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BUSINESS PLAN 11.21.2007 Contact: Moe Charif 6039 Collins ave
Suite 1430, Miami Beach, FL 33140 C: 954.579.2266, T: 305.767.4741,
F: 305.867.4426 [email protected]
Confidentiality Agreement The undersigned reader acknowledges
that the information provided by Project Exile in this business
plan is confidential. Therefore, the undersigned reader agrees not
to disclose any of such information without the express written
permission of Project Exile. It is hereby acknowledged by the
undersigned that the information to be furnished in this business
plan is in all respects confidential in nature (other than such
information which is already in the public domain through other
means) and that any disclosure or use of same by the undersigned
may cause serious harm or damage to Project Exile. Upon request,
this document is to be immediately returned to Impact Features,
LLC. Signature Print Name Date
TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 2. THE FILM 3. THE
INDUSTRY 4. THE MARKET 5. THE COMPANY 6. DISTRIBUTION STRATEGY 7.
RISK FACTORS 8. FINANCIAL PLAN AND PROJECTIONS
1. EXECUTIVE SUMMARY Strategic Opportunity The U.S. box office
reached $9.49 billion in 2006. The U.S. box office for independent
films in 2006 exceeded one billion. The year 2004 was especially
good for independent films as their share of box office revenue
reached an estimated $3.4 billion. The worldwide revenue for U.S.
independent films is estimated at $ 7 billion per year. Global box
office revenues in 2006 exceeded $25 billion. Impact Features, LLC
is a start-up enterprise engaged in the development and production
of motion picture films for theatrical release. The companys goal
is the production of the feature film Exile, a heart wrenching
story that takes place in Cuba. The main objective, however, is to
produce a commercially viable film with mass audience appeal
capable of garnering awards and recognition from major film
festivals and film critics. The company plans on producing Exile
with a $5 million budget, a low number when compared to the average
budget of a studio film which is estimated to be around $100
million per movie. The Product In 2005, filmmakers Moe Charif and
Omar Chavez Jr. set out to collaborate on a new feature film
project that could command a strong emotional response while
allowing for the kind of energy and drama that modern film
audiences gravitate towards. A year and a half later, after several
drafts and revisions, the screenplay of Exile was complete. Within
a short time the duo were receiving excellent reviews for their
efforts. Exile is an action-drama based on true events. Its an
original story with all the elements to attract filmgoers
nationally and internationally. The Industry The success of the
independent films My Big Fat Greek Wedding in 2002, which has
earned more than $400 million to date on a $5 million budget, and
The Blair Witch Project, which earned over $300 million in
worldwide revenues on a $60,000 budget, have revolutionized how
studios and distributors look at the production and marketing of
films. By definition, an independent film is one that is financed
by any source other than a U.S. studio. Although Independent films
can vary widely in budget, from as low as $30,000 to as high as
$100 million, all have one important factor in common; Creative
freedom from the homogeneity of studio production. With the benefit
of increased time and with more meticulous planning than studios
tend to give their big-budgeted films, smaller companies are able
to focus greater attention on their lower-budgeted, but no less
important, dramas. Unlike studios, the independent production
companies are able to avoid substantial overhead.
The Market The market for action-drama films inspired by real
life events, like Exile, has always been solid. Traditionally
dramatic films with ties to historic events have had great success
garnering nominations, and ultimately winning prestigious awards.
Gladiator, Braveheart, The English Patient, Crash, Schindlers List,
and Blood Diamond are just few examples of such films. Although we
are planning on releasing this film to mass audiences, Exile should
be of great interest to the Hispanic market. Hispanics account for
15% of all moviegoers in the U.S. and that number is projected to
go up to 18% by the year 2010. In addition, the international
market grows bigger and hungrier for films every year. Because of
the nature of the story told in Exile, the film should appeal to
international audiences as well. Distribution The Company will seek
distribution by either a studio, or an independent distributor. A
truly exceptional film can become the source of a bidding war among
distributors. Our goal is to make a quality motion picture that
audiences will enjoy and that distributors will want to distribute,
thereby increasing the chances of the films success. We will hold
screenings in L.A. and/or New York specifically with companies that
have experience in the distribution of films in the action-drama
genre. In addition, we will take the film to markets and film
festivals where appropriate. Over the past five years, the
international market has been especially profitable for U.S.
filmmakers. This substantiates our plan to focus attention on
international distribution. Investment Opportunity The founders are
seeking an equity investment of approximately $5 million for the
production of the feature film Exile and overhead expenditures.
Current projections indicate a pretax net profit of $32 million on
the initial investment for the film.
2. THE FILM In 2006, Directors Moe Charif and Omar Chavez Jr.
agreed to collaborate on developing the concept for Exile. A year
and a half later, the screenplay is complete and the project is
ready for production. Since the owners of the Company own the
screenplay, there will be no need for optioning a script property
from another party. Both director/writers are South Florida
residents, and are very familiar with the subject of Cuban rafters.
