What do waterfalls have to do with filmmaking?
A lot, it turns out.
It’s a term all directors should be familiar with. It determines who gets paid and when, once your film starts earning money.
This week I want to talk about how a film makes money and who gets paid.
- How does a film make money?
- How do you know who gets paid and when?
- How to structure your waterfall as an independent filmmaker?
Let’s roll.
How does a film make money
A film makes money when someone spends money to see the film. Movie tickets, rentals, purchases, licensing, or platforms share their revenue (from subscriptions or ads) with the filmmaker.
There’s a lot of nuance to this subject, and we will get into the details in a later newsletter. For today, I want you to notice one important thing.
Your film doesn’t get all the money it earns.
For movie tickets, the split is often around 50/50 between the movie theater and you. So if a movie ticket costs $10, your film earns around $5.
The same is true for platforms where people can rent or buy your film, or for physical copies of the film. The split varies on a case-by-case and platform-by-platform basis.
For subscription and ad-supported platforms, the platform sets the rate you earn. What you earn is usually based on views/impressions. When we released Wild Boys on ad-supported platforms, we saw a return of around $5–$7 per 1,000 views or impressions.
The key to understand is that when you hear box office numbers like $100 million, it doesn’t mean the film earned that amount.
This is an important concept to keep in mind when you are planning how your film can balance its books.
And hopefully, make a profit.
Once you have money coming in, you need a clear plan for how the funds are distributed.
Who gets paid when the money starts rolling in?
This might sound unfair, but a lot of people get paid before you, the filmmaker, see any money from your film.
This is where the waterfall comes in.
The waterfall establishes:
- Who gets paid?
- In what order?
- And how much before payment trickles down to the next level?
The first thing to know about the waterfall is that you want to have it in place BEFORE the film starts making money. It’s normally in your agreements with investors, distributor, sales agent, and top talent. But if you haven’t dealt with it, make sure it’s in writing before the first dollar comes in.
The design of the waterfall is up to your production and the deals you make with your partners. Typically, it might look something like this:
- Distributor (expenses + percentage; 10-30% is normal)
- Gross participation and bonuses (if any A-list talent has negotiated, not normal on smaller films)
- Distributor deducts the minimum guarantee (the money that they paid you upfront)
- Distributor deducts P&A costs
- Collection account manager's fee
- Sales agent (expenses + percentage fee, 5-35% range)
- Equity investors are paid (normally their investment + a percentage of their investment on top, 10-30%).
- Deferred fees and bonuses paid to talent and crew (if someone cut their rate or negotiated this into their contract)
- Profit! This goes into a pot that is split between producers and financiers.
The profit pool is usually split 50/50. The financiers are anyone who put in hard cash to get the film made, often the same people that got their investments back in step seven.
The producers' pool is everyone else. All the creatives are in this pool: producers, director, writers, actors, DP, editor, etc.
As you can see, that’s a looooong journey from money coming in to you seeing anything.
If you deferred some of your payment, you’ll get paid in step 8. If you have “points” in the film, you don’t see a dime until step 9.
To me, seeing this black on white crystallized the business model of films for me.
Once you’re aware of the normal practices in the industry, you can start thinking about how you want to structure the waterfall for YOUR film.
How do you structure your waterfall as an independent filmmaker?
The most important thing of all when you’re structuring your waterfall is to outline it as early as possible. It should definitely be part of your business plan.
Once you present your project to potential investors, they should know exactly how and when they will make their money back.
If you’re working on a low-budget production and you’re asking talent and crew to work for lower rates than they're used to, or do you favors, it’s also important that you find a way to let them take part in the film’s potential success.
If you win, your cast and crew should also win.
I’m a big proponent of transparency in this part of the filmmaking process. There’s often a lot of secrecy around anything that has to do with money. But when you’re open about how your film’s revenue will be split, you trust your collaborators enough to say: this is how we’re doing it; you choose if you want to be part of it or not.
You have to think of your film as a business.
Once you have this mindset, you also become aware that you’re in the driver's seat. You can set up your waterfall in a way that works for YOU. And also understand that how your waterfall is structured might be more or less desirable for investors.
The way you choose to pay back participants will determine whether someone is interested in investing in the first place.
This is a big reason that you see investments paid back, with interest so high in most waterfalls. This lowers the risk for the investors, which might make them more likely to join your project.
And cut!
That does it for this week. Here are the key takeaways I want you to bring with you into your directing career from today:
- $10 at the box office doesn’t mean $10 for you; more like $5.
- The waterfall establishes who gets paid, in what order they get paid, and when money trickles down to the next person.
- As a filmmaker, you need to understand how to structure your waterfall in a way that works for YOUR film.
As always, thanks for reading.
