Film Budgeting: or How I Learned to Stop Worrying and Accept Studio Accounting

[keylight]

Film Industry Budgeting/Accounting

There seems to be some confusion about the accounting that goes on in film making. The following segment (about 22 minutes total) from Charlie Rose is a good primer on the issue. The video features producers David Brown and David Picker.


Part One:

Part Two:

Bios of the guests from Rose's web site

• David Brown (IMDB)

David Brown is an American movie producer. He is best known as the production partner of Richard D. Zanuck. They were jointly awarded The Irving G. Thalberg Memorial Award by the Academy of Motion Picture Arts and Sciences in 1990 for their achievements in producing. Among their films were two of Steven Spielberg’s early films, ‘The Sugarland Express’ (1974) and ‘Jaws’ (1975), and later hits such as ‘Cocoon’ (1985), and ‘Driving Miss Daisy ‘(1989).
​

In addition to his many successful films, David Brown has produced numerous Broadway musicals, including ‘Sweet Smell of Success: The Musical’ (2002), ‘Dirty Rotten Scoundrels’ (musical) (2005), and the off-Broadway Jerry Herman musical revue ‘Showtune’ (2003).
​

• David Picker (IMDB)

David Picker is an executive producer who has spent more than forty years in the film business, working his way up from the publicity department to the executive suites at United Artists during a15-year tenure with the company. He has also held executive posts at both Paramount and Columbia. Picker served as Producer or Executive Producer on varied projects, ranging from biopics to crowd-pleasing comedies to strong dramatic fare.
​

During his time at UA, Picker was responsible for such films as the Oscar-winning “Tom Jones”, the James Bond series, the Oscar-winner “Midnight Cowboy” and the “Last Tango in Paris”. He left UA in 1973 and formed his own production company. Films made under his banner included “Juggernaut”, and Dustin Hoffman’s tour-de-force as comedian Lenny Bruce in “Lenny”. During his tenure at Paramount he oversaw such films as “Saturday Night Fever”, “Grease” and the Oscar-winning “Ordinary People”. In 1997, Picker was tapped as President of Hallmark Entertainment Productions Worldwide with the mandate to expand the company into feature film production.
​

After watching the videos, a few questions

• Brown or Picker are fairly close in their points of view, but the do differ a bit on independent producers. Who do you agree with more?

• Has Brown's desire to strengthen the leverage of independent producers happened over the past 16 years?

• Does Hollywood cook the books or is their approach fair?

• How does Hollywood accounting affect your own approach to film accounting?

• If you've made a low budget (under $500,000) film, how have you handled the accounting on your film?

Would you find a budget template or sample budgets useful?
Finally, I'm currently working up an Excel budgeting spreadsheet based on a lot of random stuff out there on the web. When I'm done, I could post it if there is enough interest.

If you have a good budgeting spreadsheet you would like to share, please post it. I'm a firm believer that every project regardless of size, should be budgeted out in advance of production. I've read countless posts here and in other places from people saying things like, "Help! I've run out of money and I still need...."

Cheers!

 

[keylight]

Yes, I understand the basics of Hollywood accounting. [SNIP] I understand that if the guys with gross points get 50M, that's gonna be counted as expense and impact the profit (so they don't have to pay any net points). Honestly, I get it because I've studied it (maybe not as in-depth as you but still). I don't even know why you think that I didn't know that already.

I thought you didn't know based this:

So when the check arrives, you divide the profits like you've agreed to. [SNIP] But it sure as hell doesn't count towards budget as something you've paid/spent. Or did Jurassic Park's production budget include the 250 million in profits that Spielberg got?

To me, that read like you didn't understand that these payments are counted as expenses.

That wasn't my point in the other thread. My point was that Jurassic Park's budget was 63 million. That's how much it cost to make into a finished product that could be distributed in worldwide. Spielberg got 250 million first dollar gross. Some of the people (including and especially) you argued that those back end deals should be included in the figure of what the film cost to make.

Yes, that's true. I was arguing that. It is done this way and results in Net players getting little or nothing.

So without even talking about other's who had gross points etc, following this logic Jurassic Park's budget was +300 million.

