Introduction

This chapter presents the operations of production companies and their related development and producing organizations, which may be structured in their own separate entities, but seamlessly operated by the same people and within the same facility. Prior chapters have presented the independent fundamental operating principles of these companies. This chapter demonstrates both how they work together and the business elements that join them.

The chapter also reveals the operations of these companies in their complete forms. For those who have experience with the operating performance of successful production companies, the operations presented in this chapter may seem more cumbersome or thorough than necessary. Consider the performance of a new driver compared with the performance of an experienced one. Seasoned drivers may speed through yellow lights, may turn without using their signals if they don’t see any oncoming traffic, and may consistently drive a few miles over the speed limit on the freeway. These are not recommended operating styles but may become entrenched habits of experienced drivers.

As dexterity increases, so does confidence. As this occurs, one has a natural tendency, especially under pressure (and producers operate under extreme conditions), to cut operating corners and increase operating speed. Abbreviating, or especially missing any development or production steps, places the project’s creative and earnings life at risk. As with experienced drivers, accomplished producers often press their projects through their development and production with amazing agility, speed, and economy. However, like the best race car drivers, experienced producers occasionally trash pictures that would otherwise have been successful, simply because those producers slighted certain steps or passed them altogether. Because this natural tendency exists, it is necessary to establish a development and production system of checks and balances through which each picture passes. This chapter presents this system.

It falls upon the development chief (vice president in the example organization chart) to ensure each picture accomplishes all the development steps. By establishing this process, a production company can successfully maximize operating integrity, as well as each picture’s creative and financial success. To present the most comprehensive operating profile, the example in this chapter is of a new production company.

Defining and Establishing the Production Company

As presented in Chapters 11 and 12, producers should invest the necessary time and resources, with the help of a seasoned attorney and other business counsel, to devise the production company’s optimum business structure and overall strategies. These should include writing a mission statement that sets forth the producer’s vision and purpose for creating the company, and the way they intend to conduct their business. This statement is often several pages long for the founders and executive committee, congealed to less than a page for use by other executive-level team members, and no more than a paragraph for published collateral materials.

There are several advantages for the organization to have two or more principals/partners rather than one to create a production company. Multiple principals typically deliver a better system of checks and balances for the company—each principal reviews and, from a similar position of power, holds the other accountable for performance. If each principal shares the mission of the organization but delivers different experience and capabilities, the company’s overall strength and operating ballast are increased. There are several excellent examples of this kind of partnership, including Ron Howard and Brian Grazer with their Imagine Entertainment empire, George Clooney and Grant Heslov with their Smokehouse Pictures, and Brad Pitt and Dede Gardner with their Plan B Entertainment powerhouse. With each of these teams, both are producers, but one is more deeply creative and the other has a stronger business background, thus delivering an excellent balance to their respective organizations.

If the organization has more than one principal, these individuals should agree on the company’s mission, their respective accountabilities, contributions, equity, operating control, earnings, and profit participations. They should also enter a written agreement and perhaps separate management contracts that reflect these deal elements. The partner agreement should include buy/sell terms and document the dispute resolution method.

It is always best to have the producer’s entertainment attorney or some other lawyer involved in both negotiating and preparing the principals’ documentation. The attorney should also prepare and file the company’s formation documents with the appropriate governing authorities and direct the initial organizing meeting.

The Story Search

Most mission statements share one critical common goal—that the production company find and acquire the kinds of stories it is formed to create, own, and distribute. The search for these stories will be a preeminent, continuing activity throughout the life of the production company. This should be the first focus of newly formed companies.

Although there is an abundance of scripts, only a few are worth producing. The search should start immediately and continue in an organized fashion. Chapter 9 provides information about the legal aspects of story review and the need for literary release forms.

In contrast to the stunning volume of stories presented to producers from traditional trade sources is the smaller but just as vital proportion of stories discovered from non-industry sources. Usually producers have their private treasure house of folks who may be willing to champion their story search, including family, friends from childhood, teachers, and others. This group can become a pipeline of continuing story discovery. Most of these connections, when asked, are pleased to recommend stories they believe will make great motion pictures.

Producers can be benefited by making a list of everyone they believe may be willing to participate as story resources; then compose an email that can easily be customized for each person, saying they are looking for stories that may make a great motion picture or series. Some of the industry’s most notable producers have found this to be a stunningly fine source of story discovery. Great stories from unpublished journals, out-of-print books, and true-life stories from small town newspapers are also some of the most remarkable finds. It is essential that producers commence and continue the story search and review process. The power of asking is easily under-played, yet, when used, consistently provides miracle-scale results.

Stories of interest to the producer should be represented to investors only as such, unless they have been greenlit by the producer, signifying there are business as well as creative justifications to proceed. It should be emphasized to prospective investors that, in large measure, their confidence in the new production company stems from the fact that it will greenlight (develop and produce) only pictures that have a conservative ratio between the producer’s share of earnings compared with the project’s production and distribution costs, and that receive a favorable interest from global distributors.

