Why should a writer bother to learn about production budgets? Isn’t that the Production Manager’s responsibility? Let me tell you why. Though the writer may not be directly involved in the business side of making the film, the script that he or she writes will be.

A completed script is not a finished product unto itself; it is the production’s road map to making a finished product: the completed film. Moving from development of the script through production and post of the movie adds an enormous number of collaborators and factors that affect the original story on its journey from script to screen.

Taking, then, a production manager’s point of view, here are seven aspects about production budgeting that writers should understand:

1. Writing A Budget = Making Production Decisions

Just as the writer is making story decisions with every word chosen, the production manager is making production decisions (in advance of the shoot) with every number added to the budget. The PM balances the creative needs of the script with the limitations of the financing and allocates part of the production financing to each department. The script is the road map in determining which department needs how much.

Although there may never be enough time and money to make a film “the way it should be,” there will always be a way of realizing the creative vision (the script plus the director’s vision) with enough imaginative collaboration… especially when the crew knows where in the script the story is.

2. Where Is The Story?

All critical production decisions will be made based on the answer to this question. It sounds like the answer is obvious, but during production, the script may need to be modified to reduce the number of locations, scenes or scene duration, for example, since the number of shoot days is fixed and you do not want to make it to the end of the shoot missing something critical to the story arc.

The production team, then, will examine the script at a micro-level to ensure that the story is coherent should a scene need to be dropped or combined with another one. The PM will look for opportunities of simplification when drafting the budget and allocating funds – to number of locations, for example.

3. Budgeting Starts With The Bottom Line (Financing)

Sure it would be nice to read a script and create a budget based on how much is necessary to realize that script with the director’s vision; however, in truth, budgeting starts with this: here is a script and here is how much money there is to make it… go. Budgeting starts with the financing’s bottom line. The PM allocates the available funds across all budgeting categories so that the film can be completely finished. Discussions and compromises are inevitable on where in the budget and when in the production process to spend that money. At very minimum, “the story” must be captured.

4. Drafts Of Budgets Are Like Drafts Of Scripts – As Input Is Incorporated

The first draft budget is not complete, just like the first draft script is not either. The budget will undergo many changes and refinements before it becomes “locked” for production’s use. Since filmmaking is a collaborative effort, the PM takes the input of many sources in order to complete the budget.

The PM will draft the first pass of the budget, for example, based on the script, the total financing available, and the vision notes from the producer. Later drafts will adjust the money allocations to various budget lines to more closely incorporate the director’s vision – like using many long takes, moving camera and wide vista shots versus lots of close up shots and edits using handheld equipment. Later drafts will reflect early discussions about financial deals made on cast, crew and equipment.

By the time official preproduction has begun, the script will be “locked” and may no longer be revised – just like a locked script. Of course, changes still happen to both script and budget throughout the production process, so while the script evolves to colored pages for subsequent revisions, the budget’s changes are recorded on the weekly cost reports as money is shuffled between line items to effectively complete the production.

5. What Are The Expensive Elements?

There will always be expensive elements in a script: stunts and/or special effects; star cast or crew; animals & children; computer graphic imagery; many locations; historical scenes; large vistas; night scenes; weather-dependent scenes; time-sensitive scenes, like rush hour, hockey season, etc.; travel for distant locations; prototype equipment; and music requiring rights purchase. The trick is for a script not to have too many expensive elements otherwise some will have to be removed to make the film achievable. Where the story is in the script will be the determining factor for what stays and what goes.

6. You Need E&O Insurance… And The Changes It Demands

The finished film is being made for distribution to a large audience – not just your friends and family. There may be references in the script that expose the participants and companies in the making and distribution of the film to lawsuit. Script research and E&O (Errors & Omissions) insurance needs to be budgeted and arranged.

If, for example, the script identifies the villain in the story as Dr. Smith, a dentist from a certain city, and script research finds out there is only one Dr. Smith who happens to be a dentist and he lives in that city, the script appears to be representing that particular dentist as a villain. There now is a legal risk to the participants and companies involved in making the film that Dr. Smith might sue for how he is represented on the screen. Change the name of the dentist to a “clear” name and you are OK. You have done the research and made the necessary changes.

