson. CCFI expects each film to stand on its own and to produce profits to finance each successive film. The movies are designed to capture the interest of the entire family, building significantly on an already established base.

The Industry

The future for low-budget independent films continues to look impressive, as their commercial viability has increased steadily over the past decade. Recent films such as Napoleon Dynamite, March of the Penguins, and My Big Fat Greek Wedding are evidence of the strength of this market segment. The independent market as a whole has expanded dramatically in the past 15 years, while the total domestic box office has increased 80 percent. Of the five films nominated for the Best Picture Oscar in 2005, four were independent films.

The Market

Family films appeal to the widest possible market. Films such as the Spy Kids series, Garfield, and the Stuart Little films have proved that the whole family will go to a movie that they can see together. For preschoolers, there are adorable animals, while tweens and teens get real-life situations and expertly choreographed action, and parents enjoy the insider humor. The independent market continues to prosper. As an independent company catering to the family market, CCFI can distinguish itself by following a strategy of making films for this well-established and growing genre.

Distribution

The motion picture industry is highly competitive, with much of a film’s success depending on the skill of its distribution strategy. As an independent producer, CCFI aims to negotiate with major distributors for release of their films. The production team is committed to making the films attractive products in theatrical and other markets.

Investment Opportunity and Financial Highlights

The founders are seeking an equity investment of approximately $13 million for development and production of three films and an additional $1.8 million for overhead expenditures. Using a moderate revenue projection and an assumption of general industry distribution costs, we project (but do not guarantee) gross worldwide revenues of $220.3 million, with pretax producer/investor net profit of $104.4 million.

The Company

Crazed Consultant Films International is a privately owned California corporation that was established in September 1999. Our principal purpose and business is to create theatrical motion pictures. The Company plans to develop and produce quality familythemed films portraying positive images of the household cat.

The public is ready for films with feline themes. Big budget animal-themed films have opened the market over the past five years. In addition, the changing balance of cat to dog owners in favor of the former is an allegory for changes in society overall. The objectives of CCFI are as follows:

• To produce quality films that provide positive family entertainment with moral tales designed for both enjoyment and education.
• To make films that will celebrate the importance of the household cat and that will be exploitable to a mass audience.
• To produce three feature films in the first five years, with budgets ranging from $500,000 to $10 million.
• To develop scripts with outside writers.

There is a need and a hunger for more family films. We believe that we can make exciting films starting as low as $500,000 without sacrificing quality. Until recently, there was a dearth of cat films. We plan to change the emphasis of movies from penguins, pigs, and dogs to cats, while providing meaningful and wholesome entertainment that will attract the entire family. In view of the growth of the family market in the past few years, the cat theme is one that has been undervalued and, consequently, underexploited.

Management and Organization

The primary strength of any company is in its management team. CCFI’s principals, Ms. Lotta Mogul and Mr. Gimme Bucks, have extensive experience in business and in the entertainment industry. In addition, the Company has relationships with key consultants and advisers who will be available to fill important roles on an as-needed basis. The following individuals make up the current management team and key managers:

Ms. Lotta Mogul, President and Executive Producer

Lotta Mogul spent three years at Jeffcarl Studios as a producer. Among her many credits are Lord of the Litter Box, The Dog Who Came for Dinner, and Fluffy and Fido Go to College. These films all had budgets under $10 million and had combined grosses of more than $600 million worldwide. As President and Executive Producer, her considerable experience will be used to create our production slate, manage the CCFI team, negotiate with distributors, and plan future strategies.

Mr. Gimme Bucks, Vice-President, Financial Affairs

Gimme Bucks will oversee the long-term strategy and financial affairs of the company. A graduate of the University of California at Los Angeles, Bucks has an M.B.A. He worked in business affairs at XYZ Studios and has been a consultant to small, independent film companies.

Mr. Better Focus, Cinematographer

Better Focus is a member of the American Society of Cinematographers. He was Alpha Numerical’s director of photography for several years. He won an Emmy Award for his work on Unusual Birds of Ottumwa, and he has been nominated twice for Academy Awards.

Ms. Ladder Climber, Production and Development

Ladder Climber will assist in the production of our films. She began her career as an assistant to the producer of the cult film Dogs That Bark and has worked her way up to production manager and line producer on several films. Most recently, she served as line producer on The Paw and Thirty Miles to Azusa.