Development Emphasis

Near the end of this chapter is a list of the 25 main activities through which most new production companies pass to produce their first motion picture. These are mapped out in Figure 12.2 of Chapter 12. The first 20 are largely development activities beginning with the story search. As emphasized in Chapters 11, 12, and 13, there are several core operational, profit, financing, tax, and risk mitigation benefits to separating a production company’s (1) brand and asset (motion picture) management, (2) its development, and (3) each picture’s production and ownership. This separation may be by establishing a “Chart of Accounts” delineation or by forming actual separate entities, which is recommended. However it is accomplished, it must be done in some fashion. As story discovery and development activities come before production and distribution, the first order of business for most production entities is the planning and financing of development—and if they use a separate development company, the financing of this entity. The need for this process and its thorough analysis is discussed in Chapter 12.

Many production companies are launched with only their development financing (whether or not in a separate entity) and teams (these are presented in Chapter 13), because developing their first pictures is typically their entire initial business.

If this is their position, these producers begin by preparing the activity projection for the development of the company’s first pictures. This will be the first development entity, if the producer elects to use a separate entity. If not, these are activity projections of the first pictures. Following the preparation of the activity projection is the preparation of the cash flow projection, also presented in Figure 12.3 of Chapter 12, which expresses the costs of the development activities.

Though development expenses will likely be capitalized and made part of each picture’s budget, development is the only operation until a picture is greenlit and its production is financed. Consequently, each new production entity’s initial financing, or seed capital, is its development financing.

Most new production entities start with properties favored by their producers. This is a major advantage, but these still must prove their business viability, be in shooting script form, engage the above-the-line team, receive distributor interest and confirmation, and production financing. All of these are development operations.

Most development operations will at least initially be financed privately, according to the methods referenced in Chapter 12. If this is the case, producers will analyze the cash flow projection in relation to the total operating cash needed and the potential income earned by the development company. If private investors are used, their investment return and profit participation is included in the cash flow projection and configured for its optimal impact on the producer and its appeal to the investors.

This process discovers the basic deal points offered to the investor(s). Often several deal structure models are analyzed in the projections until the producer settles on the ultimate balance among the number of pictures to be developed, the development pace, the total investment amount required, and the appeal to potential investors.

If the production company start-up is funded by one or more partners, the terms of their initial investment return, effect on equity, and operating control are usually part of their initial partner and management agreements, as are their pre-set allowances for subsequent partner contributions, should they be needed and provided.

Preparing the Investment Documents

With the activity and the cash flow projections prepared and the investment model configured, the producer is ready to commence authorship of the business plan, and if seeking accredited investors, the private placement memorandum (PPM), with the assistance of the producer’s attorney and business consultant or accountant. If the investment is being secured from just one or two investors, a financing agreement may be sufficient documentation. If not, a PPM will be necessary.

The business consultant or accountant prepares the following:

• The activity and cash flow projections as they appear in the investment documents
• The assumptions to these projections
• The offering’s use of proceeds
• The more detailed source and use of funds analysis
• The tax consequences.

The producer prepares the introductory letter and the business plan (which should include all the items as discussed in Chapter 6), as well as the production company’s mission statement as it applies to the development activities, including the kinds of pictures and properties the development company is seeking, and the development team summary biographies.

The attorney authors the rest of the PPM elements, as well as polishes everything included in the memorandum, its attachments, and attendant materials, approving the legal language of every kind and nature complies with all state and federal requirements for anyone who may review and consider the relationship.

Assembling the Team

To those considering investing, one of the most important sections in the investment documents is the information relating to the producer’s management and advisory teams. Who is managing the partnership’s business is crucial to prospective investors. Most of them learn early that a great plan is only as impressive as the assembled team’s ability to carry it out. Chapter 13 comprehensively presents the producer’s advisory team categories and how to approach them.

Producing the Investment Documents

The producer reviews the materials prepared by the business consultant or accountant and delivers all these materials to the attorney, after which the attorney prepares a final draft of the memorandum for the producer’s review. The attorney makes final content polishes and hard and digital copies are given to the producer.

The attorney should have offering samples the producer can review for ideas on the look of the published draft. Having prepared many of these over the years, our suggestion is to focus on the content. The business plan can be glitzy, but the greatest effect on decisions is the team, the projects, the risk, the reward, and the timing. Investors are impressed with the most concise, clean, and simple presentation of this information.

Some producers use designers to create and coordinate the look of the business plan and PPM. Whatever the cosmetic attributes, the master is then prepared and copies made and numbered for presentation to prospective investor-partners.

Raising the Financing

Typically, one investor will be enamored with the offering’s merits and will get the momentum going and influence one or more investor associates to join in the relationship. The first investor is typically the hardest to secure.

