Win the deal battle, lose the film war

It’s an exciting and nerve wracking time. There’s a package being pitched around town and it’s got all the elements of a marketable film. And the creative folks want it. Badly. But you can be very sure that many other companies around town want it as badly as yours does. So you try to device a strategy to win the project. Even as that little voice in your head is telling you that it’s best to be careful what you wish for because winning may not be the best result.

I’ve been in that situation many times during my career and have occasionally experienced the high of getting the project. Everyone is happy and excited. But still that little voice refuses to stay silent. Questioning. Did you overpay? Is this a makeable film? Are the deals you just made going to haunt you later? This post just goes through the thought process when approaching these kinds of projects. How does a company make smart decisions?

If you were to ask me what the most valuable piece of information is in determining the ultimate commercial success of a film, there would be no hesitation. It’s the cost. Don’t get me wrong. Having great talent and a great script on a project is crucial but spending excessively given a film’s likely range of performance is apt to end unhappily regardless of the quality of the film.

I am far from an expert on film budgets but I do know where many of the bodies are buried. Typically, above-the-line charges for rights and the writers, producers, director and actors (along with perks for the talent) comprise a substantial part of any studio film budget. That reality puts enormous pressure on the budget when those deals are top heavy. The result is either a budget that’s too high or lacking in other elements like the special effects to the detriment of what’s on the screen.

Which brings us back to the compelling package that is drawing interest all over town. These situations are the trickiest for the business affairs executive to navigate because the balancing act, which is present in all deal making, becomes most acute. The scale has getting the deal and a potential film on one side and making unwise deals for both the film and your business going forward on the other. Given that and the fact that peoples’ egos get engaged in a competitive situation, it’s very dangerous.

To be clear, the issue of winning the deal battle and losing the film war is a real world occurrence. Two recently released theatrical films each had their origin as a package encompassing rights along with a writer, director and at least one actor. Understandably, each of these packages attracted substantial interest and the deals were rich. The reps did well for their clients which is exactly what they’re paid to do. Each of these films was decently reviewed and received solid audience scores but each will lose a substantial amount of money. In my opinion, the cost of each of these films was at least $25 million more than what was justified by the likely range of their respective performances. This excess cost was at least partially attributable to the initial deals.

I think the nature of securing these kinds of packages make it more likely that they will eventually be produced, exacerbating these issues. Of course, nobody intentionally produces a film thinking it’s a bad risk but it’s only natural that there will be bias towards the big project that the studio won over many other competitors. It’s also very possible that the deal structure needed to win the project makes it expensive to abandon. My experience is that, all things being roughly equal, these are the projects that get the benefit of the doubt.

In these types of competitive package situations, there are a number of things a business affairs executive can do to try to make better deals while still maintaining a reasonable chance to win the project. Initially, you should keep your supervisor in the loop every step of the way. Not only to prevent any nasty surprises but they will undoubtedly have been in this same situation many times so they can give helpful advice.

Intel is a precious commodity in these situations. A rep may exaggerate the amount of actual interest in the project for obvious reasons. Using whatever human resources at one’s disposal to get accurate information can guide one into determining how far to go in order to have a good shot at prevailing.

If one has the time and ability, running p&l models on the project can be an incredible help. That can guide all parties into a realistic discussion of the kind of budget the project can sustain given likely performance. With that in mind, there can be an assessment of how high the initial deals can go to make that budget number attainable.

Ultimately, what a BA executive can do in these types of situations is to give the best advice possible, understanding that things are moving quickly and the decision about what to offer will be reached by consensus. So one can point out possible unwelcome precedents which may be established because of the deal and/or how the deal may impact existing relationships with talent that have less lucrative deals than what you are putting on the table for this one. At the end of the day, if everyone understands these implications and is willing to move forward, okay.

If one is willing to paint outside the lines, these are the types of deals that may call for a different structure. On one of these competitive packages, we were unwilling to step up to the talent asks because of the damage to our business. So we looked at the package and determined the budget at which we would make the film given its likely performance range. We then offered the talent a deal where, with some safeguards, we would make the picture at that budget and they could determine what they got paid as long as it fit within the vetted budget. If successful, this structure addresses the biggest issue of a budget that aligns with the film’s projected performance.

What does this all mean? With much less money, an aversion to unreasonable risk and libraries to mine for projects, I think it’s highly unlikely that these kinds of projects land at the traditional theatrical studios going forward. The streamers have the appetite for these projects, seemingly unlimited funds and lack the p&l pressure that make them such hard sells for the traditional studios. So look forward to seeing these kinds of films from the comfort of one’s couch.