Consultants

We plan to hire producers for individual projects as required by the production schedule. The office staff will be lean but will expand as the work load demands. In the meantime, we are also working with the following consultants:

Samuel Torts, Attorney-at-Law, Los Angeles, CA

Winners and Losers, Certified Public Accountants,

Los Angeles, CA

The Films

CCFI currently controls the rights to the first three Leonard the Wonder Cat books, which will be the basis for its film projects over the next five years. In March 2005, the Company paid $10,000 for three-year options on the first three books with first refusal on the next three. The author will receive additional payments over the next four years as production begins. The Leonard series, written by Jane Lovable, has been obtained at very inexpensive option prices due to the author’s respect for Ms. Mogul’s devotion to charitable cat causes. Three film projects are scheduled.

Leonard’s Love

The first film will be based on the novel Leonard’s Love, which has sold 10 million copies. The story revolves around the friendship between a girl, Natasha, and her cat, Leonard. The two leave the big city to live in a small town, where they discover the true meaning of life. Furry Catman has written the screenplay. The projected budget for Leonard’s Love is $500,000, with CCFI producing and Ultra Virtuoso directing. Virtuoso’s previous credits include a low-budget feature, My Life as a Ferret, and two rock videos, Feral Love and Hot Fluffy Rag. We are currently in the development stage with this project. The initial script has been written, but we have no commitments from actors. Casting will commence once financing is in place. As a marketing plus, the upcoming movie will be advertised on the cover of the new paperback edition of the book.

Len’s Big Thrill

This film is based on the second Leonard book, which is currently in the prepublication stage. In the story, Leonard accompanies Natasha while she auditions for a movie role. When Len struts across the room, the director—Simon Sez—is captivated by Len’s natural ease in front of a camera. Simon makes a deal for both Natasha and Leonard to be in the film, rewriting the script to feature Leonard as the cat who saves his mistress from a burning building. The film is a smash with audiences and two sequels are made. Finally realizing they are in love, Natasha and Simon marry, giving Len the biggest thrill of all.

Ultra Virtuoso is set to direct this feature also. Development on this project will start after we are in production on Leonard’s Love. Current estimates place the budget at $2.5 million. We plan to interview screenwriters as soon as the shooting script for the first film is finalized.

Cat Follies

The third book in the series is currently being written by Ms. Lovable and will be published in late 2008. The story features a dejected Leonard, whose films aren’t drawing the audiences they used to. No matter what Natasha and Simon, his human parents, do, they can’t cheer up our cat. Desperate to find something to encourage Len, they take him for ice skating lessons. Amazed at Leonard’s agility on skates, his teacher contacts the Wonderland Follies, who sign Leonard to a contract. He is an immediate hit with the audience, especially the young people. As luck would have it, one night film mogul Harvey Hoffenbrauer is in the audience. Seeing the reaction of both kids and adults to Leonard, he decides to make a film of the follies. Soon Leonard is back on top.

The Industry

The future of low-budget independent films continues to look impressive, as their commercial viability has increased steadily over the past decade. Recent films, such as Napoleon Dynamite, March of the Penguins, and My Big Fat Greek Wedding are evidence of the strength of this market segment. The independent market as a whole has expanded dramatically over the past 15 years, while the total domestic box office has increased 80 percent. Of the five films nominated for the Best Picture Oscar in 2005, four were independent films.

The total North American box office in 2005 was $9.0 billion. The share for independent films was $3.4 billion, or 38 percent. Revenues for independent films from all worldwide sources for 2005, from both box office and ancillary markets, are estimated at more than $7.0 billion.

Independent films, by definition, are those financed by any source other than a U.S. studio. They can vary widely in budget, from as low as $30,000 to as high as $100 million, but their similarity is a freedom from the homogeneity of studio production. With their ability to take more time and their need to plan budgets more carefully than studios with deep pockets tend to do with their bigbudget films, smaller companies are able to give greater attention to their lower-budgeted, intelligent dramas. Unlike studios, the independent production companies are able to avoid substantial overhead costs by hiring creative and other production personnel on a project-by-project basis. And due to their lower budgets, these films can be directed at niche markets rather than needing to appeal to the entire body of the film-going audience. They typically finance their production activities from discrete sources, and their goal is to completely finance their motion pictures before the commencement of principal photography.