As to the most effective approach, each investor should be considered individually. What are the most compelling reasons for someone to invest? It may be a specific story in your control, the kind or genre of films you will be producing. Possibly it is the investors’ interest in and desire to participate in the motion picture industry. It may even be their interest in the potential high return on investment (ROI). Some investors prefer to be in a group presentation, whereas others prefer a private meeting. Each investor should be approached with their most effective method and setting in mind.

It is well to remember that the person to meet with is the actual investor. Sophisticated investors often have assistants who afford professional courtesy to the myriad offers that barrage these sources. It is rarely this person’s job just to say no. They usually know and will pursue the principal’s investment sweet spot. However, what they cannot respond with is the chemistry that often happens when two people have a meeting of the minds, something clicks, and each begins looking for ways to do business together. Though challenging, always do whatever it takes to meet with the principal.

Producers should begin this process by amassing lists of investors, brokers, finders, and people of influence they know who might invest or open the direct doors for them to others who have the means and inclination to consider investing. The attorney and accountant on your advisory teams are often excellent door openers.

Take these steps when you meet with investors:

1. Make the entire presentation brief (less than an hour). Let them know before the meeting how long it will take.
2. At the beginning of the meeting, let them know that first they will receive an overview of how some of the most successful independent producers do business, then hear how the production company is poised to operate. Next, do a concise overview of this investment, allowing the investors to consider the relationship in whatever manner they may be interested.
3. For most investors, this is a new and fascinating business playing field. They often have questions and comments.
4. There is a reason the investor has a portfolio. They are business-smart and know the best path to reach a decision. Best to let them lead the discussion.

Most investors place their confidence in the person rather than the documentation. Preparing the business plan and PPM is expensive, and the information it contains is critically important. Investors will want to be entirely convinced that the producer understands the industry, knows this particular plan, and is thoroughly committed to do everything possible to assure the venture’s success. A producer needs solid confidence that comes from experience, team integrity, a deep understanding of the plan, and a commitment to the plan’s success.

Many investors have an uncanny sense for this dynamic. If they believe the producer has these qualities, they are much more likely to seriously consider the investment. If not, then they will pass.

The presenters need to be prepared. The professional production values of the investment documents and even impressive deal points will not overcome a producer’s weak presentation.

Before these meetings commence, producers should meet with their attorney and banker. The attorney will review the appropriate legal approach to these highly-regulated relationships. The banker will assist in opening an appropriate account for the receipt of investment proceeds.

Investment Partner Communications

Once a producer has received the investment capital, there is often no immediate motivation to communicate with the private investors, who, before this time, were sought after with the producer’s passion, sincerity, and rapt attention.

Though the partnership agreement may not require communication with partners more than annually, it is good form and builds relationship integrity to prepare and send a letter or email, at least quarterly, informing them of development, production, and distribution progress.

Producers build investor confidence by beginning this relationship with a letter of appreciation and encouragement. Then they should set triggers in their schedule for regular communications. This will be challenging to do after development commences, but it should be done, even if an assistant prepares the initial drafts.

Working the Development Plan

The development activity projection used in the investment documents is the producer’s representation to the investors of what will be done and when it will be accomplished. The activities in this projection are the investors’ benchmark expectations, which is also what the management team will use to gauge the company’s progress.

Each activity in the projections should be accomplished as if it is crucial to the initial and continuing success of the production company and its pictures. Each item should be finely planned, collaborated upon as a team, and accomplished at its zenith.

If significant benchmarks are missed, immediate communication with investors further builds confidence rather than investor unrest.

The producer’s activities in order of priority are described in the next sections.

Story Selection

The development manager (who may initially be the producer) reviews all submitted stories. The development manager provides story recommendations to the producer(s). Those recommended by the producer are then given to one or more of the production company’s executive committee for the story’s internal greenlight investment.

1. Script campaign breakdown.

Like a budget breakdown, the script is reviewed, and all the elements that may lend themselves to be used the picture’s 15 to 30 second lead commercial are culled from the entire script into the script campaign breakdown form, like the one shown below, and on this book’s eResources page, www.routledge.com/9781138050938.

Figure 14.1 Script campaign breakdown

2. Campaign creative.

The producer engages one or more copywriters who are deeply experienced in writing campaign scripts for successful pictures with similar target audiences, who will initially create the voice-over “spine” for the commercial. From the selected spine, they will write a 30-second television commercial script. These typically pass through multiple drafts. See the below script sample. This script is the critical foundation to the greenlight. Using campaign scriptwriters deeply exercised in engaging the project’s apparent primary target audiences is crucial to achieving a valid script.