This is especially true of Omar Chavez Jr., a Cuban-American born
of Cuban immigrants. Exile - Synopsis Every year thousands of
desperate Cuban citizens risk everything for a taste of freedom and
a chance at a better life in the United States. Embarking on a
treacherous 90 mile journey through a corridor of shark infested
waters, these brave souls place all of their hopes on homemade
rafts built with whatever raw materials they can get their hands
on. Based on true events, Exile is a heart-wrenching action drama.
The exhilarating story of a group of Cuban rafters, told from the
perspective of 12 year-old Cuban boy, Tito Mendez, his father,
Guillermo, and the rest of their family, Exile features moments of
raw emotional impact, high tension, and pulse quickening action,
weaving several strands of story together that culminate in the
thrilling and dangerous crossing of the 90 mile gap between Cuba
and the United States. The story highlights the family's plight
when they are forced into extreme measures after the family's
eldest son, in an attempt to ease his father's worsening asthma, is
caught in possession of a stolen ventilating machine (a nebulizer)
and arrested by the government. Tito's father, Guillermo, a proud
ex-police officer, feels he is left with no choice but to free his
imprisoned eldest son, build a makeshift raft for his family to
flee Cuba and undertake the harrowing journey to the United States.
With the help of some close friends, and using his knowledge,
Guillermo plans his family's attempt to gain a better life. Tito
wants to help, despite his father's resistance, and although his
intentions are good, Tito's desire to impress Guillermo leads to
more complications. However, the family manages to construct a raft
by converting an old 50's era pick up truck into a floating
platform, modifying the drive shaft to act as a propeller.
Guillermo bides his time, and when the moment is ripe he springs
into action setting into motion events that may befall the entire
family. In a daring night time raid, with no real weapons except
Molotov cocktails and household tools, Guillermo and friends free
Tito's brother while he's being transferred to a government prison.
Under the cover of darkness, the rafters converge on the beach. But
something's gone wrong and the police have been alerted to the
family's plans of escape. In a dramatic final push for the water,
the rafters are forced to leave behind precious supplies lest they
be caught and arrested. The rafters make it out to sea, but at what
cost? Exile will lure the viewer into a deep emotional involvement
focusing on the common human experience; a son's hope for his
father's affection, a father's love for his family, a family's hope
for happiness, and the desire for a better life.
3. THE INDUSTRY Along with many corporations in the United
States, the major studios began the radical process of
restructuring or downsizing at the end of the 1990s. While in the
past they all maintained expensive production facilities, staff,
and significant overhead expenses, the impact of unions and guilds
and runaway productions forced studios to follow new business
models. They began releasing fewer films expecting greater gross
per film. As a consequence, smaller production companies with lower
budgeted films have began to command a bigger share of the market.
Crash, Open Water, and My Big Fat Greek Wedding are examples of
smaller films that have scored high grosses. The success of these
and other low-budget films have hastened a change in the structure
of the industry prompting major studios such as Warner Brothers and
20th Century Fox to plan and develop specialized internal divisions
geared towards independent filmmaking. In 2006, the North American
box office totaled over $9.49 billion. Due to the growth in
international demand, American motion picture distributors
generated more than $25.8 billion in worldwide revenues in 2006, an
increase of 14% from the year before. Analysts project that the
worldwide box office will keep increasing over the next 2 years.
The year 2004 has shown that the independent filmmaker is becoming
a major force in the box office market. Independents cashed in
around $3.4 billion, an amazing 36% of $9.5 billion total box
office sales. In addition, the most recent annual survey of
overseas sales according to the American Film Marketing Association
(AFMA) shows a total of $2.6 billion for U.S. independent films.
When the AFMA total is added to U.S. box office, along with the
U.S. ancillary revenues (estimated at more than $1 billion), the
worldwide market for U.S. independent films is estimated at more
than $7 billion. Independent films, by definition, are those
financed by any source other than a U.S. studio. While U.S.
theatrical distribution is still the first choice of any feature
length film, international markets are gaining greater strength
than they had before. U.S. feature film distributors project to
raise their total worldwide revenue to $31 billion by 2010.
Independent films can vary widely in budget, from as low as $30,000
to as high as $100 million, but they all have one important factor
in common; Creative freedom from the homogeneity of studio
production. With the ability to take more time and more carefully
planed budgets, smaller companies, like ours, are able to give
greater attention to their lower budgeted films. Unlike studios,
Impact Features, LLC is able to avoid substantial overhead costs by
hiring creative and other production personnel on a project-by-
project basis. Due to our low budget, Exile can succeed in niche
markets alone without the need to draw the entire body of film
going audiences. Our goal is to finance our production activities
from discrete sources, and to completely finance Exile before
commencement of principal photography. Once a studio decides to
produce a screenplay, lead actors are sought, budgets approved, and
all directors and producers assigned. This process is called
development. The next step is preproduction, the period before
principal photography when commitments are sought for talent,
budgets are finalized, the director and crew are hired, and most of
the contracts are negotiated and signed. Producers try to have all
contracts in place before filming has started. The filming of a
motion picture is called principal photography. It takes from 8 to
12 weeks, although major cast members may not be used for the
entire period.