In his annual report, Dan Glickman, head of the Motion Picture Association of America (MPAA), reported that 1.4 billion tickets were sold in 2005, an expansion of 46 percent since 2000. While U.S. theatrical distribution is still the first choice of any feature-length film, international markets are gaining even greater strength than they had before.

Motion Picture Production and Financing

The structure of the U.S. motion picture business has been changing over the past few years at a faster pace than ever before. Studios and independent companies have created many forms of financing. Although studios historically financed totally out of their own financing arrangements with banks, they now look to partner with other production companies, both in the U.S. and abroad, who can assist in the overall financing of projects. The deals often take the form of the studio retaining the rights for distribution in all U.S. media, including theatrical, home video, television, cable, and other ancillary markets.

The studios, the largest companies in this business, are generally called the “Majors” and include Universal Pictures (now NBC Universal), Warner Bros. (owned by Time Warner), Twentieth Century Fox Film Corporation (owned by Rupert Murdoch’s News Corp.), Paramount Pictures (which recently bought DreamWorks SKG and is owned by Viacom), Sony Pictures Entertainment, Metro-Goldwyn-Mayer (now a private company functioning mostly as a distributor and co-owned by a consortium composed of Sony Corporation of America, Providence Equity Partners, Texas Pacific Group, Comcast Corporation, and DLJ Merchant Banking Partners), and The Walt Disney Company. In most cases, the Majors own their own production facilities and have a worldwide distribution organization. With a large corporate hierarchy making production decisions and a large amount of corporate debt to service, the studios aim most of their films at mass audiences.

Producers that can finance independent films by any source other than a major U.S. studio have more flexibility in their creative decisions and the ability to hire production personnel and other elements required for preproduction, principal photography, and postproduction on a project-by-project basis. With substantially less overhead than the studios, independents are able to be more cost-effective in the filmmaking process. The films can be directed at both mass and niche audiences, with the target markets for each film dictating the size of its budget. Typically, an independent producer’s goal is to acquire funds from equity partners, completing all financing of a film before the commencement of its principal photography.

There are four typical steps in the production of a motion picture: development, preproduction, production, and postproduction. During development and preproduction, a writer may be engaged to write a screenplay or a screenplay may be acquired and rewritten. Certain creative personnel, including a director and various technical personnel, are hired, shooting schedules and locations are planned, and other steps necessary to prepare the motion picture for principal photography are completed. Production commences when principal photography begins, and generally continues for a period of not more than three months. In postproduction, the film is edited and synchronized with music and dialogue and, in certain cases, special effects are added. The final edited, synchronized negative is used to manufacture release prints suitable for public exhibition. The costs up to this point are referred to as the film’s production or “negative costs.” The expense for release prints and advertising for the film (the “P&A”) is not part of the negative costs.

Theatrical exhibition

In 2005, there were 38,594 theater screens (including drive-in screens) in the United States out of approximately 150,000 theater screens worldwide. Film revenues from all other sources are often driven by the U.S. domestic theatrical performance. The costs incurred with the distribution of a motion picture can vary significantly depending on the number of screens on which the film is exhibited. Although studios often open a film on 3,000 screens on opening weekends (depending on the budget of both the film and marketing campaign), independent distributors usually tend to open their films on fewer screens. Film revenues from all other sources usually are driven by theatrical distribution. Not only has entertainment product been recession-resistant domestically, but also the much stronger than expected domestic box office has continued to drive up ancillary sales, such as DVD, VHS, and soundtracks, as well as raising the value of the films in foreign markets.

Television

Television exhibition includes over-the-air reception for viewers either through a fee system (cable) or “free television” (national and independent broadcast stations). The proliferation of new cable networks in the past 15 years has made cable (both basic and premium stations) one of the most important outlets for feature films and documentaries. Whereas network and independent television stations were a substantial part of the revenue picture in the 1970s and early 1980s, cable has become a far more important ancillary outlet. The pay-per-view (PPV) business has continued to grow thanks to continued DBS (direct broadcast satellite) growth and significant NVOD (near video on demand) rollouts by cable operators. PPV and pay television allow cable television subscribers to purchase individual films or special events or subscribe to premium cable channels for a fee. Both acquire their film programming by purchasing the distribution rights from motion picture distributors. VOD user growth is projected to grow at a healthy rate over the next several years. Total worldwide users at the end of 2005 were almost 13 million and are forecasted to reach 34 million by 2009.

