Financial Philosophy by James Jaeger
In between films, and maybe forever, you will have development and operations expenses. Some of these expenses can be charges against the projects that ultimately get financed for production. The cost of a script that is financed for production is really the cost of all scripts in development divided by the number of scripts in development, but it is unwise to over-burden any one particular project with too much development (and/or operation) costs, otherwise the project may not get financed.
Knowing how much you should allocate to the each major activity of your company is vital for long range planning. Financial allocations, are described by the following philosophical approach to spending money. An organization will grow to the degree the blood (money) in its veins is flowing to the right areas in generally the right proportions.
Operating Expenses mean corporate and administrative expenses such as office rent, supplies, phone, utilities, operating salaries, professional fees and expenses not accrued on specific projects. Often referred to as "Overhead," most of these expenses are not normally capitalized.
Development Expenses mean expenses connected with creating or acquiring literary properties, packaging talent and arranging financing for projects. Some of these expenses may be capitalized.
Production Expenses are those delineated in individual production budgets of each movie project, broken down as Above-the-Line Expenses and Below-the-Line Expenses. Production expenses usually pick up all or part of Development Expenses and a small percentage of Overhead. These expenses are usually capitalized.
Marketing Expenses means prints and advertisements as well as allocations for shipping, film markets, sales and transportation. The Distributor's fee is a marketing expense to the Producer. All or part of these expenses may be capitalized.
If in doubt, DON'T allow your accountants to capitalize an expense. If too many expenses are capitalized when they should have been expensed, as it can lead to a balance sheet that is less than accurate or even a financial debacle.
All after-tax net profits generated from the sale and exploitation of the Company Major Products should be allocated roughly as follows: First to Company Reserves . . . . . . . . . . 5%
(Water front) Real Estate (30%)
Securities in Other Entertainment Companies (15%)
Securities in Non-Entertainment Companies (10%)
Hard Assets and Equipment (20%)
Precious Stones and Metals (25%)
Dividends to Stockholders . . . . . . . . . . 10%
Admin-Production Allocation Ratio
Of the remaining balance:
Allocate to Production . . . . . . . . . . . 60%
Allocate to Admin . . . . . . . . . . . . . . 40%
Of the 100% allocated to Admin Activities, Allocate:
Operations . . . . . . . . . . . . . . . . . . 40%
Executive Div (50%)
Company Legal Reserves (15%)
Communications Div (20%)
Quality Control Div (20%)
Treasury Div (10%)
Development Activities . . . . . . . . . . . . 20%
Development Div (100%)
Marketing Activities . . . . . . . . . . . . . 40%
Marketing Div (100%)
Money spent into to each Operation, Development and Marketing Division should be allocated roughly as follows: First to Divisional Reserves . . . . . . . . 5%
Short Term T-Bonds (20%)
Long Term T-Bonds(10%)
Of The remaining Balance, allocate Div Budgets:
Salaries & Wadges. . . . . . . . . . . . . . . 60%
Divisional Legal Reserves. . . . . . . . . . . 1%
Promotional Activities of the Division . . . . 5%
Durable Goods & Machinery . . . . . . . . . . 15%
Non-Durable Goods (supplies & expendibles) . . 10%
Personnel Enhancement (seminars, courses). . . 5%
Total . . . . . . . . . . . . . . . . . . . . 100%
Of the 100% allocated to Production Activities, Allocate:
Production Services Div (10%)
Production Div (90%)
Allocation into Production Activities should follow these rough guidelines:
Budgets of $50,000 - $500,000
a) Above-the Line Expenses . . . 10% - 25%
b) Below-the-Line Expenses . . . 90% - 75%
Budgets of $500,000 - $1,000,000
a) Above-the Line Expenses . . . 15% - 35%
b) Below-the-Line Expenses . . . 85% - 65%
Budgets of $1,000,000 - $5,000,000
a) Above-the Line Expenses . . . 30% - 40%
b) Below-the-Line Expenses . . . 70% - 60%
Budgets of $5,000,000 - $15,000,000
a) Above-the Line Expenses . . . 35% - 43%
b) Below-the-Line Expenses . . . 65% - 57%
Budgets of $15,000,000 - $35,000,000
a) Above-the Line Expenses . . . 38% - 45%
b) Below-the-Line Expenses . . . 66% - 55%
Budgets above $35,000,000
a) Above-the Line Expenses . . . 40% - 50%
b) Below-the-Line Expenses . . . 60% - 50%
Above-the-Line Breakdown Allocations:
a) Producer Unit . . . . . . . . . . . . . . 25%
b) Director . . . . . . . . . . . . . . . . . . 10%
c) Cast . . . . . . . . . . . . . . . . . . . . 55%
d) Script . . . . . . . . . . . . . . . . . . . 10%
Producer Unit Allocations:
Producer 50% 34% 30% 40% 53% Executive Producer 50% 34% 30% 40% 00% Line Producer 00% 32% 29% 00% 27% Associate Producer 00% 00% 11% 20% 20% Total Producer Unit 100% 100% 100% 100% 100%
When "00%" appears in a column it means that there is no post being held by that Producer.
The rational behind the Producer Unit Allocations allocations is this:
A Producer, who packages and brings to the project the production know-how is acting as a packaging and line producer rolled into one. Thus he or she should be paid equally with an Executive Producer who brings to the project its financing. This is in line with the philosophy that the money and project construction are equally important and deserve equal consideration.
If a Line Producer has to be brought aboard to supervise the production and get it done from a technical point of view, both the Producer and Executive Producer should grant him about a third of their fees - thus a third of 50% is about 16%. 16% coming from the producer and the Exec Producer would give the Line Producer 32%, as illustrated in the chart above. The Producer performs or has performed the function of a Packaging Producer the minute a Line Producer is brought aboard but usually retains the title of Producer.
An Associate Producer, with authority derived from the majority decisions of the other three producers, should be brought on to help execute and supervise the duties and responsibilities of these senior producers, especially when they plan on developing new projects that demand their attention. Thus an Associate Producer, performing about 10% of each senior Producer's work, is entitled to receive about 10% of each producer's fee; thus 10% of the Producer's 34% is 3.4%, 10% of the Executive Producer's 34% is another 3.4% and 10% of a Line Producer's 32% is 3.2% for a total of about 10 or 11 percent for the Associate Producer (3.4 + 3.4 + 3.2 = 10).
If there is no Line Producer, but a Producer, Executive Producer and Associate Producer, the Producer and Executive Producer should still get equal fees; however, the Associate Producer should get more of the Producer Unit allocation because he or she would carry perhaps 15% - 25% of the Producer and the Executive Producer's work. Thus an Associate Producer might receive 20% of each the Producer's and Executive Producer's 50% allocations, giving him 20% of the Producer Unit allocation.
In the event the Producer finances the project, either with personal funds or out of the cash flow of his or her last projects (the ideal scene), there is no need for an Executive Producer acting as a financing agent. Thus the Producer would be entitled to 100% of the producer unit allocation. If a Line Producer comes aboard to share the Producer's work, the Producer should give him about a third of his fee, as above. Thus, the Line Producer would receive 33% and the Producer would be left with 67% in exchange for both financing and packaging the project. Again, an Associate Producer, performing about 15% - 25% of the work, would receive about 20% of the Producer and Line Producer's fees. This would give the Producer about 53%, the Line Producer 27% and the Associate producer 20%, as illustrated above.
I think you can see the logic used here to adjust your own allocations accordingly and fairly. At the least, the above should give everyone a place to start negotiating from.
Also see Points
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