During the post-production period that follows principal
photography; the film is edited and synchronized with music and
dialogue. In our case, special effects will be added. The post
production period normally requires six to nine months. With a
large corporate structure making production decisions and a large
amount of corporate debt to service, the major studios, such as
Paramount, Warner Bros. and Disney, aim the majority of their films
at mass audiences. Producers and directors are forced to make films
on a schedule and a budget imposed by studio executives, who are
often influenced by factors other than a desire to make quality
films, or even show a profit. Due in part to skyrocketing star
salaries and costly special effects, the average studio film cost
$100 million in 2006, according to the Motion Picture Association
of America. In addition, studios often demand changes to the script
that result in a loss of focus or direction, and adversely affect
the overall appeal of the film to its intended audience. More money
is being channeled into studio blockbusters, which typically cost
upwards of $120 million. Industry figures indicate that a picture
must generate 2.5 to 3 times its costs just to break even.
Independent films have benefited from recent technological
advancements. With the increase in cable channels and the use of
digital satellites, the Internet and a wide variety of other new
technologies, distributors and programmers are seeking more content
to fill consumer demand. Since the major studios produce and
distribute only an average of 190 films combined, a programming
void exists that independent producers are able to fill. Theatrical
Distribution The distribution of a motion picture involves the
licensing of the film in the U.S., Canada and the foreign
marketplace. After locking the picture, our plan is to negotiate
with distributors to distribute and market Exile. With the film
complete at that stage, Impact Features, LLC will be in an
excellent position to negotiate a deal with a distributor that
maximizes the profit potential for both the filmmakers and
investors. Deals vary according to each situation, depending on how
many bidders are willing to take on the project, but normally a
distributor receives around 35% of total revenues. The distributor
will license the following rights; theatrical exhibition,
non-theatrical markets (where applicable, such as educational
markets), home video (including laser disc, DVD, HD-DVD, and Blu
ray), cable and pay-per view, video-on-demand, and television.
Additional ancillary markets include merchandising. Foreign
Exhibition Much of the projected growth in the worldwide industry
comes from the international markets, which grew 14% in 2006. It is
anticipated that international distributor revenues will keep
increasing over the next 2 years. Distributors and exhibitors
continue to find new ways to grow the box office revenue pool. The
growth of multiplexes in Europe and an increase in the number of
screens in Asia and Latin America have both contributed to this
growth. The growth in Latin America specifically is an excellent
advantage in the case of Exile. Part of our marketing strategy will
be geared towards South America as the movie deals with a topic
that is of importance to the region.
OTHER SOURCES OF REVENUE: Cable and Broadcast Television
Television exhibition includes over-the-air reception for viewers
either through a fee system (cable) or free television (national
and independent broadcast stations). The proliferation of new cable
networks in the last 15 years has made cable (both basic and
premium stations) one of the most important outlets for feature
films and documentaries. Whereas network and independent television
stations were a substantial part of the revenue picture in the
seventies and early eighties, cable has become a far more important
ancillary outlet. The pay-per-view (PPV) business has continued to
grow, thanks to continued DBS (direct broadcast satellite) growth
and significant NVOD (near video on demand) rollouts by cable
operators. Pay-per-view and pay television allow cable subscribers
to purchase individual films or special events or subscribe to
premium cable channels for a fee. Both acquire their film
programming by purchasing the distribution rights from motion
picture distributors. Home Video, DVD, Blu-Ray, and HD-DVD A large
source of motion picture revenue continues to be the worldwide home
video market. Home video companies promote and sell videocassettes,
DVDs and most recently Blu-ray and HD-DVDs to local, regional, and
national video retailers, which then rent or sell these cassettes
and discs to consumers for private viewing. While Blu-Ray and
HD-DVD are growing, DVD rentals are expected to remain a major
source of home entertainment income in the near future.
4. THE MARKET An independent film goes through the same process
from development and preproduction through production and post
production as a studio film. In the case of Exile, development and
preproduction may involve only few key people. The founders of
Impact Features, LLC, will maintain control over the final product.
An independent film may be distributed by a studio, although its
negative cost has been provided by other sources. Many of the large
production companies started with the success of a single film.