Home video

Home video companies promote and sell DVDs and videocassettes to local, regional, and national video retailers, which then rent the cassettes and discs to consumers for private viewing. They also sell directly to consumers in what is termed the “sell-through” market, making a total $25.0-billion industry. Continuing an annual trend, consumers spent more on home video in 2005 than on movie theater admissions. DVD rentals and sales were $22.8 billion in 2005, an increase of 7.5 percent over 2004, according to the DVD Entertainment Group (DEG), with the remaining $2.2 billion coming from videocassette sales and rentals. Although videocassette sales (VHS) have declined over the past several years, VHS still is in use. DEG also announced that DVD players are now in more than 82 million U.S. homes, with an estimated 37 million DVD players sold to consumers in 2005. Fifty percent of DVD owners now have more than one player.

International theatrical exhibition and ancillaries

Much of the projected growth in the worldwide film business comes from international markets, as distributors and exhibitors keep finding new ways to increase the boxoffice revenue pool. More screens in Asia, Latin America, and Africa have followed the increase in multiplexes in Europe, but this growth has slowed. The world screen count is predicted to remain stable over the next nine years. Other factors are the privatization of television stations overseas, the introduction of direct broadcast satellite services, and increased cable penetration. Boxoffice revenues across the seven major Western European territories are set to reach $5.5 billion by 2008, according to a report by industry analysts Dodona Research. In 2004, strong response to both U.S. and local European production triggered a boxoffice recovery from 2003. This synergy between foreign and local product is expected to lead to future growth in this market.

Future trends

Revolutionary changes in the manner in which motion pictures are produced and distributed are now sweeping the industry, especially for independent films. New devices for personal viewing of films, including the PSP, are coming into the marketplace, expanding the potential revenues from home video. Companies like Movielink, CinemaNow, and Apple’s iTunes Store are providing films and other entertainment programming for download from the Internet. This growing trend is a wave of the future. In addition, digital projection is very promising, but the savings don’t affect the cost of production, only the cost of the prints. Various systems for projecting digital films exist, and eventually the industry may convert screens and replace traditional film projectors in the theaters. According to a study by PricewaterhouseCoopers, two-thirds of screens in the United States, 60 percent in Europe, and at least 50 percent in the rest of the world will be digitally served by 2010.

The Market

The independent market continues to prosper. The strategy of making films in well-established genres has been shown time and time again to be an effective one. Although there is no boilerplate for making a successful film, the film’s probability of success is increased with a strong story, and then the right elements—the right director and cast and other creative people involved. Being able to greenlight our own product, with the support of investors, allows the filmmakers to attract the appropriate talent to make the film a success and distinguish it in the marketplace.

CCFI feels that its first film will create a new type of moviegoer for these theaters and a new type of commercial film for the mainstream theaters. Just as My Dog Skip found a home in both art houses and malls, so will Leonard’s Love. Although we expect our film to have a universal enough appeal to play in the mainstream houses, at its projected budget it may begin in the specialty theaters. Because of the low budget, exhibitors may wait for our first film to prove itself before providing access to screens in the larger movie houses. In addition, smaller houses will give us a chance to expand the film on a slow basis and build awareness with the public.

Target Markets

Family films

Family films with sophisticated and updated storylines have been making a comeback at the box office. The public is ready for mainstream films that present feline themes. It has historically been true that in hard economic times, family entertainment wins out. People want to be entertained and forget their troubles. We feel that films that offer diversion and feature a strong cat story line will draw a large audience. Heretofore, the majority of family films have been made by studios. We believe that the time is right to make cost-effective films on smaller budgets.

Cat Owners

Sixty-three percent of U.S. households owned a pet in 2005. This translates to more than 69 million households, up from 64 million in 2002 and 51 million in 1988, when the American Pet Manufacturer’s Association began to track trends in U.S. pet ownership. Americans own approximately 90.5 million cats in 37.7 million households. The geographic location of pet owners closely matches that of the U.S. population, with pet owners living in both large cities and rural areas. Comparable numbers are not available for Europe, although an earlier study showed that households in Europe own approximately 50 million cats and those in Japan own 10 million.

