How can commercial video production be so lucrative?

Allen Ellis

Allen Ellis

Well-known member
I was going to post this in the "business of filmmaking" but I see that's been renamed to "marketing & distribution" so I'm not really sure where this thread belongs.... I'd just like some perspective on the high and low end of video production budgets.

I'm 22 years old. I've been a hobbyist since age 11 or 12, then freelancer into my late teens, and now I'm working with a small creative media company. We mostly do print and motion graphics for non-profit organizations, but we want to expand into more lucrative markets and more video production.

I'll go ahead and say that we generally bill around $100/hr. So a simple video shoot with some travel costs, equipment rental and about 30-60 hours of post-production costs ends up in the $5-$10k range.

I get the sense that these are pretty standard figures but I'm not entirely sure. Because I find photos of other companies whose offices look like multi-million dollar hotel resorts: http://www.levyproductiongroup.com/

Our offices look nothing like this of course - our equipment does the job but we don't have fine art hanging in the reception area. The post facility I interned at a few years ago was also very simple.

The funny thing is that I think our work is comparable to this facility I just linked to. I don't see any video projects in their reel that particularly blow me away - they are certainly nice but not really awe inspiring. I am impressed by their client list and the locations they're invited to shoot in, but if I'll be honest - I think our production values are definitely in the same league as theirs.

So that brings me to the question - is there a divide of market segments that causes this? Do these gorgeous production facilities simply charge an higher hourly rate in order to attract clients who simply expect to pay more? Is it just based on location (we're in Central Florida, they are in Las Vegas). Or could they be charging roughly the same as us, but just have many many more projects going through the pipeline? When you guys look through their featured projects, what budgets do you imagine? $5k - $12k like I might expect to charge? More?

Thanks for playing the guessing game with me. I know pricing is always a hush-hush subject, but I just feel perplexed when we have a tough time selling a client on a $5k video, when "standard" equipment like Fiber SANs, MaM servers & LTO tape archives are a $50-$100k investment. How is the rest of the industry pulling it off?
 
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I come from the world of stills, the top guys price on a % of advertising spend not $/hr

So I could shoot an ad for my local soft drinks company and get XXX while agency Z could shoot an ad for Coke - the same advert/production values - and get a huge fee if the ad was for broad distribution

Of course higher $/hr, thicker through put, bigger loans etc help too

S

S
 
Some of that is just an image thing to impress clients...have a fancy building, seem fancy. Its all about how prestigious you seem, not necessarily a reflection of profitability. Downside is the ridiculous amount of money it takes to pay rent etc. on a place like that...imagine how much biz you have to do just to stay open. A well known production company in town went under not too long ago who had such a place. That was probably one of the reasons.
 
It's all about your sales staff and their connections. I've worked with the Levy group before, and simply put, they have the pull with the agencies (and are, in and of themselves, an agency) that lets them land six-figure commercials and ad campaigns for hotels, political candidates, and lawyers and other such clients. They hire the best people, pay them top rate, and deliver to the client a totally professional experience. And the clients they have, trust them to deliver again and again. And their facilities represent not just where they do their work, but also send a very distinct message to the client.

And while I don't know their exact numbers, I know what I've been paid on their shoots, and what the guys I worked with have been paid on their shoots. And no, their average budget isn't $5k. Ten to forty times that, is probably more like it. Of course, that was years ago back when I was in Vegas, and Vegas was a boomtown back then; I don't know if the market dynamics have changed for Levy now, I don't really have any sort of pulse on the Vegas market anymore. I know that it's hurting, so who knows, their average budget number might be a lot lower now.
 
That's one of the things about this industry and many others. There is the "who you know" factor.....but more importantly is the "Who knows you" factor. There is a big difference.

You need to be as proactive as you can. Attend every event, shake every hand (and leave a business card). Yeah, can be pricey, but you can guarantee they are doing it. Put your work into as many qualified hands as you can. If it is equal to their work.....then you can even the footing. If the end result is equal, then its all about the relationships you have. I hate saying it......but many deals are done over drinks, or on the golf course....not in a sit down formal meeting. I like drinking...........but hate golf because I seriously suck at it.

But again......get yourself out there, pressing the right flesh.
 
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Thanks for the first-hand perspective, Barry. I figured our pricing is probably fairly low by industry standards. I'm reading Robert's excellent thread and am feeling very excited to grow our business.

I'm curious if you all think that pricing for video production will, in general, be dropping significantly? I can easily imagine how a video with high production values could cost five to six figures a decade or so ago when the barrier to entry was much higher (cameras and editing hardware specifically). But the industry is shifting so rapidly - the barrier to entry has been decimated over the last generation and prices will only continue to drop. Even in recent memory - expensive hardware like DaVinci resolve and Red Rocket cards are even becoming less relevant as common GPUs take their place. Distribution is also much easier: it's free and fairly painless to encode a video for the web, whereas you used to need hardware and special care to limit your colors to broadcast-safe and pay for air time.