Figure 14.2 Campaign creative

3. Campaign beat analysis.

The number of emotional beats in each of the 11 major categories that follow are counted from the commercial script. The results are tallied and the emotional beats of the proposed picture’s campaign are analyzed. The percentage allocations of the emotional beats are the picture’s “campaign signature” and will allow each picture to be defined by its target audiences and their percentage of dominance.

Figure 14.3 Campaign beat analysis

4. Campaign signature.

As referenced in the following example, by applying the Campaign Signature quotients to a studio, industry data collection source, or an alternative source’s audience analysis matrix (see Chapter 16), the picture’s target audiences by dominance are computed according to the picture’s campaign emotional beats. This report reveals the proposed picture’s target audiences as percentages, ranks audience dominance, and reveals picture profiles such as Romantic Comedy, Date Picture, Buddy Picture, and so on, by major individual and blended audiences.

Figure 14.4 Campaign signature

Greenlight Processes: Comparable Pictures

The below Figure 14.1 Comparable Projects Chart version was created by the Gillen Group, its use provision given by its CEO, Anne Marie Gillen, and a formula-loaded copy is included in this book’s eResources worksheets. Producers and their teams are encouraged to use this worksheet to research and track approximately 20 to 30 pictures that are similar in genre, budget, level of talent, target audience, media spend, and release pattern.

Some of this information is available online for free from such websites as IMDb.com, www.boxofficemojo.com, and the-numbers.com. Other information can be purchased from research sites such as Baseline Studio System, Nielsen Media Research, and Rentrak. This worksheet was charted without purchasing outside numbers so most of the DVD and some of the budgets were not available (NA).

Some important considerations to keep in focus as you analyze and complete each picture’s data include:

• Disqualify any project with directors that do not match or are less than the category of the director used in the subject project. Many if not most directors deserve opportunities to upgrade. However, until their body of work demonstrates they are a “B,” “A,” or “Star” director, they are not. No project’s other merits (Script and talent) will overcome a poor director. Consider “A” and “star” directors in the same category, yet discount or increase the earnings of the subject project, accordingly. Increase the subject picture’s income if it has a star director and the comparable picture has an “A” director–and vice-versa if it is the other way around.
• Throughout this process, keep story ever at the top of your attention. Make notes of the stories of the best and poorest performing comparable projects. What were the strongest and weakest emotion-eliciting moments in their campaigns and in their social media comments? These can be powerful inspirations to sharpen what drives the audience and lose what pushes them away.
• Use projects released in the past five to seven years.
• The Talent rating should be based on the level that the talent was when the picture was released, not on how they would be perceived in the marketplace today. Talent rankings are Star, A, B, C, and Unknowns. Track both the director and the lead cast. We suggest working with a casting director or international sales agent for accuracy.
• Be sure to chart all levels of qualifying projects, not just successes. We learn as much, if not more, from the failures. The most fundamental outcome of this exercise is to discover each project’s likely earnings and how its income compares with its cost. Making certain each poor performing project is also included assures producers and investors they can rely and make confident decision upon the entire range of marketplace evidence. This will likely include your screening and researching some dreadful projects. Each have their project-strengthening information.
• For projects tracked that had a preexisting well-known brand going into the marketplace—such as a franchise, based on a bestselling book, a sequel, a project based on a successful TV series, and so on—these projects’ numbers should be commensurately reduced, perhaps by half or more, or disqualified as a sample project. This worksheet’s purpose is to reveal as much information as possible about the subject project’s likely global performance, from recent, real performance data of very similar projects.
• If a comparable picture being used received important award nominations or wins, be sure to track when in the release this occurred. Typically, nominations and awards create a spike in the theatrical revenue, and this revenue should be proportionately reduced.
• The tag line is the selling line on the movie poster.
• Once you have your comparative project list (20 to 30 projects), use each project’s campaign signature to determine the top 5 to 10 comparable projects to use. These identify the pictures with the most similar target audiences.
• Once the final list reveals itself, delete the highest and lowest grossing project, unless either of these are the closest model to the subject project. If they are, then delete the next-to-the highest and lowest income projects.
• The chart will automatically average out each category, giving the GBO to be used for the subject picture and other valuable information to be used in the subject pictures development.

Figure 14.5 Film comparables chart

Director Attachment

The earlier the director is attached, the greater the creative cohesion and harmony of every aspect of the picture. Producers who are also directors by craft but who will use another director for the picture are especially well served by the earliest possible director attachment, so they may provide creative collaboration.

Differences in producer/director creative vision have weakened many pictures and literally destroyed others. Early director attachment naturally establishes a strong producer/director collaborative creative foundation. Once the director is attached, this person substantially drives the project’s physical development and production.

The producer presents a written list of director recommendations, distilled from the management team’s recommendations, to each advisory team member for that person’s notes and suggestions. Some of the producer’s advisory team will have multiple experiences with the directors on this list and will render exceptional counsel relative to the consideration, approach, and eventual relationship with the director. After checking each director’s availability and quote, the producer next prepares a final priority list of directors, considering advisory team input, additional creative research, and discussions with producers, bond execs, and others who have experience with these directors.