And I think I may see what's going on here. You are talking budget and I'm talking cost. True, Jurassic Park's up front budget may have been $63 million. But that up front budget is not what it cost to make, because not all of the costs have been paid yet. Those deferred costs include contingent payments based on gross income.

I'll post more on this in a bit. Let me think about the best way to approach it so you might better understand.

 

[keylight]

Ok. So I'll pick up from this part of your reply:

So if someone makes a film for under 10k budget and everyone in the cast and crew etc. is on gross points ONLY and the film makes, let's say 100k, it doesn't mean that the film cost 110k to make. If it was a Hollywood film with real budget, you might claim that it cost 110k to make. But on that budget level, why would you claim that? Nobody's on net points so there's no need.

I want to make sure I am correctly understanding you, so I'll try to restate what your saying in my own words. Correct me if I got it wrong.

You are arguing that if you put everyone on gross points and nobody on net points, then you can say the film cost $10K to make and when it sells for $100K, the film made a profit and everyone gets paid. Do I have that right?

If so, then let's follow your hypothetical. Barry lends me $10K to make the film and everyone is on gross points. Here's how it breaks down:

Barry (initial $10K) - 20%
Myself (spent 3000 hours on my baby)- 10%
DP (300 hours) - 10%.
4 Actors (400 hours each) - 5% each
Equipment Rental companies ($30K worth of rentals) - 20%
The other 10 people on the crew (300 hours each) - 2% each.
​

The film sells to a distributor for $100,000 and each person made:

Barry: $20,000 - $10,000 = $10,000
Myself: $10,000 @ 3000 hours = $3.33/hour
DP: $10,000 @ 300 hours = $33.3/hour
4 Actors: $5,000 each @ 400 hours = $12.50/hour
Equipment rentals: $20,000 - $30,000 = - $10,000
Other crew: $2,000 each @ 300 hours = $6.66/hour
​

Fixed gross for everyone doesn't really work.
So the gross points weren't really distributed very well. The Equipment houses lost money. I made $3.33/hour, the DP came away with the best return for his time, $33.3/hour. And of course, Barry doubled his money. See Barry, you made a wise decision investing in my film!

You know, I really don't like making $3.33/hour, and the rental companies hate me for losing their money. And the DP getting so much more per hour than everyone else? It just isn't a good way to divide up the gross points. And I only have 100 points I can divide. What happens if I need to bring some extra people in later? Can't give out more than 100%.


Adjustable gross points for everyone
So what I really need to do is have a system where I can adjust the gross points and divide them up based on how much value each person put in to the film. Barry as the money guy is going to get a fixed gross (say 20%) and everyone else will get a share of the remaining 80% adjustable gross. So, how to calculate the adjustable gross?

The most logical way is to use what it would have cost me if I had a larger budget and had paid everyone their fees or wages up front. So if the DP normally charges $20/hour (he's no Barry!) and works 300 hours, then I'll put down 6000 on my paper. This can be 6000 dollars or it can just be the number 6000. Doesn't matter. Now my actors charge $10/hour and worked 400 hours each. So I put down 4000 next to each of their names. In the end, I've got a list of people and numbers. When I add up all of those numbers I can figure out what percentage that 6000 number next to my DP is in relation to the total. And there's my adjustable gross. I can now give Barry his $20,000 of the $100,000 and divide the other $80,000 up according to their adjustable gross.


Dividing up the profit or paying wages?
This payment of the adjustable gross isn't really dividing up the profit. I'm just paying everybody for the work they did. Of course, after the DP gets the $6,000 he would have been paid up front if I had a bigger budget to start with, he will start making a profit. But before that he is just getting paid for the work he performed. But there is a problem with paying everyone gross. After everyone has been paid in full for the work they put in, I would like to keep the extra money (the actual profit) for myself -- and my financier Barry of course! Sure, I'll probably give everyone a nice bonus because I couldn't have made the film without them. But I think there should be an upper limit, say 2X what they would have earned. That seems pretty fair considering the risk they put in.