Carolco was built on the success of Rambo III and Terminator II;
New line achieved prominence and clout with the Nightmare on Elm
Street series and the list goes on and on. The smaller production
company usually raises money for one film at a time, although there
may be other films in different phases of development. Since the
beginning of the 1990s, independent film has been going through one
of its up cycles. Traditionally, the fortunes of independent
filmmakers have always varied from year to year. The recent success
of independent films has sent the independent segment into another
growth spurt. The market for films inspired by or that deal with
real life issues has been growing. Traditionally dramatic films
with ties to historic events have had great success garnering
nominations, and ultimately winning prestigious awards. In 2007
Blood Diamond, an action drama dealing with the struggles in the
African nation of Sierra Leone was nominated for five Academy
awards, one Golden Globe, and one Grammy. In 2006, Crash was
nominated for six academy awards, winning three of them, and also
went on to win two Golden Globes. Crash is a great example of how a
low budget film can turn a high profit. Because of the recognition
it gathered from awards, nominations, and good reviews the movie
generated good buzz that later translated into success. Crash was
produced on a $7.5 Million budget, but grossed over about $200
million in total revenue. As an independent production company,
Impact Features, LLC has advantages over a studio system. The
production team is in control of the screenplay, which means that
any changes to the script do not need to be reviewed by committee,
losing valuable time in the process, but can be implemented
immediately. This quick response time is vital to a production,
when every minute wasted costs money. Another significant advantage
that the Company has is the lower risk involved in investing in a
smaller firm. When the negative cost (actual price paid up to and
through the completion of the film negative, which is then used in
the process of creating release prints to be shown in theaters),
overhead and P&A (prints and advertising) costs are factored
in, a studio picture must gross 2.5 to 3 times the films budget to
recoup the costs of making the film. Therefore, a film costing $50
million would have to make $125 - $150 million to just break even.
By the same standard of comparison, a film budgeted at $5 million
need only gross $12.5 - $15 million to recoup its costs. This
figure is much more readily achieved in domestic and international
distribution. Competitive Advantages: Impact Features, LLC has
several market advantages
1- The company is run by people who are devoted to the idea of
producing a film, Exile, that is cost effective and entertaining at
the same time. The devotion to quality will produce a low-budget
film with much higher value on the screen than the budget would
indicate. The high production values are evident in the trailer
produced for Exile with a budget of under $15,000. 2- The company
controls the rights to the screenplay of Exile, which received
excellent reviews from critics and was ranked 2nd out of 2,750
screenplays on www.triggerstreet.com, and eventually nominated for
screenplay of the month August 2007. 3- The company plans on
marketing Exile to the masses. However, our niche will be the
Hispanic and international markets. Fifteen percent (%15) of all
U.S. movie goers are Hispanic and the number is expected to
increase to 18% by 2010. Impact Feature, LLC plans to capitalize on
this fact. 4- With obvious international appeal with regards to
Exiles subject matter, coupled with the fact that that U.S.
filmmakers netted over $25 billion in global revenues in 2006, the
international market is ready to be taken advantage of. 5- We plan
on shooting a great deal of the film in the Dominican Republic. All
necessary equipment will be shipped from the U.S. however; shooting
in the D.R. provides financial advantages such as low costs for
accommodation, catering, local below the line crew, locations, etc.
In addition to the financial advantages, the D.R. will approximate
the look of the Cuban backdrop. This adds authenticity and
production value to the film. 6- Immigration has recently become a
huge national debate. Our story tackles this subject in an indirect
way. Curious audiences will be drawn to experience what Cuban
immigrants must go through to achieve their ultimate goal of a
better life. Referred to as a time capsule by many, the island of
Cuba, under Communism, has remained essentially unchanged since the
1950s. This amazing Caribbean backdrop is one that will surely
dazzle audiences throughout the world, revealing the struggles that
our characters must go through to reach their ultimate goal.
5. THE COMPANY Impact Features, LLC is a privately owned
Florida company established in March 2008. The companys principle
purpose in business is the creation of the theatrical motion
picture Exile. Our goal is to develop and produce a feature film
that has all the elements necessary to be a box office hit and at
the same time screen and garner awards at prestigious film
festivals such as Sundance, Cannes, and Toronto. The past few years
have shown that the public is ready for action/drama films that
deal with real life issues. Big budget dramatic films with based on
true events themes have opened up the market over the last five
years with films such as Munich, Pursuit of Happiness, Michael
Clayton, and Enemy at the Gates just to name a few. The objectives
of Impact Features, LLC are as follows: 1- The production of a
quality feature film that provides a high level of entertainment
and enjoyment, while educating audiences to the realities that less
fortunate people go through to get to the U.S. 2- The Development
of a feature film that is appealing to all markets above the age of
13. 3- To exploit the international markets. American motion
picture distributors generated more than $25.8 billion in worldwide
revenues in 2006 as opposed to about $9.5 billion in North America.
4- To distribute our film through an Independent distribution
company or through a major studio. Preferably through independent
distribution channels, however, this decision will be based on
opportunities as they arise throughout the process of making Exile.
There is strong public desire for more action/drama films. We
believe that we can make a very exciting film with great potential
for $5 million without sacrificing quality. The struggle of Cuban
rafters is a very interesting topic to tackle; especially that no
feature film on the topic has ever been made. Although Cuba is one
of our closest neighbors, its a country that traditionally, on a
national level, we know very little about. Management and
Organization Moe Charif - President, Founder Moe Charif brings a
heightened understanding of the intricate workings behind the
scenes of making projects successful. When viewing Moes work, one
cant help but notice the very high level of quality in his films.