A research report will identify these potential hot spots in the script and production is advised to make the numerous changes. Often the writer is involved to make some of these changes – especially name changes. Although the advised changes may seem petty, the research company will have done a thorough job and modifications now – at scriptwriting stage – are easier and can address the story more thoughtfully than removing problematic scenes in postproduction.

Once the script is deemed legally “clear,” E&O insurance can be arranged – which is a kind of malpractice insurance for filmmakers (it protects the participants and companies involved in the production from future suits of this nature).

7. There Will Always Be Costs That Are Out Of Your Direct Control Or Influence

Changeable weather, travel costs due to financing that requires shooting in a certain zone for tax benefits, a (rare) insurance claim and so on. There will always be costs that the PM (or writer) cannot anticipate or influence. Some costs will be covered by the contingency allowance in the budget, whereas others must be covered from direct production costs, forcing other line items (like equipment rentals, locations or other costs) to reduce to cover them.

The PM and production crew will try their best to maximize the production’s money making it “to the screen” instead of being spent on behind-the-scenes costs that one would never notice in the final, finished film.
I am far from recommending that writers draft scripts based primarily on business elements; the writer’s first priority is the story, especially when writing the earlier drafts. The writer should be busy penning a great story, but knowing the journey that lies ahead for the script in the production process – especially the budgeting process – will give the writer a leg-up in also drafting a story that is not only great, but also shootable. You want a story that can be financed – one that can make it from page to screen.

Though the writer may not be directly involved in the business side of making the film, through the script, the writer does most definitely influence the business side and the whole production process. It’s best to know how your influence plays out.

Deborah Patz has been a filmmaker on award-winning productions since the mid-80s, primarily as a production manager and coordinator, and then as production executive.

She has worked with Lucasfilm, IMAX, MCA/Universal, Alliance/Atlantis, Nelvana, BBC, CBC, the Disney Channel, and the list goes on. She has shot on everything from 3D to 35mm to digital video.

Having worked on numerous international coproductions and shot in several countries around the world, Deborah has even sent a camera into space.

Her first book Surviving Production (on coordination), published by MWP in 1997, was incorporated into Film Production Management 101, which was first published around the world in 2002 and is now completely rewritten for the digital age in 2010.

Source with permission: The Writers Store

…What is my film worth? This is the most common question I hear year after year at the Raindance Film Festival. I meet many filmmakers at various stages of the fimmaking process, all of whom have varying approaches to the tricky question of valuing their films. Here are some typical scenarios…

- Raindance | Read the Full Article

Anatomy of a Budget

A budget consists of the summary page, known as the top sheet, and a series of department-by-department itemizations for that budget. Even if a film’s expenses top $200 million, every roll of tape must be budgeted, receipted, and credited to its particular account. The numbers may get large, but the need for attention to detail never diminishes. Each day throughout the course of the production, the actual expenses are reconciled with the budget to calculate the production’s accuracy in planning and to make the necessary adjustments to keep the project on time and on budget.

Every budget contains several different types of expenses. Above-the-line expenses are the major costs that set the scale of the production; they include the salaries of the director and leading cast members, the cost of the script, and the producer’s fee. In the studio world, they are often negotiated in coordination, so that star salaries are proportionate and the director has a deal somewhat similar to those of the other above-the-line participants. Below-the-line expenses are typically the production expenses, which include the remaining cast, locations, sets, costumes, permits, and equipment rentals. These costs tend to vary less than above-the-line expenses; the cost of a location permit, for example, does not change based on the fame of the cast. The budget must also reflect postproduction expenses, including the editing, sound, addition of special effects, and titles.

In addition to the production and postproduction expenses, significant other budget items include the various forms of insurance which must be maintained, legal fees, accounting expenses, and a small budget for capturing film and video content to be used in the publicity of the film and as extras on the DVD or Web site.

Traditionally, the scale of a film was set by above-the-line costs, which represented the most significant portion of the budget. In today’s movie-making environment, however, this may not be the case. The visual effects added in postproduction can equal or exceed the cost of production and may represent expenses as great as the salaries of top-name star talent.

Special Considerations: Music

Music has always been an important part of filmmaking. The film score can influence the emotional impact of a scene, shaping audience reactions at a subconscious level. Featured songs can carry the audience’s emotional associations with those songs into the film’s world of suspended disbelief. For instance, when Wall-E incorporated a video clip from Hello Dolly, it helped to bridge the audience age gap and served as instant shorthand for the values learned by the main character, a self-aware robot, during his 700 years of isolation.