I'm impressed that the big guys are still able to charge what they are, and I feel it's important for our company to get to that level so that we're not diluting the industry and customer's expectations (I know we're all frustrated when freelancers bid ridiculously low and how that hurts our industry).

I guess it just seems to me that as our costs continue to be sliced down, our clients will slowly begin to expect the same. The free market will allow freelancers and smaller, simpler teams like ours to keep costs relatively low. Does that mean six-figure productions will go away?

Obviously I'm not taking into account other production costs that haven't been affected by the technological shifts - talented actors, crew time, and other production expenses.
 
Six figure productions will likely not go away completely, but you'll be fighting for a much smaller portion of clients with the willingness (and wallet) to pay for it. A positive way to look at is this:

The lower end productions probably exist because of the lower barrier to entry. With video being more popular than ever, every little company wants in on their own video, but they have no idea the costs involved. Before, video would be reserved for those who could afford the production, not simply those who could afford the equipment. The good news at least is that cheaper equipment is accomplishing the job now, even on the high end, so those initial costs ARE reduced, plus some tasks have opened up job opportunities for people that never existed before the digital age. The DIT for example, or the ever-expanding responsibilities of an editor (was an editor always asked to know an NLE, motion graphics, audio editing, video compression, etc? I can't count how many job listings ask for a "whiz kid" editor).

It's amazing what you can do now for a living. I started encoding videos as a hobby at the age of 15, and now I have a job in live streaming video because of it. Good luck with your business venture, you definitely have the drive! Just remember, video is everywhere.
 
I expect production values are only half of it. What they are really paying for is outcomes. An amazing ad with high production values is worthless if it doesn't sell more coke.
 
Egg Born Son said:
I expect production values are only half of it. What they are really paying for is outcomes. An amazing ad with high production values is worthless if it doesn't sell more coke.
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Absolutely. My point is that production is/may be seen as a % of distribution spend

Ie a client who will be spending $250k on distribution may have $25k for the production

The photo studio I work at we (hope) that we do some nice product photography specifically we have a couple of drinks clients, we know, however, that while we may work close to the quality of a Coke or Stella shot we are unlikely to ever be able to charge 'Joe the Beermaker' a decent fee because it would just wipe his annual publicity budget

S
 
Egg Born Son's comment is brilliant.

That's really the case. For example -- in local advertising, you really have only about three clients -- injury lawyers, car dealers, and ... well, yeah, that's about it, maybe furniture stores. Watch local TV, watch the commercials, that's about all you'll ever see. And of those three, some understand production (like the six-figure lawyer commercials I used to work on) and some don't (the freebie furniture store ad that the cable station does for free).

When the client understands the value of production, the odds are extremely high that they will have an ad agency already in place. You won't be bidding for those jobs to the client. You'd be bidding to the agency to become a supplier for them.

When the client is budgeting to spend a million dollars on airtime, you have to look at it in context with what they would think is reasonable to spend on the commercial. Would you, to advertise your services, when you're spending a million bucks, would you ask the local DSLR kid to shoot your spot for $500? Who would spend a million bucks running a $500 ad? Not that many. So when you're working with an ad agency, a good agency, you can be sure that agency has milked the living snot out of their client, and so you HAVE to deliver the goods. Absolutely spot-on, absolutely reliable, first class all the way. First class crew, first class production values, first class equipment, first class experience for the client. And that costs. And so yeah, a place like Levy's is a ton of overhead, but ... it's part and parcel of doing business.

Clients like that do NOT want to hear that FlyByTheSeatOfOurPantsProductions.com just bought a T4i, and that someone in Hollywood used one as a crash cam, and they're now able to do brilliant work for only $1000. Even if they CAN do brilliant work for $1000, would you trust your million-dollar advertising budget to them? Or would you go across the street to the place with the huge facility, the plush editing rooms, the leather couches, the client drinks refrigerator, the 60" client monitors on the wall, and do it there? Sure, you'll try to get the production company down, I mean, if you're charging the client $100,000 to make the spot, you don't want to pay the production company $100,000, you want to pay them $50k and pocket the difference, but -- the client has to FEEL like he's getting a $100,000 production.

So where, in this formula, does it add up that decks are cheaper? Eh, not anywhere, really; the guys who have the big facilities paid all that old equipment off years ago, and you'd better believe they're not dropping their prices just because their equipment's paid off, so why would a cheaper deck matter?

