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Film & TV Finance 101
A beginner's guide to the money players working behind the scenes in Film & TV.
In rare situations, an executive producer actually puts up his own money.
Financing in TV and Film is big business. Single-year returns on entertainment ventures can vary from obscenely high to devastatingly low. Project costs are enormous-each episode of a TV series can cost millions, and a film budget under $20 million is considered small. The risk-intensive nature of the business, combined with the enormous up-front costs, means that few parties are willing or able to cough up the cash needed to finance a project. These are the folks who can:
At one time, studios controlled every facet of film production and churned out films in an almost assembly-line fashion. This golden age ended in the 1950s, in part due to government regulations that made vertical integration illegal (forcing the studios to strip themselves of theaters and distribution companies). In the early 1990s, however, the FCC reversed many of these regulations, and today, the major studios are enjoying a second heyday. Studios not only produce movies and television shows-some, like Disney and Warner Brothers, even own networks-but they also provide financial backing and distribution channels for films produced by smaller companies. Studios, typically divisions of larger media conglomerates, have access to vast amounts of capital, which allows them to finance numerous projects.
The major studios include (and are presently limited to): Sony Pictures Entertainment, Walt Disney Studios, Twentieth-Century Fox, Paramount, Warner Brothers, Universal Studios, and Dreamworks SKG.
Each of the majors runs a variety of subdivisions which often include lower budget films (e.g., Sony Classics), direct-to-cable and video films (e.g., Fox Home Video), Internet sites, digital video disc (DVD) production, consumer products, and retail chains. Examples of mini-major studios, typically owned by one of the majors, are Miramax, Newline, Castle Rock, October Films, and Polygram.
Historically, the networks consisted of three independent companies (ABC, NBC, and CBS) all of whom operated by paying local stations, known as affiliates, to supplement a portion of their local programming with a lineup of network shows. The networks, in turn, used the nationwide audience provided by this collection of affiliates to sell advertising time.
While the method of revenue collection hasn't changed, these companies are now subsidiaries of larger corporations (ABC is owned by Disney, NBC is owned by General Electric, and CBS is owned by Viacom), and competition has seriously stiffened. ABC, NBC, and CBS compete with Fox, WB, and UPN over the airwaves, while a myriad of cable networks such as MTV, CNN, and HBO eat into the profits of all the air-riding giants.
Cable networks collect their revenue from cable operators, who pay to offer cable network programming to the public. The difference in revenue collection means that cable networks and standard networks have different business strategies, though the overall goal remains the same: to get the greatest number of television sets tuned into their programming.
Every spring, during "Pilot Season," executives determine which shows are going to be financed. Shows with poor ratings are dropped, and new ones take their place. The networks will typically finance six to 13 weeks of episodes of a new program, and if these succeed, the show becomes a standard. Generally, weekly shows aim to generate 100 episodes before cancellation, a number sufficient to send the show into syndication.
These are the individuals responsible for greenlighting scripts and acquiring the funding for a project. Historically, they have been the high-ranking studio people who choose between a variety of potential products. More recently, however, executive producers include high clout directors, actors, and managers who acquire production deals from studios, then select a property and persuade studios to invest. (Note that with a production deal, a studio agrees to front a production company's costs; the studio doesn't necessarily agree to make movies for the production company.) Executive producers are responsible for negotiations between financiers, distributors, and talent. In rare situations, an executive producer actually puts up his own money.
Independent funding comes from non-traditional sources: foreign markets, video distribution companies, independent distribution companies, banks, creditors, individual investors, or--in the case of PBS, BBC, and Channel Four Films--taxes. Independent projects are typically low-budget projects. Two notable exceptions to this rule are Star Wars Episode 1: The Phantom Menace and Apocalypse Now, neither of which received studio funding.
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