The time has finally come for the cat genre film. Cats have been with us for 12 million years, but they have been underappreciated and underexploited, especially by Hollywood. Recent studies have shown that the cat has become the pet of choice. We plan to present cats in their true light, as regular, everyday heroes with all the lightness and gaiety of other current animal cinema favorites, including dogs, horses, pigs, and bears. In following the tradition of the dog film genre, we are also looking down the road to cable outlets. We believe that cat programs will be the next trend in this medium. Animal films in general, and cat films in particular, have had increasing commercial success. Examples in recent years are. Garfield: The Movie, Cats and Dogs, Stuart Little, Stuart Little 2, Dr. Dolittle, and Dr. Dolittle 2. These films have opened the door for Crazed Consultant’s films. As the pet that is owned by more individuals than any other animal in the United States, the cat will draw audiences from far and wide. There is even talk of a cat television channel.

CCFI plans to begin with a $500,000 film that would benefit from exposure through the film festival circuit. The exposure of our films at festivals and limited runs in specialty theaters in target areas will create an awareness for them with the general public. In addition, we plan to tie in sales of the Leonard books with the films. Although a major studio would be a natural place to go with these films, we want to remain independent.

Distribution

Most of the marketing strategies commonly employed by independent distributors will be used to market CCFI’s films. The actual marketing of the film itself is the distributor’s job. It involves the representation of the film in terms of genre, the placement of advertisements in various media, the selection of a sales approach for exhibitors and foreign buyers, and the “hype” (word of mouth, promotional events, alliances with special interest groups, and so on). All of these factors are critical to a film’s success.

Each major studio has its own distribution division. All marketing and other distribution decisions are made in-house. This division sends out promotional and advertising materials, arranges screenings of films, and makes deals with domestic and foreign distributors. The studios each release 15 to 25 films a year, and they occasionally acquire independent films to release. For our films, however, we will seek distribution by an independent company.

We feel that independent distributors often have the knowledge and patience to give special care to eclectic or mixed-genre films. Many independents will allow a film to find its audience slowly and methodically. However, this does not mean that independent distributors will not want to release films with mass appeal. For such films with smaller budgets and lesser names, independents often have an expertise that the studios lack. In addition, by focusing their marketing and promotional efforts on a handful of primary markets, these companies are able to keep their costs relatively low. Because their focus is on fewer films, we feel that our films will receive better care than at a studio.

The first step in distributing a film is having copies made of it for motion picture presentation. The prints sent to the theaters are duplications of the “master” print, which is made from the original edited negative. A print usually costs $1,200 to $1,500, depending on the length of the film and current film stock costs. Major studio films typically are opened wide—that is, on thousands of screens simultaneously. The cost of prints for that type of release is more than $1 million, which is impossible for low-budget films.

Although the independent distributor begins with fewer prints, several hundred may be made throughout the film’s release period. While a film is in release, therefore, the total print cost can be appreciable. The domestic territory is defined as both the United States and Canada combined. Many of the independent distributors consider the United States and Canada to be one package and prefer not to have them separated beforehand. Domestic rights refer not only to theatrical distribution but also to all other media, such as DVD and television. When a producer secures an advance from one of these media for production financing, he or she makes the deal a little less attractive to potential distributors by fractionalizing the rights. Any source of future revenue that is taken out of the potential money pie makes it more difficult for the producer to close the distribution deal.

In terms of foreign sales, there are U.S.-based distributors who specialize in the rest of the world. These companies deal with networks of subdistributors in various countries. It is important to distinguish between a distributor and a foreign sales agent. If a distribution company is granted the rights to the film for the foreign markets, that company is the distributor. Generally, if the ownership of the foreign rights is retained by the producer, who grants someone only a percentage of the receipts in exchange for obtaining distribution contracts in each territory or for various media throughout the world, that person is actually a sales agent.