In the end, in this game, you have to remember -- the client is not your client. The ad agency is your client. And you have to do whatever you can to keep the ad agency happy. And if you can deliver top notch ultra-reliable work which lets the agency know that you will make the agency look good and professional, then -- eh, high prices are expected. The client has a big budget, or he wouldn't be involved with an agency. The agency will be extremely skilled in extracting that budget from the client. And if you deliver the experience, you don't have to sweat losing the agency's business, agencies will stick with their chosen production company right up until the company screws up. Don't screw up, deliver a first-class experience, and the agency has no reason or desire to go anywhere else. Going with someone new involves risk, so they stick with what they know. And that's why it's so HARD to break into the ad agency game. But if you want to make real money in production, that's where the real money is at.

Join the local chamber of commerce, join any local advertising federation, meet the players at the agencies, and ask them what you'd have to do to earn their business, what they're looking for. If they're open to the idea, they'll tell you.
 
+1

Ask around. Eventually they will feed you some added value (free bonus) work for some non profit they just don't want to waste their resources on. After a couple of those there will be some last minute panicked paid gig for some crappy PITA client that no one else wants to deal with and they'll remember you for being nice, eager, talented, grateful and fast and they will send it your way.
 
And then, at some point, their lead guy will be so successful that he'll start smoking crack or something, and screw up, and then he's out. And they'll turn to you.
 
So all you've got to do is slip some crack into the camera bags of everyone you work with and last man standing wins!! :zombie_smiley:

* finally got to use the zombie smiley, yay!
 
Thank you thank you Barry and others. I'm glad to see the "birds eye view" as it were - it hadn't really occurred to me how instrumental ad agencies are, but it makes sense that at that level, clients have good reason to insulate themselves by using such an agency to help ensure their production goes flawlessly. I'm sure I have a lot to learn about how ad agencies work but I guess I'll find out by rubbing shoulders with some of them. We're in Orlando but I have to believe there would be some significant agencies here - our climate is similar to Los Angeles' which I hear is a nice draw.

It kind of amazes me that if an agency connects a client with a production company, that the two of them don't just decide to bypass the agency on the next go-around at lower cost for both of them. Although I'm sure that would taint relationships quickly which I'm gathering is a fundamental asset to maintain.
 
Screw an ad agency and you may as well pack up and move out of town. Agencies are masters of relationships, they know everyone, they talk to everyone, and - think about it - they are kingmakers. They control the most powerful communication medium for the political campaigns of every significant local/state elected official.

Agencies do the media buys for all those campaigns. Are those really the guys you want to cross?
besides, unless you are also a full service agency who provides media buying, the client is still going to need an agency, so -- yeah, don't try to get between an agency and their client. That's bad business.
Besides, if you get in good with a substantial agency, they will feed you more work than you could possibly handle. Remember, the agency is your client. The "client" is the agency's client. Your job is to keep the agency happy so they will keep funneling work to you.
 
TigerFX said:
.. just decide to bypass the agency
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A video is not just some shots some talent and some grip and a crew and a location... Its an idea, a story, part of a wider communication strategy that will be multiplatform, video, ad slogans, logo, typface, many more thinkgs, surely thats the agencies job to come up with the strategy and then get it done..
 
If it's okay.....I am going to ask a direct question of you.

What are your goals? Do you want to develop a company/business model that rivals these ad agencies? Or, do you want to get your company work from these ad agencies?

It is important to define the objective here. I am seeing that you might be unsure of the track you may want to take, but that could just be me and how I am reading this.
 
It kind of amazes me that if an agency connects a client with a production company, that the two of them don't just decide to bypass the agency on the next go-around at lower cost for both of them.
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Yeah, that's not the wisest thought. I would refer to the post directly below yours. It's all laid out nicely.

Now, on a positive note….I have a buddy who works for an Orlando agency. From what he tells me, business is booming. I think based on your location, you should be able to stay busy. You are a young guy, keep networking.

Besides, if you get in good with a substantial agency, they will feed you more work than you could possibly handle.
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^ That's the position you want to be in. Let the agency handle GETTING the clients & fostering the relationship, you can handle the video shooting and motion graphics. (or whatever your thing is.)
 
Just remember- business, and especially this business, is about relationships.
They are even more important than quality of work (which, obviously, can't be atrocious, but clients tend to like to stick with who and what they know).
 
groveChuck said:
Just remember- business, and especially this business, is about relationships.
They are even more important than quality of work (which, obviously, can't be atrocious, but clients tend to like to stick with who and what they know).
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And your experience is more important than you gear. Just because the cost of some gear has dropped a lot in the past 10yrs doesn't mean that your rate (what you charge for you, not what you charge for your gear) should drop.


-Andrew
 
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