Then the producer notifies the distributors, confidentially revealing the directors being considered, in their priority order, and requesting each distributor’s preferences and comments. Typically, this list is also shared with the international distributors. If appropriate, a director’s reel is prepared.

Tempered by distributor responses, the producer creates a final priority list of at least three directors. It is rare that the producer’s decision will match every distributor’s first choice. The producer now proceeds with director meetings leading to attachment.

As reviewed in Chapter 10, producers should meet about the story with the director before talking about compensation. Most directors comfortably accommodate these initial creative meetings, since they may have their own production companies and businesswise are negotiating their own agreements and using their attorneys and agents primarily for documentation and counsel.

It is during the initial creative meetings with the three leading directors that it often becomes apparent who should direct the picture, because of the director’s affinity for the story and the director and producer’s natural ability to communicate and respect each other’s position, relative to developing and producing the picture.

After the producer reviews the creative meetings with the advisory and management teams and makes a recommendation, a director decision is made and a term sheet is approved. A negotiation meeting or conference call is then set with the director’s agent or attorney.

As presented in Chapters 9 and 10, the director’s relationship is negotiated and documented, including a release for this relationship’s press announcement. The lead territory and international distributors are then notified of the successful attachment of the director, followed closely by a jointly coordinated press release and paid announcement in the entertainment trades.

The Producer/Director Relationship

The producer is the picture’s ultimate parent. The producer discovers the story, holds the initial vision of it as a motion picture, provides the environment and resources for the picture to be developed and produced, and even selects the director. However, the producer has simultaneous multiple-picture responsibilities. The final preparation and actual production of the picture is so intense that one person must be exclusively focused on each picture’s creation. This is the director.

The producer sustains the ultimate authority and power throughout the process. It is important that the producer exercise this authority only with the director. The department heads and all other production participants are accountable to the director, not the producer. When the producer works directly with any of the team members reporting to the director, it is done only as an adjunct to the director, not as an authority superior to the director. The director must sustain position integrity with the production team as its ultimate voice. It is standard operating procedure, and everyone knows the director works for the producer. Everyone should also understand that the director has complete power to produce the picture on behalf of the producer.

Most producers are very involved in each picture’s development and production, particularly when it comes to script development, talent attachment, storyboard creation, location selection, and the final postproduction and sweetening. Even after the producer reviews the dailies, the director may receive a call requesting reshoots, rewrites, and other major alterations. But this is between the director and the producer.

It is always in the best interest of the picture that the producer and director sustain this relationship integrity. To all who work on the picture, the producer creates an aura of respect for the director as the development and production chief of the picture. The director listens and responds to the producer who is, after all, the picture’s creator and ultimate authority.

If the picture is going to be infused with the life it needs, the director must feel the creative freedom and the leadership control over all aspects of it. Directors must respect that the ultimate creative and financial ownership and responsibility belong to the producer. The director is allowed the opportunity to create the picture, because the producer has put it in the director’s hands. The producer is ultimately responsible for the picture’s creative and financial success. Consequently, regardless of the extensive genius and energy directors pour into their pictures, the director should respect the producer’s position and respond to requests even if they seem unreasonable.

James Cameron created the landmark achievement picture Titanic. Tom Sherak at Twentieth Century Fox made suggestions. Cameron listened, considered, and responded. Each was under intense creative, time, and financial pressure. Cameron later credited Sherak with the suggestion for what Cameron said was a better ending for the picture. In the final analysis, it isn’t who has the greatest power but rather how well the creative team works together to deliver the most audience-satisfying and financially successful picture.

Shooting Script

The core development team now is composed of three members: the director in the primary position, along with the producer and the development manager. The producer still has the ultimate control, but the director is rightly the head of and leading this core team.

Story is the core team’s first focus. The project must have a first-draft shooting script before the intricate and intense planning and budgeting that are essential for its creation. The story will go through further rewrites as other key collaborators are attached, but the basic story will be approved by the core team, tempered by the executive team’s review and comment. This review is a key contribution to the picture’s success. Often the director is a writer and may write the drafts leading to and including the shooting script. Until there is a shooting script, everything else is of lesser importance. Everything should be done to ensure the predictable on-schedule creation of the strongest shooting script. When the first-draft shooting script is in hand, then potential lead cast can be approached.

Lead Cast Attachment

The producer and development director will have drawn up a proposed list for the lead cast before the director is set. The director and producer will use this list plus the director’s suggestions to prepare the final list of lead actors under consideration. Their agents or managers will be contacted to verify their quote and availability. Hiring a casting director to review the list and offer further suggestions can yield even more interesting actors. A well-heeled casting director has inside information of who is up-and-coming, who is seeking certain roles, and who will take risk on demanding material.