There is no typical distribution deal. The distribution company will take as much as it can get. It is CCFI’s job to give away as little as possible. Based on industry averages, we have used a distributor fee of 34 percent of the total revenue in our projections. These percentages apply only to the revenues generated by the distributor’s deals; if that company is only making foreign sales, then it takes a percentage of only foreign revenues. How much the distribution company wants depends on its participation in the entire film package. The greater the up-front expense that the company must assume, the greater the percentage of incoming revenues it will seek.

In acquiring a project, the distributor looks at the following elements, among others:

• Uniqueness of storyline
• Special audience segment for the type or genre of film
• Ability of the cast members to attract audiences or buyers on their names alone
• Past successes of the producers and/or director
• Name tie-in from another medium; for example, a best-selling novel
• Attached money

Our films will meet these criteria easily. Necessary to selling a film is a mix of elements, although the story is always the first concern. The exhibitors to whom the distributor sells must see something in the film that they can promote to their audiences. This changes from country to country and depends on the perspective of the buyer.

Release Strategies

The typical method of releasing films begins with domestic theatrical, which gives value to the various film “windows” (the period that has to pass after a domestic theatrical release before a film can be released in other markets). Historically, the sequencing pattern has been to license to pay-cable program distributors, foreign theatrical, home video, television networks, foreign ancillary, and U.S. television syndication. As the rate of return varies from different windows, shifts in these sequencing strategies will occur.

Distributors plan their release schedules with certain target audiences in mind. Given the cost of prints ($1,200 to $1,500 each), this release method can create an initial marketing expense of over $1 million, accompanied by an equally high advertising program.

Films with lower budgets will often get a “platform” release. In this case, the film is given a build-up by opening initially in a few regional or limited local theaters to build positive movie patron awareness throughout the country. The time between a limited opening and its release in the balance of the country may be several weeks.

Risk Factors

Investment in the film industry is highly speculative and inherently risky. There can be no assurance of the economic success of any motion picture since the revenues derived from the production and distribution of a motion picture depend primarily upon its acceptance by the public, which cannot be predicted. The commercial success of a motion picture also depends upon the quality and acceptance of other competing films released into the marketplace at or near the same time, general economic factors, and other tangible and intangible factors, all of which can change and cannot be predicted with certainty.

The entertainment industry in general, and the motion picture industry in particular, are continuing to undergo significant changes, primarily due to technological developments. Although these developments have resulted in the availability of alternative and competing forms of leisure time entertainment, such technological developments have also resulted in the creation of additional revenue sources through licensing of rights to such new media, and potentially could lead to future reductions in the costs of producing and distributing motion pictures. In addition, the theatrical success of a motion picture remains a crucial factor in generating revenues in other media such as videocassettes and television. Due to the rapid growth of technology, shifting consumer tastes, and the popularity and availability of other forms of entertainment, it is impossible to predict the overall effect these factors will have on the potential revenue from and profitability of feature-length motion pictures.

The Company itself is in the organizational stage and is subject to all the risks incident to the creation and development of a new business, including the absence of a history of operations and minimal net worth. In order to prosper, the success of CCFI’s films will depend partly upon the ability of management to produce a film of exceptional quality at a lower cost that can compete in appeal with higher-budgeted films of the same genre. In order to minimize this risk, management plans to participate as much as possible throughout the process and will aim to mitigate financial risks where possible. Fulfilling this goal depends on the timing of investor financing, the ability to obtain distribution contracts with satisfactory terms, and the continued participation of the current management.

Financing

The financial projections for CCFI assume a conservative level of success for each film project. Many factors affect the success of any film project, but a film’s commercial appeal is undoubtedly the single most significant factor in determining its financial success. This is closely followed in importance by the agreement that the production company has with its film distributors. However, all of these factors affect the eventual bottom line.

For the purposes of this business plan, we have used current industry results for independent films of comparable size and theme. Since there have not been any significant cat films, we have used canine films as a guide. In addition, we looked at typical independent films in the budget ranges of our proposed projects.

To help protect CCFI and the Company’s investors from losses, CCFI will endeavor to secure presale, distribution, and other financing agreements. Given that this company is new, an agreement will be entered into only if it is perceived to benefit all equity investors. In a presale agreement, a foreign organization or person buys the ancillary rights (domestic or foreign) in advance. The filmmaker takes this commitment, which includes a guarantee to pay a specific amount upon delivery of the completed film, to one of several specialized entertainment banks and, if the bank accepts the commitment, is able to raise money to finance production. In exchange for the presale contract, the U.S. or foreign buyer obtains the right to keep the revenue (rentals) from a particular territory and may also seek equity participation. The agreement can be for a certain length of time, a revenue cap, or both.