The details of music licensing for the film score, featured songs performed for the movie, and needle drops—prerecorded songs played during the film—but because music has become not only a vital aspect of independent filmmaking but also an expensive one, the filmmaker should pay particular attention to its role in the budget process. The budget should separate out the payments to the composer of the film score from the budget for featured song and needle drops.

Budgeting for needle drops requires the filmmaker to identify the rights holder, which is typically the record label. The record label will want information on the planned use of the recording: “opening credits,” “end credits,” “background,” or “featured in the scene.” The label will also want to know the budget for the film and the planned distribution.

The record companies understand that motion picture promotion can lead to great sales for songs and records. But their goal is to maximize the revenue, so songs that are already more popular among filmmakers demand a high premium. In addition, it costs money for the companies to review the music license rights for each song, so they tend not to be particularly helpful unless the filmmaker already has a distribution agreement in place.

For filmmakers who do not have distribution agreements, the record companies’ compromise is to offer a festival license. For a modest fee, the record company gives the film company permission to use its song in one or more film festivals. This gives the film company the authorization it needs to proceed, implying permission to copy the song onto the audio tracks of the film, edit the song to the appropriate length, and otherwise exploit the song enough to prepare the film for its festival release and screen a rough cut to potential distributors.

The significant downside to the festival license is that it does not state the cost the filmmaker will have to pay to use the song in theatrical distribution or in any of the other media for which a license will ultimately be needed. The festival license leaves the filmmaker at the mercy of the record label, perhaps even creating a risk that the film rights will be sold for a price below the cost of the music rights. Unfortunately, few record labels are motivated to provide complete fee schedules to low-budget filmmakers.

Filmmakers must anticipate the financial challenges of music acquisition. If they hope to use popular recorded music, they must set aside a budget for this purpose. Wherever possible, they should avoid relying on popular recorded music unless they can establish the price for the music’s use. If the music is featured in a scene, then the film is put at great financial risk unless the filmmaker can rely on a fixed price to acquire the music. Filmmakers should use other music sources to the greatest extent possible to avoid the licensing trap created by the festival license.

This is part of a series of book excerpts from Independent Filmmaking, The Law & Business Guide for Financing, Shooting & Distributing Independent & Digital Films designed as an introduction to the many legal issues involved in the filmmaking process.

Before you look at me as though I’m mad, and say ‘I can’t afford to pay overtime!’, realize that I may not be talking to you.

This is not for you Weekend Warriors who call upon the talents and resources of your close friends in exchange for coating them with homemade blood and feeding them pizza. If your friends remain enthusiastic after all you’re going to put them through – then you are doing something right.

First things first – what is overtime actually, and how does it work?

The Fair Labor Standards Act was signed into being by Senator Robert F. Wagner of New York on July 14, 1938. It set a minimum wage law (twenty five cents at the time), and a maximum number of hours worked per week (44 the first year, 40 by the third) without additional compensation.

Before this, there was no maximum number of hours, or minimum allowable wage – you could be forced to gut chickens eighteen hours a day, seven days a week, for a nickel an hour (sounds familiar, right?). Of course this legislation was not created from kindness or love for fellow man; if you want a more in – depth story, look up ‘Muckrakers’, ‘Upton Sinclair’, and ‘The Jungle’.

What overtime means to the receiver – and this is probably the most important bit of this article.

Younger, less experienced technicians tend to get very excited over the prospect of overtime, seeing dollar signs in their eyes. The first breakdown they actually do is probably a bit of a shock.

Overtime is very heavily taxed, when you’re working on something that tracks an hourly rate (some of these little guys don’t). In fact, if you work more overtime on one project than straight pay at others, you can end up taking home far less money.

http://www.cato.org/pub_display.php?pub_id=6187

Just one link regarding how that works, since I’m not getting in depth here – that’s not what this is for.

Overtime is not really a bonus for the working stiff; it is meant as a penalty to the employer – extra cost to try and offset the potential abuse of employees. Most of that money goes back into the government pool, not to your pocket.