Graduating from the University of Florida with Honors and holding a
Bachelors degree in Arts, Moe set out to pursue his dream of
filmmaking. With an eye for photography, he started with small
projects until 2005 when he directed and produced "Hunted," a short
film action thriller that screened at over 18 film festivals
worldwide. The short was nominated for a number of awards including
"Best Short Drama", "Best Thriller", and "Best
of Festival" and ultimately won "Best Horror" and "Best Short
Drama". Moe believes that a film is a harmonious equation bringing
all factors together in a perfect fit, which is why he focuses a
great deal on all aspects of filmmaking. His fastidious attention
to detail, cutting edge visual style, strong story sense, savvy
business mentality, and talent for utilizing stunning visual
effects produce the kind of end result that you'd expect to see in
big budget Hollywood films. It's often said that directors use a
strong vision to create the movies they make. Moes vision never
fails to deliver outstanding quality; the kind youd expect to see
in Hollywood films. Omar Chavez, Jr. - Vice President, Founder Omar
Chavez Jr. was born and raised in Miami, FL of Cuban immigrants. As
a child he always favored the arts spending almost all his free
time drawing and typing out stories on an old derelict typewriter.
It's no surprise then that when it came time to declare a major in
college, Omar chose to pursue a degree in creative writing.
Studying under a score of best selling authors at the vaunted
Creative Writing program at Florida International University, Omar
honed the craft of writing to go along with his natural talent for
story telling. After college, as an avenue to his true passion of
filmmaking, Omar pursued a career in production. Over the course of
10 years time in the South Florida production scene, Omar developed
a considerable amount of experience in editing, motion-graphic
design, music production, and directing. Eventually able to
establish the contacts to make his first short film, Take Four, he
and partner/friend Adrian Orozco saw the film through to completion
in 2006. The short went on to achieve critical success and screened
at 21 international film festivals, winning several awards. It was
given the distinction of best South Florida narrative short film
2006 by the GenArt association. Adrian Orozco - Co-Producer As a
child growing up, Adrian Orozco always had a creative itch
expressly geared towards storytelling. Writing short stories became
a hobby at a very early age. However, a desire to follow in his
father's business footsteps led Adrian to seek a degree in finance,
eventually utilizing that knowledge in a part time career selling
real estate. Although successful, having sold and managed over 10
million dollars worth in real estate during his stint, he found
himself ultimately unsatisfied. Adrian's true calling was film.
Realizing he had a lot to learn about filmmaking, Adrian attached
himself to good friend, Omar Chavez Jr. For the next few years
Adrian learned everything he could; voraciously self studying,
paying apt attention whenever he could, learning how to produce,
edit and shoot films from those around him. Once confident enough
in his abilities, Adrian began to seek work in the field and
eventually grew a solid reputation in South Florida production
circles. Since then, he has been involved in award-winning
television shows, commercials, music videos, and documentaries.
Able to apply the knowledge garnered from his finance degree,
Adrian understands that film is a business, yet his strong story
sense and visual style always shine through his work.
Ingrid Gonzalez Line Producer A graduate of the American
Academy of Dramatic Arts in New York, Ingrid Gonzalez, is a
motivated and hard-working individual with over 10 years of
administrative experience. Always ready for challenges and
opportunities, Ingrid brings unequaled passion to everything she
does. In 2006, she was hired on to work closely with the Producers
of the feature film project "Spin" by director Dan Neira. Because
of her multitasking and ability execute all assigned duties she was
promoted within the first week of the film's production. On the
strength of that experience, Ingrid was later hired by SiTV
producers to participate in the planning and producing of the
popular cable network series Styleyes staring Jay Rodriguez.
Through the years, Ingrid, a Dominican-American, has a established
a wealth of contacts in the Dominican Republic that she plans to
take full advantage of during the filming of Exile.