The Financing Plan

Strategy

The filmmakers seek to secure production financing primarily from private investors. As a film’s commercial appeal is the most important factor in determining its financial success, being able to self-finance the production of a film puts us in the strongest position possible to control the story that we want to tell, the quality, and the costs of the film. The real opportunity for profitable filmmaking is in having films that have independent financing in place.

Financial assumptions

For the purposes of the business plan, several assumptions have been included in the financial scenarios and are noted accordingly:

1. Box Office reflects gross dollars of ticket sales before the exhibitor splits the total with the distributor. Domestic Rentals reflect the distributor’s share of the box office split with the exhibitor in the United States and Canada, assuming the film has the same distributor in both countries. Domestic Other (also known as “ancillary”) includes home video, cable, network television, and television syndication. Foreign Revenue includes all monies returned to distributors from all venues outside the United States and Canada.
2. All funds flow from each revenue source to the distributor, whose expenses are deducted before any money goes to the producer/investor; therefore, gross profit is shown as the Distributor’s Gross Profit. This is the income before the distributor takes his fee. Depending on negotiations, after the distributor deducts the costs for prints and ads, the investor generally is paid back the budget cost. Then the distributor deducts his fees. The timing of disbursements, however, is always subject to negotiation.
3. The Budget, also known as the film’s “negative costs,” covers only the expenses that are needed to create the master print of each film. All marketing costs are included under P&A (prints and advertising), often referred to as “releasing costs” or “distribution expenses.” These expenses also include the cost of making copies of the print from the master and advertising.
4. The films shown in Tables 11.1 through 11.4 are used as the basis for the projections. The rationale for the projections is explained in number 9 below. The films relate either in feeling or budget to our three films. It should be noted that these groups do not include films whose results are known but that have lost money. In addition, there are no databases that collect all the films ever made, nor are budgets available for all films released. There is, therefore, a built-in bias in the data used.
5. Table 11.1, “Gross Profits of Selected Films with Varied Genres with Budgets of $500,000 to $7 Million, Years 2002–2004,” shows gross profit results for films before distributor fees have been deducted.
6. Table 11.2, “Selected Films with Varied Genres, North American Box Office and Budgets Only with Budgets of $400,000 to $7 Million, Years 2005–2006,” shows gross income results for films with comparative budgets in the past two years. Due to the two-year time span in the return from ancillary and foreign venues, the worldwide income from these films is not known at this time.
7. Table 11.3, “Gross Profits of Selected Films with Varied Genres with Budgets of $6.5 to $25 Million, Years 2002–2004,” shows gross profit results for films before distributor fees have been deducted.
8. Table 11.4, “Selected Films with Varied Genres, North American Box Office and Budgets Only with Budgets of $6.5 to $23 Million, Years 2005–2006,” shows gross income results for films with comparative budgets in the past two years. Due to the two-year time span in the return from ancillary and foreign venues, the worldwide income from these films is not known at this time.
9. Table 11.5 shows the projected income statement for the three films. The revenue scenarios are moderate projections based on the data shown in Tables 11.1 through 11.4. They are used for the cash flows in Table 11.6. Due to the wide variance in the results of individual films, simple averages of actual data are not realistic. Each element in the forecasts has been calculated as a percentage of either the budget (box office and prints and ads) or the box office (all other revenues). In this way, films of different budgets can be compared to one another without too much skewing of the data. The box office is calculated first as a percentage of the budget. Then the rest of the revenues is calculated as a percentage of box office. The cost of prints and ads (P&A) is then calculated as a percentage of the budget. In order to keep uncommonly high or low results from affecting the projections, the high and low results in each individual revenue and cost category have been discarded in observing the data.
10. Distributor’s Fees (the distributor’s share of the revenues as compared to his expenses, which represent out-ofpocket costs) are based on 35 percent of all distributor gross revenue (note: the exhibition portion is separate from this calculation), both domestic and foreign.
11. Net Producer/Investor Income represents the projected pre-tax profit after the distributor’s expenses and fees have been deducted and prior to negotiated distributions to investors.
12. The cash flow assumptions for Table 11.6 are the following:

    a. Film production will take one year from development through postproduction, ending with the creation of a master print. The actual release date depends on finalization of distribution arrangements, which may occur either before or after the film has been completed and is an unknown variable at this time. For purposes of the cash flow, we have assumed that distribution will start within six months after completion of the film.