Somehow, rather than seeing the penalty aspect, many large employers, particularly in entertainment, have come to see it as the cost of doing business (along with meal penalties, travel, et al.). The problems with this tend to be exactly what were the issues in the first place – people getting hurt on the job, falling asleep while driving, making bad choices.

A short I worked on recently would have benefited a great deal from offering overtime. There are specific reasons for this.

First, the shoot took place over two twenty hour days. This is a bit ridiculous, and we were lucky as hell that nobody got hurt on set, or after. I ended up driving back with the DP, who kept falling asleep behind the wheel, despite my endless chatter, prodding, cold water splashes, etc. I expect none of the other vehicles fared much better. Had we an overtime clause, it would have been less expensive for the producers to add a third day to production, rather than risk killing every crew member working on this thing due to over tired drivers.

The other highly avoidable bit was on the second day, when the production was held up for six hours while a key prop was being completed. Yes, six hours. Had we been on an hourly, rather than a flat rate, you can bet that wouldn’t have happened.

We were all fairly pissed off, and I have added an overtime clause to my low budget agreements because of situations like this.

Would I have been less angry had I been making more money? A little, I suppose. But at a rate that low, it’s not about the money. (Though my Best Boy did the math, and we all made about two dollars an hour after it was all said and done – adding insult to injury.)

Let me repeat that – it’s NOT about the money. It’s about respect. This shoot, and others like it, leave a bad impression with your crew. They say that the crew’s expertise, hard work, and safety are of little concern. It will make it more difficult to find talented crew willing to work with you, when you take advantage of them like that.

Again, this is the difference between begging your friends to help on a project, and putting up an ad to hire strangers – or even recruiting through your professional network. It’s flat out telling people that they have no value to you, and that you’re willing to exploit them, whether that is the intention or not.

So what does offering overtime on a low budget project mean?

One, it tells the crew you have your act together, and they won’t be waiting around for hours while some minor issue is addressed – or if they do, you will be trying to fix the problem as quickly and efficiently as possible. Because if you don’t, it’s going to cost you, not the crew.

It implies that you’ll have your shot list figured out, and the production will move quickly – because if you spend three hours dickering around with the setup for one line, it’s going to cost you, not the crew.

It indicates that you haven’t unrealistically overscheduled your days, have thought about potential issues in advance, and have at least thought about how long your days may end up being.

Plus, it also tells the crew that you respect them and their time, even though you can’t pay them what they’re worth. Most of these little guys offer a fraction of what a typical day rate should be – the least you can do is say ‘I understand that, and I’m trying to run as professional a ship as I can with the resources available’.

Most of the shoots I’m referring to here, pay about as well as flipping burgers. That burger guy also gets paid overtime. Yes, we do these for the love of the craft, not the money. You should at least respect your crew as much as the guy who fills your gas tank.

This will lend confidence to your crew that you know what you’re doing – of course you can’t afford to pay the overtime on a crew, so you’ve done all the preproduction you possibly can to ensure a smooth shoot. You don’t plan on exploiting them, as you can’t afford to. You won’t run twenty hour days, because you can’t afford to. You won’t go ten hours without providing a meal, because you can’t afford to.

So the next time you think ‘I can’t afford to offer overtime!’; think that maybe, you can’t afford NOT to.

Independent And Art Filmmaking: Creating A Budget For Your Independent Film

How do I determine a budget for my independent film?

Independent films can cost one dollar to fifty million dollars. The reason why it’s an independent film is because that’s where the money is coming from. But Is it coming from somebody who is guaranteeing distribution? Or is it coming from somebody who is hoping to sell the film for a small profit and go out to distribute or have somebody else distribute it? So independent film finances are all just defined from where the money comes from.

How do I finance my independent film?

Money and finance can come from all over the globe for independent films. There are financing companies overseas that put money into independent films, there can be money from the films makers themselves as is often times the case, there could be money from people’s Aunts, their parents, some guy you went to High School with. Wherever you can get money from for your independent film, you get it. Spike Lee was shooting Malcolm X for a studio and they wanted to pull the plug on the movie, they said he had gone over budget and he was too late, so here you see the studio was influencing the vision of the filmmaker. So he called his famous friends, he called Oprah Winfrey, he called Magic Johnson and Michael Jordon and said that we need to make this movie, to make it right and to make it the way I want to make it, so they all put up their own money. Indeed Michael Jordon is a silent producer on Malcolm X and not a lot of people know that. Spike Lee, because he comes from the world of independent film making, he was a NYU student, he was resourceful in that respect and he knew how to just get the independent film done and to navigate through the studio system. Therefore he was able to say I’m not going to let you ruin my vision, I’m going to go out there and make the movie. So money can really come from anywhere, as long as the cheques clear, that’s all you need as an independent film maker.

