Fronting up to the Backend

In the last couple of years you have probably been offered a share of the ‘back-end’ as part of your remuneration for services. Assuming you are not in the porn business, this will be a reference to the net profits of the film or TV series in question (often referred to as ‘producer’s net profits’).

In this age of micro and no-budget films, a percentage of the producer’s net profits is becoming more common as a way of remunerating key personnel, particularly when production budgets are low and cash is short.

Film financing and accounting can be complex (although if you want really complex, try looking at the financing for a Broadway musical) and it is often difficult to assess at the time you do the deal what your points in the backend are likely to translate to in dollar terms. Luckily though this complex money flow can on most occasions be reduced to a relatively simple equation: 0% of 0 = 0.

That may seem cynical, but to be honest it is pretty realistic. I remember hearing anecdotally that only seven or eight films have ever made a profit in the whole history of NZ film. (I haven’t verified this, but I note the NZ Film Commission’s estimate is that one-in-ten films make a profit). Backend participants in a film are sometimes surprised to read glowing reviews of a film they were involved in, and to hear reports of great box-office returns, only to find that their much vaunted profit share is still not bearing fruit.

There could be a number of reasons for this (including the possibility of creative accounting) but to put it simply, the main reason is that there are a lot of fingers ahead of yours in the proverbial pie. Actually, this is not a great metaphor. Think about it this way: the revenue flow from a film is often referred to as a ‘waterfall’ or ‘cascade’. You are the last stage of that waterfall, and there are a lot of irrigation schemes and hydro dams upriver from you.

So let’s break that metaphor down a bit. First, I’d like to make a point that seems obvious, but is worth stating: revenue does not mean profit. Before revenue becomes profit there are a number of people that need to be paid. Taking a theatrical release as an example, let’s see what happens to the money before you see any of it...

First up of course, the cinema that exhibits the film take their cut. This can vary a lot, but might be up to 70% of box office gross. The balance will be paid to the distributor from which they deduct their commission (usually 20% but can be higher) plus costs and any advances (if any) already paid to the producer. All up, the amount retained by the distributor could well be around 45% of the net box office receipts from the exhibitor (there are a number of variables, including the number of prints made and advertising spend). There may also be a sales agent fee of up to 15% to be paid. So you can see that by the time the producer receives their share, the pie has already shrunk dramatically (ok, to be consistent with my metaphor, the mighty torrent has shrunk to a mid-sized braided river).

But we are not finished yet. The investors have to be paid. The people who fronted up with the capital to produce the film in the first place want to recoup their investment (and hopefully make a return). And we know that films (even low budget) are incredibly expensive to make. So the producer now has to divert the much-diminished flow of money originating at the box office to repaying original investment in the production. How this will impact the chance of a return on your profit-share obviously depends on the amount of production (and other) funding – but also on what type of investor – is to be repaid. Generally speaking, a public funder (for example the NZ Film Commission) will allow the producer earlier access to the revenue flow, or at least a portion of it, than a private investor or lender.

The braided river has now become a brook, and it’s probably not even babbling.

Even after all this, and the unlikely event that the production costs of the film are recouped, there are still likely others ahead of you in the queue. These could include service providers who worked for a deferred fee, and the producer’s recoupment of their own expenses.

Goodbye brook, hello dry creek bed. (Try saying that fast!)

Not every film project you are involved in will follow this model, but it is the traditional one. You therefore need to be realistic about what it is likely to be worth when considering a job where remuneration includes a profit-share component. And if you do work on this basis, I suggest, in line with Guild advice, that your invoice shows your full rate discounted by a percentage to the actual amount you have negotiated to be paid. This helps to reinforce – both to you and to the people hiring you – what your services are actually worth.

An earlier version of this article appeared in Take magazine, for NZ Screen Directors’ Guild.