    b. The largest portion of print and advertising costs will be spent in the first quarter of the film’s opening.

    c. The majority of revenues will come back to the producers within two years after release of the film, although a smaller amount of ancillary revenues will take longer to occur and will be covered by the investor’s agreement.

TABLE 11.1
Crazed Consultant Films International
Gross Profits of Selected Films with Varied Genres with Budgets of $500,000 to $7 Million, Years 2002–2004
(in Millions of Dollars)

(a) Rentals equal distributor’s share of U.S. box office.

(b) Domestic Other Revenue includes television, cable, video, and all other nontheatrical sources of revenue.

(c) Foreign Revenue includes both theatrical and ancillary revenues.

(d) Total Revenue equals Domestic Rentals, Domestic Other, and Foreign.

(e) Gross Profit before distributor’s fee is removed.

Source: Business Strategies

TABLE 11.2
Crazed Consultant Films International Selected Films with Varied Genres, North American Box Office and Budgets Only with Budgets of $400,000 to $7 Million, Years 2005–2006 (in Millions of Dollars)

	BOX
	OFFICE	BUDGET
Bad Buzzards	4.3	1.5
Bend It Like Fido	27.0	3.0
Catch the Catnip	10.0	2.0
Dirty Pretty Wombats	10.0	1.5
Fast Ferret, The	7.0	4.0
Gang of Kitty Litterers (a)	25.0	7.0
Kitten with a Pears Collar	11.5	3.5
Lost In Dogville	22.0	4.5
My Life without Angel (b)	75.0	0.4
Party Puppy	12.5	3.0
Poolhall Leonard	16.0	2.0
Secret Lives of Angoras	18.0	3.3

(a) Still in North American distribution as of [date of last report].

(b) Not included in forecasting calculations due to extraordinary results.

Note: Domestic ancillary and all foreign data generally are not available until two years after a film’s initial U.S. release.

Source: Business Strategies.

TABLE 11.3
Crazed Consultant Films International
Gross Profits of Selected Films with Varied Genres with Budgets of $6.5 to $25 Million, Years 2002–2004
(in Millions of Dollars)

(a) Rentals equal distributor’s share of U.S. box office.

(b) Domestic Other Revenue includes television, cable, video, and all other nontheatrical sources of revenue.

(c) Foreign Revenue includes both theatrical and ancillary revenues.

(d) Total Revenue equals Domestic Rentals, Domestic Other, and Foreign.

(e) Gross Profit before distributor’s fee is removed.

Source: Business Strategies

TABLE 11.4

Crazed Consultant Films International Selected Films with Varied Genres North American Box Office and Budgets Only with Budgets of $6.5 to $23 Million, Years 2005–2006 (in Millions of Dollars)

	BOX
FILM	OFFICE	BUDGET
Beautiful Beaver∗	13.0	10.3
Brother Butterflies	30.0	8.6
Finding Murry	48.0	20.0
Garden Gerbil	72.0	23.0
Grizzly Bears	32.0	6.5
Kung Fu Kitty	43.0	15.0
Mad Hot Marmots	19.0	12.0
Maxie’s Poker Night	47.0	11.0
Rocking Abyssinians	23.4	6.5
Ralph, the Devil’s Cat	20.0	9.0
Revenge of the Tiger	10.0	7.6
Unfinished Unicorn, An	33.0	10.5

∗Still in North American distribution as of [date of last report].

Note: Domestic ancillary and all foreign data generally are not available until two years after a film’s initial U.S. release.

Sources: Business Strategies

TABLE 11.5
Crazed Consultant Films International
Projected Income Statement (in Millions of Dollars)

TABLE 11.6
Crazed Consultant Films International
Combined Cash Flow for Three Films* (in Millions of Dollars)

Note: Totals may not add due to rounding.

∗For reference only. How and when monies are actually distributed depends on contract with distributor.