How do I use the budget for my independent film?

With the budget for your independent film, every dollar has to be spent wisely. Sometimes it’s important to go out there and spend a lot of money on getting a big star to be in your independent film because that gives you a better chance of getting your film seen and getting attention and news and stuff about your independent film. But at the end of the day you’ve got to pay for the technical stuff as well , the filming and the lighting. You also want to have a good director of photography so that the independent film looks nice, and can actually be seen, in focus and colourful and all those things. So you really have to spend your money wisely and not waste anything when making your independent film. There’s no reason why there needs to be crab omelettes on the set of your independent film as that costs money. So spend your money wisely and if you are going to go big on an actor or a big name director, then you’ve got to take that as a cost of wanting to make your independent film and getting it seen.

What are examples of budgeting for pre-production?

Pre-production is when you sort of organise your troops for battle, if you will. You are planning out where you’re going to shoot, you’re getting your calendar together, you’re storyboarding the film so you know what each shot is going to look like, or what you want it to look like. You kind of identify your trouble points and say we’re going to have four days, we’re going to have to be shooting on the beach and we’re trying to make a movie that’s set in the summer but we’re shooting it in February, this could be tough, how do we do that? So you’re trying to analyze problems before they come up, because inevitably on any independent film of any size, things are going to come up that you didn’t expect or didn’t plan for. So pre-production is when you are casting the independent film, is when you are getting different actors to sign up and to commit to being in the independent film. It’s when you are working on your production schedule, you’re planning out your locations, securing your locations, and basically just organizing everybody to go out and make the independent film.

What are examples of budgeting for production?

Production is where you’re getting the value for your money when making an independent film. This is when you’re paying your actors, you’re paying your crew, you’re paying for locations, you’re paying for insurance. You are basically paying for everything during production, but you are not spending everything as you’ve got to save some stuff for post-production because you have to go out and edit the movie. But production is where you’re getting your value and your money and that’s where it needs to be spent. And every dollar on an independent film should go into the making of the movie, so if a director wants a car service to take him from the hotel to the set every day it should not happen on an independent film. Maybe they have to jump on the subway like everybody else, because you’re trying to save money. And those little things count on an independent film as they add up. So money-wise and financing, production is where you’re getting the best bang for your buck.

What are examples of budgeting for post-production?

With Post-production when you are making your independent film, you’ve got to have some money saved up because that’s when you’re doing your editing and colour correcting. You are also helping out the sound if there’s any sound issues, you can bring the actors back into the studio to do some voice-over work and you can cut it together. Indeed it’s called ADR when people come in and they do voice work and match it over the actual footage they shot. So basically any time you’re doing post-production for your independent film, you’re really making the movie, defining it’s voice and defining what the film is.

What would a general breakdown of a budget look like?

A general breakdown of a budget of an independent films depends, as every budget is different and everybody puts money into different things. Some independent films spend all their money on getting big-name actors and go cheap on the production, while other independent films will make sure that the film looks nice and has great locations, but will use some sort of unknown actors so they can save money there. Every budget is different on every independent film. People put in their fees before the making of the movie as a producer might want to say “if I produce this movie I want to take fifty grand off the top to know that I at least got paid”, while others will say “I want the money to go towards the making of the movie and I’ll just be promised money on the back-end”. So everybody has a different budget and breakdown for their independent film.

…The studio chief who made the movie gives you a low-ball number. The head of a rival studio, eager to make a competitor look bad, gives you a wildly inflated number. Most journalists have reported that Baz Luhrmann’s recent film, “Australia,” cost $130 million. 20th Century Fox insists that it cost less, saying it received a hefty subsidy from the Australian government, knocking $30 or so million off that figure. But every rival studio chief I spoke to about the film said with great authority, as if they’d seen a host of internal Fox documents, that the film cost $170 or $180 or $200 million, just to throw out the three different figures I got from three different executives.