When you're doing a 10k film funded out of your pocket, your budget goes like this: cast 0, crew 0, rentals 0, locations 0... You can spend money only when you REALLY have to. Like when you're driving to a shooting location in a van borrowed from your parents and you notice that the fuel is low. Example: the budget for Star Wreck: In the Pirkinning was something like 15k. They had one pro actor for a few days and paid him by making some special effects for his own project. Everyone else volunteered. The whole budget went for things like tapes, paint, bus tickets, etc. It adds up really quickly. Now, the film has made about 400-500k profit. Did those people who volunteered as extras on some scenes get a part of that? No. Did they get anything upfront? Food, maybe, but it is unlikely.

As stated previously, you're talking about films with real budgets. "Hollywood films". We were talking about films that are built of blood, sweat and tears of everyone who participates in the production. Nobody was claiming that your knowledge of Hollywood accounting was false. What people were saying was that it doesn't apply to films like that. Sure, when there are investors, banks, distribution companies, real budgets (at least hundreds of thousands), A/B-list cast and crew involved. Then we can talk about Hollywood accounting, deferred payments, SAG agreements, overheads and everything related.

You are what you eat
I'm of the belief (and behavior) that if you want to be treated like a professional, then you need be professional in your dealings with others AND yourself. Whether my budget is $5,000 or $500,000 - I am going to enter into contracts that spell out the terms with everyone who works on my film. Even if they work on it for "free". No need for a complex contract, but there will be a contract.

If I ask Barry to be my DP on a $5,000 budget film but can't afford to pay him now, I'm going to come to some agreement with him regarding payment later if the film ever makes a profit, regardless of whether he gets adjustable gross or a fixed deferred fee. (Please Barry?) Because of the agreement I will need to keep track of everything spent on the production, including deferred payments to others, because I can't really pay Barry in full before I pay others. Everyone has to get paid at the same time. So I need to keep track.


What kind of deal would I make?
But honestly, I probably won't make a gross deal with Barry. Since I already need to keep track of everything so I can make my other deferred payments, I'm going to do a deferred payment with Barry. Barry's good. But he's a DP, not a Spielberg, Hanks, De Niro, or Roberts. DPs never get dollar one gross (sorry Barry).

Much more likely is that we'll reach a deferred fixed fee agreement with some back end net. How much of the fixed fee he will actually end up getting will depend on what percentage his fee is of the total in deferred expenses. Essentially this is the same thing that was done with the adjustable gross.


Studio Accounting vs. ?
I don't know if you can see it or not, but the big budget studio accounting really is very applicable to small budget productions. True, you don't HAVE to do it this way. You can do it any way you want. And of course on a really small budget, you're not going to get down into every last detail and some of it will be based on trust and respect. But I think one should still try to get as close to doing it the right way as they can.

I think it makes sense to do it the way the industry does it, not because the industry does it that way, but because the industry does it the right way.

Why make a low budget film if not to demonstrate that you can do so professionally and should have the opportunity to work with bigger budgets? Why not try to learn as much as possible about the process? Why spend a year or two writing a great script and then skip the opportunity to learn about the business side of the process firsthand?

Later when you get those big budgets you can focus on directing if that's what you really love, and leave all the business stuff - the budgeting, accounting, contracting, negotiating - to other people. Having a firm understanding of this stuff will help with what ever you want to do. And what better way to learn it than by doing?

 

[Brian_Rice]

Agreed Girki. <10K a lot of the time everything is *volunteer*. Volunteering specifically means no-cost, non-for-profit. If you don't arbitrarily add that person's non-volunteering fee, you're not dealing with any of this back-end stuff he's talking about.

If everything sans the equipment is given for free with no expectation of *repayment*, then the original cost of the film is money spent, that's it.

I used fan films as a perfect example of this. No theoretical *costs* because no theoretical *write-offs* or *profits*. You spent 500 bucks making your Batman fan film with friends and that's it.

Obviously what he's talking about is vitally important stuff because it does apply to a lot of professional productions, but films aren't ONLY made this way. It all depends, I think, on the relationships of the people involved. Usually we have to move outside our personal circle to get something done on a professional level, and you better believe that working professional folks will want professional accounting.

To Clerks and Mariachi, though -- both of those films were made and *sold to the studios* for those amounts. But the studio then put additonal funds into both movies. So, in the end, their *selling* budget was what was listed, but what the audience saw was something with a completely different budget.

But I'll still say that the *marketing* budget for Clerks was still a separate entity than the actual post-production budget, though many times those things are all included in this kind of accounting.