6. DISTRIBUTION STRATEGY Most of the marketing strategies
commonly employed by independent distributors will be used to
market our film. The actual marketing of the film itself is the
distributors job. It involves the representation of the film in
terms of genre, the placement of advertisements in various media,
the selection of a sales approach for exhibitors and foreign
buyers, and the hype (word of mouth, promotional events, alliances
with special interest groups, and so on). All of these factors are
critical to a films success. The plan for Exile is to realize
sizable opening audiences (relative to the budget and theme of the
film) and generate good reviews, and then use the money and reviews
to keep releasing the film on additional screens. The distributor
will fund the copying of more prints out of the revenues from the
first week. Advertising will work in the same way. Each major
studio has its own distribution division. All marketing and other
distribution decisions are made in-house. This division sends out
promotional and advertising materials, arranges screenings of
films, and makes deals with domestic and foreign distributors. Each
studio releases 15 to 25 films a year and they often acquire
independent films to release. After the picture is locked, we will
seek distribution for Exile by either an independent distributor or
a studio. The high quality of the feature should attract interest
from multiple parties. This creates an opportunity for our film to
be the source of a bidding war among distributors, thereby
increasing the chances of the films success. There are advantages
to distribution through studios and independent distributors:
Independent distributors have an advantage in releasing
low-budgeted films, since they have the experience and patience
necessary to handle the slower platform method of release. A
platform release strategy involves opening a film in a select few
cities, building on the films word-of-mouth, and gradually widening
the release to add more cities and more screens to the release
schedule. Positive buzz, festival success and strong reviews all
add to a films platform. Movies such as Sling Blade benefited
greatly from this type of release strategy. Miramax released the
movie in a few cities and, as it gained in popularity, expanded the
release to more cities and more theaters. What began as a small art
house film became a mainstream hit. Studios, on the other hand,
have extensive resources with which to finance a number of prints,
and have guaranteed exhibition of their product. This means that a
film can be seen by large numbers of people at any given time. A
films success or failure at the box office can directly affect its
success in all other venues. Another advantage to the studio
distribution system is that, as the studios merge with larger
corporate conglomerates, they often add arms of television stations
and cable systems. Each system, whether studio or independent,
offers advantages and disadvantages with respect to our
distribution strategy. Whether or not the Company will negotiate
with an independent distributor or a studio depends on which
distributor offers Impact Feature, LLC the strongest release
pattern, platform or wide, with as many people as possible seeing
the film. This must be balanced with the films potential
profitability, thereby ensuring the producers and investors a
return on their investment. There is an active market for completed
motion pictures, with virtually all studios and independent
companies seeking to acquire completed films. These acquisitions
are
influenced by the films elements, such as quality of
screenplay, cast, production values and the number of other films
in the same genre or theme currently being distributed by the
distributor. Distributors license the film to both domestic and
foreign exhibitors, for a percentage of the box office gross. The
best possible initial release for Exile is a domestic release in
theaters. Not all films earn the prestige that a theatrical release
will garner. However, a theatrical release drives the price upward
for the rest of the media releases, such as home video, pay TV,
etc. For a picture in initial release, the exhibitor will pay a
percentage of the revenues from ticket purchases to the distributor
(the film rentals). Every distribution agreement is different,
however, there are similarities common to all. The distributor
receives a distribution fee, which is the percentage of the profits
that the distributor will receive from the revenues. The
distributor is then entitled to recoup its marketing costs and
distribution expenses. The remaining sum is payable to the
producers and investors, and is generally called the producers
gross or the net sum. Other media releases for the film are
calculated in a similar fashion. For instance, a home video company
pays an amount to the distributor for the right to stock its video
stores with the title. From these fees, the distributor will deduct
its distribution fee, advertising costs and other distribution
expenses in order to recoup its costs. The producers and investors
then receive their agreed-upon revenues as set out in the
distribution agreement. The same goes for television and ancillary
rights. The sum total of the money received by the distributor from
the exploitation of all rights that it is entitled to exploit under
the agreement are called the distributors gross. It is in Impact
Features, LLCs and the investors best interest for the Company to
seek a distribution advance against revenues, or to seek a negative
pick-up, from a distribution company. An advance against revenues
means that in exchange for the rights to the Project, the
distributor would pay the Company a sum of money upfront. Portions
of this advance can then be used to recoup those amounts expended
in the production process. While some distributors do not pay
advances on features, it is an important strategy that we will
utilize when negotiating with distributors. A negative pick- up
means that a distributor pays the actual costs of creating the
negative of the film. This cost includes development,
pre-production, production and post-production. Depending on the
distribution agreement, the relationship can end there with the
distributor buying the film out right, or Impact Features, LLC can
share in net proceeds from the film after the distributor has
recouped its distribution fee, negative pick-up costs, marketing
and distribution expenses.
7. RISK FACTORS Investment in the motion picture industry is
highly speculative and inherently risky. There can be no assurance
of the economic success of any motion picture since the revenues
derived from the production and distribution of a motion picture
depend primarily upon its acceptance by the public, which cannot be
predicted. The commercial success of a motion picture also depends
upon the quality and acceptance of other competing films released
into the marketplace at or near the same time, general economic
factors and other tangible and intangible factors, all of which can
change and cannot be predicted with certainty. We believe that the
screenplay for Exile is extremely high in quality. An interesting
story has a much better chance of attracting name talent to the
film project. Not every role in a script is played by actors who
are well known to the public. But it does help an independent films
chance of success if one or two actors in the picture are instantly
recognizable to the viewing public. Another way we can increase the
films chance of success is to ensure that the production values are
high. In essence, the concept of production value is based on the
principal that it takes money to make money. Our plan is to spend
our budget wisely to ensure that the films final look is one of
quality. The entertainment industry in general, and the motion
picture industry in particular, are continuing to undergo
significant changes, primarily due to technological developments.