— Los Angeles Times | Read The Full Article

DV feature film budget ($25,000 – $100,000)
Broadcast documentary budget ($15,000-$80,000)
Commercial budget ($2000 – $50,000)

…Creating a budget can be a powerful way to visualize your project and may be the first time that you really consider what will be required to shoot your script. Getting an amazing location for free, or finding a tricky way to “cheat” a shot can be some of the most rewarding experiences of a production.

— dvHandbook | Read The Full Article

This is part of a series of book excerpts from Independent Filmmaking, The Law & Business Guide for Financing, Shooting & Distributing Independent & Digital Films designed as an introduction to the many legal issues involved in the filmmaking process.

Introduction

Although sometimes the most creative part of a film, a carefully crafted budget provides the pivotal roadmap for the entire film project. Whether the film is expected to cost $2,000 or $200,000,000, the film budget must present a spending plan for every dollar to be expended on the production. In addition, the budget serves as a guide that the pieces of the film are proportionate to one another. If each cast member receives tens of millions of dollars, then the look of the film generally should not have home-made special effects.

The budget will be dictated by choices that may change dramatically depending on locations, size and prominence of cast, stunts, and the effects needed both during and after principal photography. For independent and guerilla filmmaking, the key is to identify the cornerstone elements of the film and build the budget around those items. If a particular location must be used to tell the story, a particular cast member becomes essential to the financing, or a special effect defines the story, then that element should be identified and its costs determined. Thereafter, the remainder of the budget can be structured to keep the production in harmony with that item.

The budget process runs from inception of the project through the completion of the finished negative. Neither the prints used to show the film theatrically nor the advertising and promotional budget are included in the budget numbers used for production. For studio films, prints and advertising often equals the costs of the film production and, for an inexpensive film, may greatly exceed that cost.

Purpose and Usefulness of the Budget

The budgeting process has a number of important internal and external purposes. It sets the framework for all the decisions regarding the film. For example, if an independent film will be made on a minimal budget, then certain items must drop close to zero. The movie will be filmed locally or in areas that can double for other locations simply because the budget cannot accommodate travel expenses or other costs that will not ultimately appear on the screen. The science fiction genre has become so effects-laden that low-budget science fiction films have nearly disappeared.

1. Direct Consequences of the Budget

First, the budget sets the tone of the picture. Broad categories of no-budget, low-budget, medium-budget, and high-budget each set in motion assumptions about the film. No-budget films, such as Kevin Smith’s “Clerks” create a certain rough ambiance about them. Even modest success can often result in large percentage returns. At the other extreme, high-budget films must be block-busters to justify the expense, resulting in ever-more lavish productions and increasing expectations. Independent filmmakers often want to create the impression that their film cost more than it did to improve the advances made when sold, but understate the cost when shown to suggest that the filmmaker is more creative than was suggested. For example, it was rumored that Miramax spent close to $1 Million to finish the $30,000 Blair Witch Project.

Second, the scope of the budget will directly affect the amount of money needed to be raised. As discussed earlier, certain investment strategies are based on the total amount of funds sought. If a movie is financed using one of these fundraising techniques, then the filmmaker must pay close attention to the financial caps placed by the securities regulations.

Third, many of the collective bargaining agreements between the industry unions and the filmmaker base minimum payments on the size of the budget. The lower the budget, the lower the required minimums will be to use SAG actors.

2. Hollywood’s Budget Magic

“Driving Miss Daisy,” a film modestly budgeted, worked as an award-winning off-Broadway play with a budget of thousands rather than millions of dollars. Many television shows two-episode season openers would work just fine as feature films. Both Star Trek and X Files have had more compelling television productions than some of their films.

The union fee structure has something to do with the budgeting sequence. Because payments are based on medium and length, the same directing or acting job must pay higher for a feature film than for television. If the minimums go up, then the other fees are ratcheted up as well. The net effect is an absurd situation whereby a $30,000 student film may get theatrical release while a $3,000,000 studio financed project may be impossible to release theatrically rather than on television.

The Ultimate Use of the Budget

Despite the importance of a budget, it is a planning tool that may be changed often during the planning stages of the project. For an independent filmmaker, there may be a variety of budget scenarios, based on best-case financing and worst-case financing. Certain scenes may be noted for possible revision based on the budget consequences. Like modern theatrical writing, the filmmaker writing a low-budget film must treat the financial limitations as a structural framework into which to craft the story. If no flashback to the Eiffel Tower is possible, a close up of a toy replica in a store window might do the trick.