Following much the same process as the director selection, the major territory distributors are contacted, their responses are weighed and the value of each performer in the various territories, and the actors’ final priority list is prepared.

The actors are approached, as presented in Chapter 10, and negotiation and documentation engaged. After engagements, distributor notifications are sent, followed by press releases and paid trade announcements.

Preparing for Physical Production

Upon first draft shooting script completion, physical production preparation commences in earnest. This includes attaching the picture’s line producer and/or UPM. These now become the central participants in the physical production process. They will create the original and the many permutations of the picture’s production breakdowns, schedules, and budgets. Department heads and others will study and use various portions of these materials, along with the shooting script, in their individual planning and cost breakdown decisions.

Production department heads will be recommended by the director and reviewed by the producer, and the advisory and management teams review and provide recommendations. The director will approach the key department heads in concert with the producer through creative discussions that will expand into negotiations and attachments to the picture.

Creative collaboration from the newly added pool of department heads deepen the picture’s creative heft, further perfecting the script and bringing the picture into fuller focus.

Development of physical production begins in earnest, with locations being determined, departments making staff arrangements, the balance of cast attachments, and, of course, the continual enhancement of the script in response to these new elements.

Maturing Marketing Materials

As talent is attached to the picture, so are their representative reels, including those from the director, actors, cinematographer, production designer, composer, and in some cases specialists such as the VFX designer, and fight choreographers. Through many of the excellent film commissions, location reels are also provided. These elements, together with print elements, are the rich resource that will be used in creating the project’s enhanced video and print presentations for the picture’s website, festival/market meetings, press, and EPKs. These materials are also used by distributors’ partners to promote the picture.

Preparing the Production Bank Financing Facility

Throughout this process, the producer regularly updates representatives at the bank and completion bond company. In addition to the referenced advisory meetings, at least two additional meetings with documented picture plans should be set up before placing bonding and lending requests with these institutions.

Typically, a minimum of 9 to 12 months pass between when the project is greenlit for development and presenting the production loan request memorandum with the bank. During this time, the most aggressive distributors for the picture become apparent. Also, conditions within these territories often change during this time. Mergers, acquisitions, and changes in the economy are largely responsible for these shifts.

Because of these phenomena, the global rights manager should again revise the picture’s sales breakdown, just before preparing the picture’s finance plan and the presentation draft of the bank loan analysis. A description of how to prepare the plan and analysis is presented in Chapters 3 and 6. The UPM also prepares a revised budget for use with the preparation of this documentation.

Once the bank loan analysis is prepared, it is presented, along with the finance plan, to the management committee for approval. Following its approval, the bank loan memorandum, as described in Chapter 6, which includes the completion bond memorandum, as described in Chapter 8, are prepared by the production company’s finance vice president. The bond memorandum is prepared and presented first, since the completion bond company’s intent will accompany the bank memorandum.

Each of these memoranda are mature sophisticated documents. Their purpose is to receive a contingent commitment from the bank and bond company, so that when the producer provides the imminent elements declared in the memoranda, each respective entity will participate in the picture’s production funding. The production company must be bondable to engage the production bank loan, and the bank loan facility must be available to accept the picture’s presales, as well as many of the following as are additionally used in production funding: equity purchase agreements from director cast and vendors, brand tie-in agreements, production incentive program materials, and private investor agreements.

The producer meets with the bonding company and receives the completion bond written contingent commitment first, then meets with and receives the bank’s written contingent commitment.

The Lead-Territory Primary-Distributor Agreement

As thoroughly reviewed in Chapter 2, this agreement is lynchpin and largely defines the project’s value-perception by distributors in all other territories and with distributors/ licensees in all other rights segments.

The first question asked by distributors outside the lead territory is, “Who is distributing in the lead territory?” The answer to this question provides the single greatest value influence as to the licensee’s interest, and if they are interested, to their own eventual license terms. This lead territory agreement affects all other rights, relationships, and earnings and is central to the picture’s global success. And, following months of building this distributor’s confidence in the project and the producer, this is the time when the producer should enter their picture’s lead-territory primary-distributor distribution agreement.

As suggested previously, these distributors, especially the U.S. majors and mini-majors, are excellent marketers as well as negotiators. They understand the value of a picture, and, as they have global sales power, they prefer to acquire all global rights.

Fortunately, there are distributor competitors in most territories. These distributors in all the major territories have become very open to a broad spectrum of distribution relationship configurations. Each wants the most valuable projects, which they are the most confident in marketing.

As reviewed in Chapter 2, when negotiating theatrical distribution rights in the U.S., because media costs are so high, the theatrical distribution agreement will also include all home entertainment distribution rights, offsetting the potential loss-carry-forward from the theatrical P&A spend. Each is an excellent offset to the other, the home entertainment earnings primarily driven by the picture’s theatrical campaign. Though the United States is the most expensive theatrical release territory, because of the close timing of these distribution segments and the theatrical release carrying the primary branding responsibility for both, most major territories bundle these in the same distribution agreement.

