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PART 3: MEASURING REST OF WORLD ADVANCES

Securing an advance from an international sales agent against future anticipated rest of world (ROW) sales revenue could be a key factor behind whether enough money can be raised to enable a film to go into production.

This is because an advance acts as a vote of confidence that a film is saleable on the world stage, favourably influencing potential investors, and also because a loan is usually taken out to cover the advance before cameras roll and that loan becomes part of the production budget.

Screen Australia is one of the biggest consistent investors in Australian films. Under the system that it has set up, a sales agent has to be attached for the Federal agency to contribute equity, although exceptions are sometimes made for low budget films – those to be made for less than $2 million for example.

A sales agent doesn’t necessarily have to put up an advance, however. Perhaps the film is going to be comparatively inexpensive to produce or is by a first-time director or has no name cast attached – each of which injects uncertainty into how a film will turn out, adding to the general financial riskiness of the film production and distribution business. It could also be that a film is culturally important to Australian audiences and has secured a significant advance from its Australian distributor but is unlikely to appeal internationally.

When a sales agent does not put up an advance, it is expected that it will lower the commissions that it charges on sales.

About 60 per cent of the films that Screen Australia has invested in over its life time have attracted ROW advances, which are also referred to as minimum guarantees (MGs) and distribution guarantees (DGs). ROW means the sales agent is representing all territories outside Australia and New Zealand (ANZ).

The information that follows draws on financing data from Screen Australia and is intended for producers trying to green light films and wanting benchmarks to measure their own offers against.

Advances by size and budget

Screen Australia invested in 94 films over the seven years from 2008/09 to 2014/15 inclusive. Of these films 55* attracted ROW advances.

Range: $30,000 to $6.2 million

  • On 14 (25%) of the 55 films the advances were more than $500,000

  • On 29 (53%) the advances ranged from $100,000 to $500,000

  • On 12 (22%) the advances were less than $100.000

Average: $606,000

  • Two films with high advances ($6.2m and $3.4m) pushed up the average.

Median: $300,000

Note: Figures are rounded

* Three films in addition to the 55 attracted advances covering either the whole world including ANZ or ANZ and one other territory. They were excluded because the proportion of the advance attributed to ROW is unclear.

Berlin Syndrome

About 30 different sales agents put up the 55 advances. Arclight Films was by far the most active with nine films followed by eOne/Seville with five.

Nearly all the 12 films with advances of less than $100,000 were from the most recent three years. The falling value of advances can be attributed to decreasing sales for independent film in general. Spain, Italy and other countries can no longer be relied upon to pay four to five per cent of a film’s budget, for example, television networks have reduced how many films they buy and for how much, and it is more difficult than previously to get films into cinemas. The advances that are worth more than $100,000 were financed throughout the seven-year period.

Films of all budget sizes attracted advances, with the range being $701,000 to $21.6 million. Except for one film outside that range at the top end and another at the bottom end, all 94 films with Screen Australia investment were also in this budget range. The average budget of the films with advances is $6.3 million, $200,000 less than the average for all films.

The films with the biggest advances, however, have higher budgets: the 11 films with advances of more than $1 million, have an average budget of $11.2 million, a reflection of the commercial aspirations behind these films.

Sales agents might also contribute to the budget of a film by bringing in loans or equity investment either directly or through financing partners.

Whether they put up an advance or not, sales agents might also be able to convince some of their regular buyers/distributors to commit to a film when it is still at script stage. This is called a presale and, like an advance, it can be cash flowed into the production budget.

Presales by size and budget

Twenty-eight (30%) of the 94 films attracted presales; 17 of these 28 also secured advances, while the remaining 11 did not.

Range: $37,300 to $7.1 million

  • In the case of eight (29%) films the presales added up to more than $1 million
  • On 15 (54%) the presales added up to between $100,000 and $1 million
  • On five (18%) the presales were worth less than $100,000

Average: $1.1 million

  • Three films attracted presales of more than $3.5 million, pushing up the average.

Median: $500,000

Note: figures are rounded

The three films that attracted the most presale revenue ($7.1m, $4.5m and $3.5m) are official co-productions with strong cast. In all there are eight co-productions among the 94 films; six of them secured presales.

It was noted above that budget size does not have a bearing on whether a film secures an advance. Size of budget does influence presales however. The budgets of those films with presales averaged nearly $9 million against the 94-film average of $6.5 million.

Whereas about a third of the 94 films backed by Screen Australia did not find their way on to big screens outside ANZ, all but one of the 28 films with presales were released theatrically. This could be because films with bigger budgets have more ambition and appeal. Also, when a distributor buys a film before it has gone into production, that film is in the pipeline and its release is scheduled in and planned for well in advance.

Screen Australia analysis of comScore data shows that ROW gross box office figures indicate that films with presales perform better than average once in cinemas overseas. Sixty-two out of the 94 films were released and showed an average ROW gross box office of nearly $3 million. The average for those 28 with presales was $5.8 million.

Cinema performance – whether in Australia or abroad – is just one of many ways to measure a film’s success.

The Daughter

A final note on revenues

Sales agents earn commissions from the first and all subsequent ROW sales until their licence expires. The licence period, or term, might be as long as 20 or 25 years from when the sales agent signs on for a film. It is often shorter but the sales agent might be allowed to grant licences to distributors that run for longer than their own licence.

ROW advances, loans and also the sales agents’ marketing expenses, are repaid out of ROW sales revenue first, that is before any of the revenue is used to repay the equity investors. The sales agent and lenders cannot claim against the revenue from Australia and New Zealand (ANZ). In industry jargon, ROW and ANZ rights cannot be “crossed”. Many Australian films perform better locally compared to globally.

Further reading

Get your head around International Film Sales: Tomatoes by Samantha Horley, film sales consultant. Published on her blog, February 2016.

Foreign Sales 101: What Independents Need to Know About Selling Films Abroad by Ryan Kampe, president of Visit Films, sales agent for the Australian films Tanna and A Month of Sundays. Published in Filmmaker Magazine, July 2013.

Anatomy of a Sales Agency Contract — Anatomy of a Distribution Agreement (between Producer and Sales Agent) by Stacey Parks, author of The Insider’s Guide to Independent Film Distribution, Focal Press, 2012. Published at FilmSpecific.com.