Once the financing begins in earnest, however, the role of the budget changes. Ultimately, the budget plays a pivotal role in identifying the costs of every element of the project to the financial participants of the project. This includes the investors, the lenders, the completion bond company, and the unions. Once a commitment has been made, there can be few significant changes without approval. No matter how artistically compelling, a filmmaker may not unilaterally decide to film for an extra two weeks to capture the light. Nor can he drop a name star to pay for those weeks, unless he has permission of the lender or completion bond company. Even investors might get upset by such a change, so the documents must be very explicit regarding which decisions are subject to change and which are not.

Anatomy of a Budget

Those fees which set the pricing tone of the project are described as the “above the line” costs. These include the leading cast members, the director, script, and producer’s fee. In the studio world, these are often negotiated in coordination, so that star salaries are proportionate and the director has a deal somewhat similar to the other above the line participants.

The remaining cast, locations, sets, costumes, permits, equipment rentals, and other expenses are itemized below the line. These costs tend to vary considerably less. The cost of a location permit, for example, does not change based on the fame of the cast. The budget must also reflect the postproduction, including the editing, sound, addition of special effects, and titles.

A budget is comprised of the summary page, known as the top sheet, and a series of department by department itemizations for that budget. Even if a film tops $200 Million, every roll of tape must be budgeted, receipted and credited to its particular account. The numbers may get large, but the attention to detail rarely diminishes. Throughout the course of the production, the actual expenses are compared to the budget to calculate the production’s accuracy in planning and to make those adjustments that are needed to keep the project on time and on budget.

Insurance and Completion Bond Requirements

In addition to the cost associated with the mechanical process of the filmmaking, certain expenses are part of the risk management for the production. Except for the tiniest of productions, each film company must carry a variety of insurance, including as workers’ compensation insurance, cast insurance, liability insurance on the negative and videotape, sets, equipment, and property, and errors & omissions insurance to cover problems with the script such as defamation or copyright infringement. The budget should have a contingency amount, typically of ten-percent of the total budget.

Finally, for many films, the project must be protected with a completion bond. The completion bond company agrees to pay those fees in excess of the ten percent contingency. The cost for this insurance is expensive in both financial and practical terms. The completion bond company retains veto control over cast and crew, and can take over the production if either the shoot begins to fall behind schedule, or re-shoots are necessary. The concern is focused on the budget, so an aesthetically bad but efficient production has little to worry about.

To obtain a completion bond, the production company must have full financing, complete, unambiguous ownership of the story and script rights, full insurance of the production, agreements for use of the primary locations, and a feasibility study or coverage showing that the script and budget balance. The steps necessary to obtain a completion bond make it significantly less likely that it will be needed, so the process serves as a good exercise in planning for many film projects.

Deferrals and Contingent Fees

Royalties, profits and residuals come out of income, so these are not included in the budget for a typical film. For independent filmmaking, however, deferred compensation reflecting income earned but not paid to cast, crew or other parties, are expenses incurred as part of the negative cost of the picture. These should be included in the budget but separately identified. A $50,000 film may have a deferred compensation of $30,000 and cash needs of $20,000. Any contracts or other provisions reflecting return to investors would be based on the $50,000 budget amount rather than the $20,000 cash needs of the project, so the budget should make this clear. Structured in this fashion, any additional royalties paid to the deferred income participants reflects the risk of not receiving their $30,000 in earned income and is therefore much easier for the average investor to respect.

* Jon M. Garon is admitted in New Hampshire and California

…While studios can underwrite lengthy reshoots, artful editing, and enough F/X explosions to distract an audience from almost anything, indie filmmakers are often forced to cross their fingers and hope no one notices the boom in the shot, the hole in the plot, or the day the lead actress was having an allergic reaction to her cough suppressant. And while some flubs can actually lend a low-budget charm to the film, others are serious enough to send viewers streaming out of the theater. For beginning low-budget filmmakers, the trick is knowing which indie cliches are merely annoying and which are truly deadly.

— Filmmaker Magazine | Read The Full Article