Though the theatrical and home entertainment distribution rights bundle is the most common distributor relationship, as the picture matures through development, the primary territory distributor may become much more aggressive in negotiating for specific or all international rights, as well as for specific or all ancillary rights. Many of these distribution proposals are extremely competitive with those from other distributors in individual territories that the producer has established throughout the picture’s development and preproduction. The producer should analyze the primary distributor proposal and compare its gross potential, distribution fees, and costs, as well as the producer’s internal costs, against these factors in the alternative relationships. Then, with the counsel of the advisory and executive teams, the producer must decide the best financial and relationship course of action.

To clearly compare the offers, producers must also recalculate the picture’s bank financing worksheet, including bankability that may affect borrowing costs, as reviewed in Chapter 6.

Negotiating/Securing Project Funding Collateral

As reviewed in Chapter 6’s Project Financing, after a project’s achievable financing plan is reviewed and agreed upon by the executive team, bank, and completion guarantor, then throughout the project’s year or more of development, each of its several contributing partners are prepared to formally become project partners. Development concludes when the project’s producer, with the support of its bank and production guarantor, finalizes deal negotiations and documentations with each partner that are necessary to engage the production bank loan.

This includes documentation from production incentive program(s), international territory and ancillary presales, talent and vendor profit/equity relationships, brand tie-ins partners, bank gap for unsold territories, and private equity partners.

Each of these crucial relationships may seem daunting, yet the key to engaging each of them is to have achievable relationship plans, confirmed by each of the participants and then to step it forward, reconfirming and adjusting during development meetings with them, until each are documented.

Engaging the Completion Bond

The completion bond (Chapter 8) is necessary for the bank loan and is formally requested by the producer immediately following the securitization of the presale documentation.

The request for the completion bond is made in writing with the most recent shooting script, production budget, and supporting documentation.

The completion guarantor’s legal counsel will participate in structuring the lending bank, the producer, presale distributors, equity, production incentive and all other collateral, discount and deferral participants, plus the guarantor itself into an interparty agreement. This agreement, when closed, will finalize and cash flow the production funding. Producers should allow at least eight to twelve weeks for the interparty agreement to close.

Engaging the Production Bank Loan

The collateral and completion bond are the final documents presented to the bank to engage the production loan (refer to Chapter 6). Processing the loan includes conforming the letter(s) of credit (if there are any) language to language that is acceptable to the bank. This process may take five to ten working days.

If not done so before, the producer forms the single-picture producing entity for this one project. As presented in Chapter 11, this organization is a wholly owned subsidiary of the production company and will produce and own the picture. This organization will sign all agreements for talent, crew, production and union (SAG, DGA, WGA) signatory.

The first expense of the producing company will likely be the purchase of all rights, title, and interest of the picture from the production company, or if they have financed the picture’s development separately, from the production company’s development company, per the production company’s purchase agreement with the development company.

Final Preproduction

During final preproduction, the producer does the following:

• Closely participates with and supports the director. As frenetically paced as this time is, this is the last sane time the producer can participate with the director until principal photography wraps. The creative look of the picture is substantially catalyzed during this period. The script receives special producer scrutiny for the apparent creative reasons, as well as special needs that include writing, planning, and budgeting for international territory and ancillary media cover shots (as discussed in Chapters 3 and 5).
• Sets the picture’s novelization relationship with a publisher, even if the story has been or currently is in release, as explained in Chapters 1 and 5.
• Continues to mature potential and manage engaged premium tie-in and product placement relationships. To accomplish this goal, the global rights and advertising vice presidents combine their efforts in presentations, relationship negotiations, planning, and execution coordination as reviewed in Chapter 5.
• Prepares, in cooperation with the primary global distributors, the picture’s ramp-up consumer public relations and advertising; the print, TV commercials, teasers, and trailers, long-form agreement element list; layouts; boards; title research and treatment; and home entertainment additional features production–and related activities. Some of this is for release soon after principal photography begins, and the rest is for the several releases that will escalate as the picture approaches the global marketplace.

Principal Photography

As principal photography commences, primary location accommodations are made for special production guests, including development partners (if any), primary distributor representatives, presell participants, brand and product tie-in participants, and trade and consumer press. Appropriate invitations are sent to these guests, and as they respond, their individual arrangements are made.

The producer reviews all the picture’s dailies, consulting with the director relative to the picture’s creative progress, and informing the director about the picture’s distribution and marketing. The producer will be on location most of the shoot, as well as with the picture’s postproduction team, which will likely begin assembling the picture from the first day of principal photography.

The initial consumer press releases are staged and sent to the major global territory partners and press. Trade press and paid announcements are released.