Although these developments have resulted in the availability of
alternative and competing forms of leisure time entertainment, such
technological developments have also resulted in the availability
of additional revenue sources through licensing of rights to such
new media, and potentially could lead to future reductions in the
costs of producing and distributing motion pictures. In addition,
the theatrical success of a motion picture remains a crucial factor
in generating revenues in other media such as videocassettes, DVDs,
and television. Due to the rapid growth of technology, shifting
consumer tastes, and the popularity and availability of other forms
of entertainment, it is impossible to predict the overall effect
these factors will have on the potential revenue from and
profitability of feature-length motion pictures. The Company itself
is in the organizational stage and is subject to all the risks
incident to the development of a new business, including the
absence of a history of operations and minimal net worth. In order
to prosper, the success of Exile will depend partly upon the
ability of management to produce a film of exceptional quality at a
lower cost, which can compete in appeal with higher-budgeted films
of the same genre. In order to minimize this risk, management plans
to participate as much as possible throughout the process and will
aim to mitigate financial risks where possible. Fulfilling this
goal depends on the timing of investor financing, the ability to
obtain distribution contracts with satisfactory terms, the
obtaining of completion bonding and the continued participation of
the current management.
8. FINANCIAL PLAN AND PROJECTIONS The financial projections for
EXILE assume a conservative level of success for the film project.
Potential investors must recognize that the projections are only
estimates, and are not guaranteed. Financing Plan Impact Features,
LLC proposes to secure all production financing from equity
partners by means of a limited partnership investment. With
production funding in place from independent investors, the Company
will negotiate the most advantageous distribution deal. We will
wait until principal photography has commenced before talking with
distributors so that they will be able to view the professional
quality of the film. This strategy will allow the maximum
flexibility in a rapidly changing marketplace where the
availability of product is in constant flux. Many factors affect
the financial projections for a film. Its commercial appeal is the
most important factor in determining financial success, followed
closely by the agreement with the distributor. Being able to
self-finance the production of a film puts the Company in the
strongest position to control the quality and costs of the film,
along with striking the best financial arrangements with the
various distribution channels. We will attempt to secure the best
distribution deal for Exile, with a distributor who will commit
financial resources and secure a favorable distribution release
pattern. This is key to our films success, because when a
distributor commits funds to the prints and advertising budget of a
film, it is signaling its desire to see the film become successful
and make a profit. The distributor can accomplish this by securing
enough screens for the film to ensure that sufficient numbers of
the viewing public pay the admission price to see the film. As with
any business, when revenue exceeds cost, profits are realized.
Return on Investment The Company is confident that it will produce
a motion picture which audiences will enjoy, thereby reaping the
financial rewards from that success. We cannot guarantee that the
film will be profitable, or that it will even earn back its budget,
but will stand behind our commitment to ensure that the most
reasonable distribution deal possible will be sought and executed.
The Company proposes to pay back the limited partners who invest in
Exile in the following manner: (a) From the Producers Gross Income,
the Company will cover any and all outstanding production expenses
not covered by the production budget, such as deferred pay of
talent salaries and other such costs. After deducting any deferred
fees or outstanding expenses, the Producers Gross Income will go
directly to the limited partners proportionate to each partners
investment. Money will be disbursed to all limited partners at the
same time. Accounting statements from distribution companies are
usually handled on a
quarterly basis for the first two years of the distribution
agreement, and semi- annually thereafter for a period of two years.
Accounting statements are then handled on an individual basis.
Generally, the distribution company is responsible for providing
statements and paying any sums due to the production company within
sixty days of the end of each quarter. The Company will provide the
limited partners with accounting statements and payments due and
owing, if any, within sixty days of the receipt of those statements
and money from the distributor. (b) 90% of the projects Net Profits
will be paid to investors, with the production company receiving
the remaining 10%. After each limited partner has recouped his/her
initial investment, any additional money earned will be divided
between the producers and the limited partners on a 50/50 basis.
Financial Assumptions For the purpose of the business plan, several
assumptions have been included in the financial scenarios and are
noted accordingly: 1- Box Office reflects gross dollars of ticket
sales before the exhibitor splits the total with the distributor.
Domestic Rentals reflect the distributors share of the box office
split with the exhibitor in the United States and Canada, assuming
the film has the same distributor in both countries. Domestic Other
(also known as ancillary) includes home video (Cassette, DVD,
Blu-Ray, HD-DVD), cable, network television, and television
syndication. Foreign Revenue includes all monies returned to
distributors from all venues outside the United States and Canada.
2- All funds flow from each revenue source to the distributor,
whose expenses are deducted before any money goes to the
producer/investor; therefore, profit is shown as the Gross Profit.
This is the income before the distributor takes his fee. Depending
on negotiations, after the distributor deducts the cost for prints
and ads, the investor generally is paid back the budget cost. Then
the distributor deducts his fees. The timing of disbursements,
however, is always subject to negotiations. 3- The Budget, also
known as the films negative costs, covers only the expenses that
are needed to produce the master print for the film. All marketing
costs are included under P&A (Prints and Advertising), often
referred to as releasing costs or distribution expenses. These
expenses also include the cost of making copies of the print from
the master and advertising. 4- The films shown in table 1 are used
as the basis for the projections. The rationale for the projections
is explained in number (9) below. The films relate in genre, tone,
and/or budget to our film. 5- Table 1, Gross Profits of Selected
Films with Similar Genres with Budgets $500,000 to $7.5 Million,
years 2001-2006, shows gross profit results for films before
distributor fees have been deducted.
