Behind the Scenes w/ David Brown - Film Waterfalls Explained - Part 1
Decoding the Film Waterfall: An Article for Producers on Film Finance
So, you're a new film producer trying to figure out how to finance your movie? It can feel like piecing together a puzzle, right? The film industry has changed a lot. Streaming wasn't always a thing, and DVD sales used to be a major source of revenue. But times have changed. Let's talk about how to navigate the financial side of filmmaking. This article will break down a key concept: the film waterfall.
Why Equity Might Not Be Your Best Friend
Let's get straight to the point. Should you be seeking equity financing from friends and family? According to producer David Brown, the answer is a strong no. Why? Because you want to protect your loved ones from potential financial loss.
The Harsh Reality of Film Finance
Film investment is risky. There are no guarantees that your film will make money. It's a tough industry, and recoupment for investors is often not a sure thing. This advice comes from experience and a realistic understanding of the industry. It might sound harsh, but it's honest.
Friends & Family: A Risky Proposition
Taking money from loved ones can damage relationships if the film doesn't perform well. Imagine the strain if your film doesn't make money and your family loses their investment. There are other ways friends and family can support your film. They can volunteer time, help with marketing, or simply spread the word. These kinds of support are invaluable and don't carry the same financial risk.
Understanding the Film Waterfall: Where Does the Money Go?
What exactly is a "waterfall" in film finance? It's the order in which revenue from a film is distributed. It dictates who gets paid and when. Think of a waterfall. The water at the top flows down first. Similarly, in film finance, certain parties get paid before others.
The Waterfall Hierarchy: A Step-by-Step Breakdown
Let's break down each tier of the waterfall. This is where the money goes, in what order.
Collection Account Management Agreement (CAMA): The first 1% of gross revenue goes to the CAMA. Companies like Freeway or Vintage House manage the CAMA. They collect and distribute revenue according to a pre-negotiated agreement. It's like an escrow account specifically for film revenue.
Residual Reserves: These reserves cover payments to union talent. That includes SAG actors, DGA directors, and union crew. Residuals can take up to 7% of profits. Residuals are payments made for the continued use of their work.
Sales Agency Fees: International sales agencies, like Voltage or Exchange, help sell your film to distributors. They typically take 10-20% of the revenue.
Sales Agency Market Fee: Sales agencies may also charge a market fee. This can be up to $100,000. This fee is paid before any investors or producers get paid.
Streaming Bonuses: Actors (and sometimes directors) may have streaming bonuses written into their contracts. These bonuses are usually paid before investors are recouped, unless you negotiate otherwise.
Deferral Pools: Deferral pools are a way to reduce upfront costs. You promise to pay certain individuals (actors, producers, etc.) later, once the film starts generating revenue. These deferral pools are paid before investors.
Unpacking the North American Distribution Deal
How does a distribution deal affect the waterfall and investor recoupment? Let's consider a hypothetical deal.
The Advance and Its Implications
Imagine you get a million-dollar advance from a North American distributor. That sounds great, right? But that million dollars isn't immediate profit. It's an advance against future earnings.
Recoupment and Premiums
The distributor will recoup their million-dollar advance before any profit is shared. They'll also charge a premium (interest) on that advance. Think of it like a loan. They need to be paid back with interest.
Distribution Fees
The distributor will also deduct a distribution fee. This is usually a percentage of the gross revenue. For example, say the distribution fee is 30% of gross revenue. If the film grosses $10 million, the distributor takes $3 million right off the top.
Key Takeaways: Protecting Your Investments
Navigating film finance can be tricky. What are the key things to remember?
Equity is Last in Line
Equity investors are the last to be paid in the waterfall. Many factors impact revenue before investors see a return. It's a risky position to be in.
Due Diligence is Crucial
New producers should thoroughly understand the waterfall before seeking investment. Consider consulting with experienced film financiers or attorneys. They can help you navigate the complexities of film finance. Before agreeing to anything, do your homework.
FML Lending LLC might be a valuable resource for understanding film financing options.
You can watch the full explanation in this YouTube video: Behind the Scenes w/ David Brown - Film Waterfalls Explained - Part 1
Film finance is complex, isn't it? Remember that understanding the waterfall is essential for protecting your investments and ensuring a fair distribution of revenue.
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