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How to Create a Budget Investors Will Appreciate

How to Create a Budget Investors Will Appreciate

The following article, from Colin Brown, Editorial Director of the film financing and dealmaking website Slated.com, is a tough-love look at crafting a budget to show to investors.  It proposes that maybe smaller budgets are sometimes better for some projects.  To read more from Colin, check out
his Filmonomics blog on Slated.com.
  This column is part of a multi-part series on packaging films for investors.  Check out the recent article “Here’s What You Need to Know to Sell Films in Each of 12 Genres” for more on this series.

go medieval on them, romantic couples break up over them and artistic
types tend to run as far and fast as they can from them. And yet
budgets, if drawn up sensibly in a spirit of mutual trust rather than
defensive hostility, can actually go a long way towards avoiding such
heartaches and fistfights. Cinema is certainly no exception here. No
matter whether you view filmmaking as primarily a left-brain or a
right-brain undertaking, as an expression of exquisite method or
inspired madness, there is still no getting round the need for a proper
fiscal reckoning. Persuading people to put money behind a particular
film idea is, after all, an exercise in quantifying delight.
Sooner or later, even with the most munificent of patrons and the most
sublime of screenplay propositions, budget numbers still have to be part
of that pitch. Get those projections askew and that dream project is a
brawl-in-waiting. Get them horribly wrong and it’s a complete

Realism over Optimism

all this might seem like decrees from the department of the bleeding
obvious, it is still a lesson in financial realism that seems lost on
too many filmmaking novices. Judging by a number of crowd-donation
campaigns, there are those who firmly believe they should make their
movie with whatever funds they can raise. And they do so
without even a basic understanding about who will come to see their
finished film – and why – other than those few thousands who volunteer
their ten bucks online.

the real world of actual investment, of course, potential financiers
soon lose patience with producers who don’t have a clear picture of how
much they will need, and where that money is going. Nor are they
impressed by optimistic finance plans based on unrealistic notions of
what projects might summon in terms of either talent or contributions
from soft money sources, production off-sets and distributor pre-sales.

the biggest mistake we see from first-time producers is they come in
with too-high budgets. You can see a $5 million or $10 million budget
for a project that should cost $1 million or lower,
” observed Daniel Baur, partner and producer at the German film finance and sales outfit K5 Media Group, as part of a revealing article last year in Screen International on
the keys to unlocking film finance. Battle-tested executives will tell
you that nothing resonates more with financiers than the confidence to
be honest about a film’s likely costs and commercial prospects – even if
those budget estimates fall on the bleak side. Earn that trust and
chances are that investors will work with, rather than against,
producers in establishing the most comfortable financial parameters for
any given story. Regardless of how small the chosen audience niche.

The Equation is not Simple Subtraction

is essentially what packaging agents and studio executives mean when
they talk about the need to make films “for a price.” As it happens,
coming up with this magic figure is never quite as straightforward as
slashing costs. If it was, and financiers started making projects simply
because they are the cheapest on the market, then a depressingly narrow
range of copycat projects would be the only ones to ever see the light.
As filmmaker John Sayles has wryly noted: “The ideal low-budget
movie is set in the present, with few sets, lots of interiors, only a
couple speaking actors (none of them known), no major optional effects,
no horses to feed. It’s no wonder so many beginning movie-makers set a
bunch of not-yet-in-the-Guild teenagers loose in an old house and have
some guy in a hockey mask go around and skewer them.”

The fact that Sayles was writing this back in 1987, in his seminal book “Thinking in Pictures”,
only underlines how little has changed. Then, as now, there is always
room for resourceful films whose stories are designed around their
irresistible budgets. But just keeping making such exploitation films,
to the exclusion of films whose budgets have been customized to fit
their compelling stories, and the film industry will quickly lose the

Budgeting, done
properly, is more than just about bottom line numbers; it’s a high-wire
balancing act worthy of the most creative dealmakers, as Anthony Kaufman found
out when exploring the financing strategies behind the latest visions
of Sofia Coppola, James Gray, Alexander Payne and Roman Polanski in his
article for Variety this summer. In such auteur-driven cases, the trick is to make the movie for “the absolute lowest price possible without compromising the integrity of the film,”
Greg Shapiro, producer of current festival darling “The Immigrant,” told
him. “This seems a natural and obvious thing to do, but it is usually
very difficult in practice. Budgets naturally go up, not down.”

the end, Shapiro and his producing partners sourced the $16.5 million
they needed for their own period piece from a global potpourri of
backers, lenders and enablers that included Three Point CapitalJacob Pechenik’s Venture Forth, Worldview Entertainment, Paris-based Wild Bunch and
Chinese billionaire Bruno Wu. Tempting as it might be to now see that
$16.5 million as the going rate for all historical dramas, it is only a
partial baseline for what the market will bear. Price alone is never the
sole factor in greenlighting a film any more than it is in determining
how much a film will end up selling for to distributors. The strength of
the material and all the other packaging choices that coalesce around
that story are just as crucial to those equations.

every film event comes prefaced by sales agents who talk of the latest
optimal budgets, preferred genres and the various financial black holes
into which no self-respecting project should fall if they want to see
their money back. The truth is there has never has been a
one-size-fits-all budget sweet spot that is assured of success, nor even
different off-the-shelf budgets that are best suited for different
genres. While basic data analysis from the last several years of box
office returns might suggest that $20 million productions fall in the profitability hot-zone, more rigorous attempts at regression analysis has also gone some way to confirming that no single production budget confers an advantage over any other.