6- Table 2 shows the projected income statement for Exile. The
revenue scenario is a moderate projection based on the data shown
in table 1. They are used for the cash flow in table 3. 7-
Distributors Fees (the distributors share of the revenues as
compared to his expenses, which represent out-of-pocket costs) are
based on 35 percent of all gross revenue (note: the exhibitor
portion is separate from this calculation), both domestic and
foreign. 8- Net Producer/Investor Income represents the projected
pre-tax profit after the distributors expenses and fees have been
deducted and prior to negotiated distributions to investors. 9- The
cash flow assumptions for table 3 are: a. Film production will take
one year from development through post production, ending with the
development of a master print. The actual release date depends on
finalization of distribution arrangements, which may occur either
before or after the film has been completed and is an unknown
variable at this time. For purposes of the cash flow, we have
assumed distribution will start within the first quarter after the
completion of the film. b. The largest portion of print and
advertising costs will be spent in the first quarter of the films
opening. c. The majority of revenues will come back to the
producers within two years after release of the film, although a
smaller amount of ancillary revenues will take longer to occur and
will be covered by the investors agreement. 10- Due to the timing
of the cash requirements needed to produce the film, draw downs not
immediately used will be deposited in an interest-baring
account.
TABLE 8.1 GROSS PROFITS OF SELECTED FILMS WITH SIMILAR GENRES
AND/OR BUDGET WITH BUDGETS OF $500,000 TO $7.5 MILLION YEARS 2001 -
2006 (Millions of Dollars) DOMESTIC REVENUE FOREIGN TOTAL COSTS
GROSS PROFIT (f) FILMS BOX OFFICE RENTALS (a) OTHER (b) GROSS
RENTALS (c) OTHER (d) REVENUE (e) BUDGET P&A TOTAL Whale Rider
20.7 11.1 16.7 20.7 9.3 15.0 52.0 3.5 12.2 15.7 36.3 Crash 54.5
29.1 46.2 43.8 19.7 34.1 129.0 7.5 22.8 30.3 98.7 Open Water 30.5
16.3 33.1 27.6 12.4 20.4 82.1 0.5 23.0 23.5 58.6 The Last King of
17.6 9.4 16.0 30.5 13.7 23.9 62.9 6.0 6.8 12.8 50.2 Scotland
Monster 34.4 18.4 30.1 25.9 11.8 18.6 78.9 5.0 19.6 24.6 54.3
Garden State 26.7 14.3 29.1 9.0 4.1 7.4 54.9 5.0 16.2 21.2 33.7
Lost in Translation 44.5 23.8 30.1 74.1 33.3 47.8 134.9 4.0 22.9
26.9 108 Monster's Ball 31.2 16.7 22.5 7.7 3.5 6.9 49.6 4.0 12.0
16.0 33.6 Capote 28.7 15.4 19.9 20.5 9.2 17.1 61.5 7.0 12.4 19.4
42.1 TABLE 8.2 "EXILE" PROJECTED INCOME STATEMENT (Millions of
Dollars) DOMESTIC REVENUE FOREIGN TOTAL COSTS EST. DIST. NET
PRODUCER INVESTOR GROSS PROFIT (f) FILMS BOX OFFICE RENTALS (a)
OTHER (b) GROSS RENTALS (c) OTHER (d) REVENUE (e) BUDGET P&A
TOTAL FEES INCOME EXILE 32.1 17.2 27.1 28.9 13 21.2 78.4 5.0 14 19
59.4 27.5 32 (a) Rentals equal money made after paying the
exhibitor, in this case 50% of Box Office Total. (b) Domestic Other
Revenue includes television, cable, video, DVD, and all other
non-theatrical sources of revenue. (c) Foreign Rentals equal money
made after paying the exhibitor. (d) Foreign Revenue includes
television, cable, home video, DVD and all other non-theatrical
sources of revenue. (e) Total Revenue includes both theatrical and
ancillary revenues. (f) Gross Profit before distributor's fee is
removed. SOURCES: IMDB.com, The-numbers.com, boxofficemojo.com,
Baseline Studio Systems (A division of the New York Times). Totals
my not add due to rounding.
TABLE 8.3 "EXILE" CASH FLOW (Millions of Dollars) YEAR 1 YEAR 2
YEAR 3 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr.
1 Qtr. 2 Qtr. 3 Qtr. 4 Production Budget (0.75) (1.5) (1.5) (0.75)
(0.5) Prints and Ads (6) (3) (4) (1) Domestic Rentals 9 5.2 3
Domestic Ancillary 15 12 Foreign Revenue 9.2 8 6 7 4 Distributor
Fees (15.5) (12) TOTALS (0.8) (1.5) (1.5) (1) (0.5) 3.0 2.2 7.8 7.0
6 7 4.0 CUMULATIVE TOTAL (0.8) (2.3) (3.8) (4.5) (5) (2.0) 0.2 7.9
14.9 20.9 27.9 32 *Numbers between parenthesis depict negative
cost. i.e. (1.25) = -1.25 Totals may not add due to rounding