Pitching Investors, Part 1: Know Your Budget, Don’t Guess

It’s a common joke amongst film investors when recounting the numerous pitches retold as follows: “So, this first-time filmmaker pitches me a script and says he just needs the money.  I ask him what the budget is, and he tells me 20 million.”

If you understand the punchline in that statement, then this particular article might be superfluous, but if you do not know why the statement is funny, you should read this.

Anyone pitching an independent film with a claimed budget of more than $10M in today’s market is, in most cases, broadcasting their inexperience, and would be well served to hire a UPM or company like S&R to properly budget their picture before getting egg on their face.  Of course, the movies that receive the most publicity tend to be studio-level blockbusters, so it’s no wonder that individuals who are just starting in the film business often operate under the impression that $20M+ budgets are the norm.  In fact, that assumption couldn’t be further from the truth.

Each year, an estimated 8,000 feature films are produced domestically, but only 500 are released theatrically.  If we exclude the largest studio budgets from equating an average, we find that most feature films are produced in a window from $750,000 to $8M.  Many of the non-theatrical films are speculatively produced (no distributor is attached, and no minimum guarantee purchase price has been negotiated), and indeed, some of these movies receive no distribution whatsoever.  Other films that fall in this lower budget category include made-for-TV pictures for networks like Lifetime and Hallmark—averaging budgets of $750,000 and $1M respectively.  Jumping up to the $5M+ range we see companies like Emmett/Furla/Oasis who have proven to be masters of the marketplace, and produce a large quantity of films earmarked for straight-to-VOD distribution in the $5-10M range, while occasionally hammering out blockbusters like “Lone Survivor”.

So, if companies like Emmett/Furla/Oasis (EFO), who are clearly experts in film marketplace valuations, are producing films sub-$10M like “Exposed (2016)” starring Keanu Reeves for an estimated $8M, while also producing pictures like “Escape Plan (2013)” starring Sly and Arnold for $50M, it should be apparent to any newcomer that there are other determining factors at work in budgeting to which you are not yet privy.

Since this article is focused on the independent market, we won’t dive too deep into theatrical budgeting, but suffice it to say that the financial considerations on a studio-level picture are not just predicated on the quality of a film, but more so the business-to-consumer (B2C) success of the press & advertising campaign (does the campaign put fans in the stands).  The financially safe independent straight-to-VOD and made-for-TV films are less B2C endeavors, as they are business-to-business (B2B) productions; movies made for the buyer, not the audience.  It is in this way that EFO and others develop and finance their projects—with the buyer in the conversation from the beginning so there’s no guessing about a film’s worth, and thereby the film’s maximum justified budget.  For example, if EFO develops a movie with Lionsgate Premiere, they are going to make sure that the total budget falls underneath the sum of Lionsgate’s US/domestic purchase price and the global presales and estimates for all remaining territories.  In other words, if you’re a toy manufacturer and Walmart gives you a $10M purchase order, would it make sense for you to spend more than $10M fulfilling the order?  Of course not!  In fact,  you’re going to try spending less than half that in order to boost your profit margin.

With all that said, it should be easy to see now why it is so unrealistic for a first-time filmmaker to pitch a company or investor asking for $20M.  Now, let’s discuss why having a UPM properly budget your script is a necessity, not a convenience.

There are two main sections to a budget: the above-the-line (ATL), and the below-the-line (BTL).  The most important thing for you to actually know (not guess at) is what your BTL cost is.  The BTL represents that actual raw cost to produce your picture, while the ATL is more dynamic as it includes the negotiable pay to your name actors, director, and producer pool.  That BTL cost will determine a lot of important factors.  First, based on standard finance structures (as discussed in Safe Film Financing Structure – The 20/30/50 Rule), your BTL will dictate how much revenue you need to see from your domestic sale, which will then determine roughly how much money you need to have ATL for your name actors.  A smart UPM will know that on smaller budgets, your most valuable actor sales-wise will likely not be playing the lead role.  Take for example, EFO’s “Fire with Fire (2012)” starred Josh Duhamel and Bruce Willis.   While both actors hold presale value, Bruce is certainly the big name in the equation.  So, to keep costs down without drastically lowering revenue potential, Bruce is cast in a major supporting role, one that only needs to be scheduled for a few days opposed to the entire shoot.  Keeping these types of up-cast opportunities in mind can help keep your budget down, while realistically preparing for distributors.

Once you have a truly defendable budget and shooting schedule, you can pitch investors with quantifiable knowledge of your project, its actual costs, and the ATL costs that will be required to secure a name actor who can justify the overall budget.  A good screenplay is only a fraction of what is needed to get an investor to take you and your project serious; they need to feel safe in your hands.  Remember, you can’t expect someone to take your project any more serious than you do, so make sure you show them you’re dead serious.