Packaging is Proportionate

the end, budgeting remains a bespoke sizing exercise that starts with
identifying the cornerstone elements of your screenplay and then
building a made-to-measure budget around those essential items. You work
out what makes a particular project exciting and back into the budget
from there using all the data points you can muster concerning
prevailing market conditions and available incentives. A carefully
crafted budget, as this useful legal overview on film budgeting explains, should serve as guide to prospective participants “that
the pieces of the film are proportionate to one another. If each cast
member receives tens of millions of dollars, then the look of the film
generally should not have home-made special effects.” 
Remember a
good initial budget is not a final accounting, but a
professional-looking estimate that should investors and distributors a
level of confidence and comfort about the creative allocation of funds.

any financing rule has withstood the vagaries of the independent
marketplace it is that less is more. Which is why the low-budget
agreements put in place by the various talent guilds to allow pay scales
to be adjusted according to different budgets play such a pivotal role
in packaging decisions. In theory, at least, big talents are within
financial reach of even the most modest projects. Under the SAGIndie
“Modified” agreement, for example, theatrical features budgeted at less
than $625,000 need only pay actors an upfront $933 a week, with a
provision for one or two leads to receive approximately $65,000. Armed
with such a name cast, projects in the mid-six range can become a very
compelling investment proposition. More so, perhaps, than a film project
in the mid seven figures. It pays therefore for filmmakers to keep an
open mind about all the belt-tightening adjustments that will be
inevitably asked of them. As Gersh packaging agent Jay Cohen advised in an interview earlier this year: “don’t
be married to any one version of your film… Everyone is so focused on
the budget but there are always people who can give you everything you
want for less money with a smart plan and the right prep

Creative Efficiency

is no end of online articles and blogs that celebrate the ingenious
ways that independent films have learned to stretch their production
dollars. Options include trimming shooting days, merging speaking parts,
sprucing up locations, getting the most play out of any expensive
set-pieces. But nothing saves money quite as effectively as the
experience of seasoned line producers, unit production managers and
creative producers who know the battles worth fighting, the union
agreements that can be made to work, and all the corners that deserve
cutting for the sake of maintaining control. Done judiciously, such
alterations will go unnoticed by their intended audiences. Done
creatively, they may even enhance what ends up on the screen by the mere
fact of forcing an imaginative workaround.

are enough instances of independent film successes salvaged from
studios that had put them into turnaround to know that the exact same
stories can be told far more cost-efficiently without any undue artistic
sacrifice. It is a point driven home this week by producer Gavin Polone
in his latest tell-all piece for Vulture.
He got hold of the budgets for two films that looked to the average
moviegoer as if they were made for a similar scale. Although tonally
different, each had two star lead actors and a cast of secondary players
who were well known. Both contained significant action sequences, and
they were filmed in the same state under the same incentive program. But
the studio film cost about $85 million and the independent film came in
at $10 million.

Size doesn’t matter, efficiency does,” declares Polone who details the many ways a Hollywood budget is “polluted with items that never make it on the screen.
His proposed solution is to co-opt the lean-and-mean philosophy of the
independent world, and in particular replace those hefty upfront
Hollywood salaries with an open-book profit-based compensation system
that would, among other benefits, incentivize producers and directors to
limit shooting schedules and push for better deals on everything that
goes into the creation of a film.

Investing in the Independent

the independent world has itself attained such levels of enlightenment
and transparency is open to question. In their zeal to make films for
that “price,” film financiers are not above leading producers on until
they cannot possibly afford to say no to a budget that requires those
producers to make substantial deferrals of fees and overhead.
Shortchanging producers this way not only jeopardizes their livelihoods,
it also pushes films into production way too soon in an effort to make
collect what fees are on the table. Neither side ends up benefiting in
the long haul.

As producer Ted Hope noted, as part of trenchant keynote speech he
delivered in London earlier this month, both creators and their
benefactors need to take responsibility for changing that dynamic – and
proper budgeting plays a crucial part in that re-education process. “We
are trained to budget our babies and sell them at market for less than
their value, not to guide them down the line so they can generate wealth
to carry us into ripe old age. Filmmakers must learn how to budget,
schedule, and project revenues for their work across their movies’
entire lifespans.”

that right and maybe, just maybe, we might entertain the idea of a more
far-sighted budgeting mindset in Washington, DC as well.

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