As the picture is produced, the marketing reel expands; the internet and theatrical teasers and trailers are assembled and released; the primary internet and theatrical trailer(s) start and continue to assemble/distribute; and promotional coverage is captured, assembled, polished, and released, per the marketing plan. Copies of all press releases and promotional materials are sent to the major global distribution partners. The picture’s up-to-the-minute promotional reel is exclusively exhibited in the appropriate global markets.

Post Production

The director may supervise post production. As this process begins, soon after principal photography commences, assemblies are sent to the director for review. The digital post production process has been extremely helpful in fixing it in principal photography, which is most often much better and less expensive than “Fixing it in post.”

In addition to more traditional post production duties, the producer supervises trailers and ad spots that have been produced in house. The producer also reviews the preparation and audience testing of distributor and trade specialist-produced trailers and television commercials in multiple versions. If the picture’s title is in question (this process is often excruciating), it will also be market and audience tested before a decision is made. As post production is completed, global sales intensify, and the major global distributors deepen their marketing preparation.

The Project’s Premier Release Branding

Each project’s total opening and historical audience size and earnings are substantially determined by the effectiveness of the project’s branding during its premier release in each territory. The project’s total earnings are not determined so much by the project’s gross as they are by the power and effectiveness of the picture’s campaign, the reach and frequency of its media buys and brand tie-in partners to its target audiences—and their fiery-delighted after-screening screams and pics on social media. Box office grosses can also be negatively affected as much as one third by marketplace anomalies including picture release glut, weather, spectacular global/national news, or sports events.

The producer is never busier than during a project’s final post production and pre-premier and premier release. In fact, it is not enough to make an outrageously fine motion picture.

Audience reactions to a project’s early teasers and trailers are excellent indications of the sweetening that should be in the project’s new teasers/trailers/commercials, as well as its clips shown during celebrity show visits.

At the time the final theatrical campaign begins, the picture’s novels should have already flooded retail checkout stands with the picture’s poster on their covers. Commercials for brand tie-in partners will begin airing immediately before and then into the picture’s theatrical release.

The week the picture opens, distributors’ public relations and advertising departments are at full throttle, executing release strategies prepared months prior. Premieres and entertainment, intricately choreographed social media stories, pictures, and even segments are strategically released; morning news and other television shows are sporting celebrity and picture highlight segments; entertainment and other publications have eye-grabbing photos and articles about the picture; and literally every other promotional and purchasable device is employed to establish and turn up the heat on making the picture a commercial success.

The Global Territories and Ancillary Markets

Once the picture is completed, lab access letters are delivered to pre-buy distributor-partners and special screenings are set for the other international distributors (as discussed in Chapter 3) and for major ancillary rights media (as presented in Chapter 5). This is the completion of the primary cycle of discovering, producing, and bringing a picture into the market.

The big items checklist within a project’s development and production cycle:

• Search for the story.
• Plan development operations, forecasts, and funding.
• Assemble or harmonize the team.
• Produce the development investment documents.
• Present to, negotiate with, and close with the development/production company investors.
• Begin and continue investor communications.
• Work the development plan.
• Review and select the story.
• Evaluate the internal and external greenlight criteria to determine the project’s creative and business feasibility.
• Configure the picture’s probable production financing participants by using incentive programs, director/actor and major vendor profit participation/equity, brand tie-ins, bank/bond exercised presales, gap and private equity.
• Complete pre-director picture development.
• Search for and attach the director.
• Shepherd the first-draft shooting script.
• Attach the lead cast.
• Prepare the physical production.
• Prepare and mature the picture’s marketing materials.
• Prepare the bank financing facility.
• Enter production incentive program relationships, brand tie-ins, equity/profit sharing relationships, major global territory distribution agreements, and private equity agreements.
• Engage the completion bond.
• Engage the bank loan.
• Complete the final preproduction.
• Perform principal photography producer’s duties.
• Perform postproduction producer’s duties.
• Direct the picture’s global branding.
• Sell into all remaining global ancillary markets and territories.

Chapter Postscript

Before the production company begins the white-hot demanding process of developing, producing, and licensing the rights of its projects, the operating plan and the team that will run it should already be prepared and in place.

This team and its organization establish and finance each project’s development plan; discover, qualify, and develop the stories; commence and manage the marketing of the projects; fund the project production; produce them; mature their marketing; and manage their global distribution. These are seven individually critical processes of assuring that the production team produces the projects it wants and that each project individually has the greatest opportunity for artistic and financial success.

It is good for producers to understand how all the pieces fit together and how the team accomplishes the work and sustains the critical checks and balances during each project’s search, development, production, and distribution. Thoroughly understanding the whole process and preparing for its successful operation are essential to achieving the team objectives of producing consistently profitable projects that please their audiences, fulfill the producer’s creative passion, and the company’s overall mission.