Miscellaneous 4 1,200 1,200
TOTAL COST BEFOREDISTRIBUTION 16,360 20,336
SALES (minus cost of sales)
Domestic theater film rental 5 15,000 15,000
(Studio distribution fee) 6 (2,250) (5,250)
(Filmstar fee) 7 (1,275) --
Video Filmstar Studio
Producer's royalty 8 -- 3,600
Sale of video rights 4,400 --
(Filmstar 10% sales fee) (440) --
Pay TV, cable (minus distribution fee) 2,400 2,400
Foreign distribution -- 11,200
Presale of rights 3,200 --
(Filmstar 25% sales fee) (800) --
(40% studio distribution fee) -- (4,480)
(Dubbing, subtitles, etc.) -- (2,400)
NET SALES 20,235 20,070
SUMMARY
Total picture sales 25,000 32,200
(Studio distribution fees) (2,250) (12,130)
(Filmstar commissions) 9 (2,515) --
Total picture cost before distribution (16,360) (20,336)
NET PROFIT (LOSS) 3,875 (266)
Net to producer 3,875 500 10
NOTES:
1. Actual cost of making film (payroll, equipment, location expenses, meals, and so on) before interest and charges, expected to be lower with Filmstar
2. Independent producer borrows from commercial bank; studio film is financed internally with imputed interest assigned
3. Unsecured loan from commercial bank for independent producer, estimated rate 5% over prime; 2% over prime imputed for studio loan
4. Guild fees, residuals paid to artists
5. Film's share of box-office receipts
6. Studio typically charges 15% to distribute independently produced films for which the producer provides for print and advertising costs, 35% for in-house films
7. Negotiated distribution fee: 7.5% to 10% net rental income
8. Studios manufacture and sell videocassettes, paying straight 20% royalty to producer; assumes video sales of $18 million
9. Does not include payments for production-related services covered in negative-cost line item, so does not represent total of Filmstar revenue on project
10. Producer's only income is the predetermined flat fee, which was part of the film's negative cost
WHAT THE EXPERTS SAY
FINANCIER
CAROL WAKEFIELD
Vice-president of entertainment division, Tokai Bank, Los Angeles; frequent lender to film projects
The one-stop shopping idea has merit. Most of the independents I deal with don't know how to put the whole project together and get their film done. They need somebody in the early stages who can do it for them -- so a company like Filmstar should have a lot of business.
What's keeping it from being hugely successful is money. It's at the point in its corporate life when an equity investment might be more appropriate than debt financing. I don't know whether I'd lend to it now, given how undercapitalized it is. I'd never lend to it unsecured.
Maybe Filmstar should try a public offering again or bring in an investor with big bucks. Some kind of subordinated debt offering might be interesting, but it's not ripe for bank financing.
OBSERVER
PAUL KAGAN
President, Paul Kagan Associates, Carmel, Calif., which publishes "Motion Picture Investor" and 29 other media-industry newsletters
Conceptually, it's the right idea at the right time. The movie business probably has more need for a company like this than most because the creative people -- the producers, writers, directors, and actors -- don't have financial expertise.
Filmstar has to pick the right films. It has to finance them carefully; it can't overextend its credit resources. It also must watch its corporate overhead. And it must be sure it gets into the right distribution networks and theaters.
Filmstar has to focus on wooing the best of the independent producers. If it does that, it can create a much-needed niche business.
RETAIL BROKER
DAVID ALMQUIST
Associate vice-president, Prudential-Bache Securities Inc., Laguna Hills, Calif., specializing in investment opportunities
This concept is overdue in Hollywood. Put yourself in an independent producer's shoes. Would you go to work and sell your soul to a studio, knowing that really you had a very limited upside? I don't think I would.
So Filmstar may open a new segment, though it'll take time for producers to become aware of the possibility of getting paid what they're worth. It makes sense from an incentive standpoint; we'll probably see lots of little companies jumping in and operating similarly.
Any good company is sometimes too aggressive and can run short of capital. But I think these are capable, experienced people who are going to know when to stop and say, "We've got to regroup and get additional capital; we can't stretch ourselves too thin."
Harlan is smart to try to maintain as much equity in the company as possible. But I certainly wouldn't see it as a negative if he came out with a debt offering.
For Filmstar, credibility is the foremost issue. Producers want to be associated with credible names. Filmstar needs to establish credibility.
COMPETITOR
RICKI AMES
Vice-president of international sales, Enoki Films USA Inc., a worldwide distributor and producer of children's programming and feature films
Until independent producers have the necessary clout or money, Filmstar could be valuable to them -- if it gets its act together and offers one-stop service. But its concept has to be complete.
The only things it is offering are payroll and foreign distribution. And foreign distribution is not something that independent producers want to give up if they don't have to. Most are also distributors, and foreign distribution is the way you make your money. We'd rather distribute on our own than pay Filmstar a percentage to do it.
