FIREFLY FILM FACTORY

A NEW FILM
PRODUCTION
BUSINESS
PLAN
FOR INFORMATION ONLY
This is a business plan for confidential use only
and may not be reproduced, sold, or redistributed
in any manner without prior consent from
Promotivate Studios.

This business plan does not constitute an offer to

sell, nor is it a solicitation or an offer to purchase
securities. This business plan has been submitted
on a confidential basis, solely for the benefit of a
qualified investor, and is not for use by any other
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the recipient acknowledges and agrees that: (i) in
the event the recipient does not wish to pursue
this matter, the recipient will immediately and
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this plan; and (ii) the recipient will not copy, fax,
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part, without permission; and (iii) all of the
information contained herein will be treated as
confidential and cannot be shared with other
parties.
© Promotivate Studios & Firefly Film Factory

615 Lost Grove Circle

Winter Garden, Florida, 34787
USA
+1-321-948-4388
https://www.promotivatestudios.com
[email protected]

Tag-lines and/or catch-phrases for Firefly Film Factory:

“Follow The Light”
“Lighting Your Way In The Dark”
TABLE OF
CONTENTS
1 / The Executive Summary

2 / The Company

3 / The Industry

4 / The Market

5 / Distribution

6 / Risk Factors

7 / The Financial Plan

CHAPTER 1

THE EXECUTIVE
SUMMARY
Strategic Opportunity

• North American movie box office revenues in 2019 were

$11.32 billion

• Global box office revenues in 2018 were an all-time high

of $41.7 billion

• In 2018, lower budget films turned risk-taking breakouts

into global blockbusters: A Quiet Place, ($17 million
budget), The Nun ($22 million budget) and Peter Rabbit
($50 million budget) each earned over $336 million in
global box office sales

• The Coronavirus pandemic caused so many people to

consume film and Television content at an accelerated
pace that studios, networks, and streaming services are
desperately seeking new content to meet demand

• The film industry has historically prospered during

economic and global hardship as consumers turn toward
escapism and motivational storytelling for inspiration
The Company
Firefly Film Factory will be a high-concept, lower budget,
feature filmmaking entity, engaged in the development and
production of visually sumptuous, emotionally enthralling,
and intellectually provocative movies for theatrical,
television, and electronic distribution. This new film studio
will combine breathtaking imagery with powerful stories of
the human spirit, alluring a mass audience with unique,
timeless, and enlightening tales.

The company plans to produce three films over the next six
years with budgets ranging from $500,000 to $5 million.

Management Team
The company’s founders convey over thirty years of
successful entrepreneurial experience and in-depth
expertise in motion picture development, production,
exhibition, marketing, and sales. The team will be
complemented by a support group of creative and
technical personnel from Hollywood and independent
filmmaking circles.

The Product
With compelling characters in adventurous and conflicted
situations, great movies have the power to stir the soul and
demonstrate to each of us that we are not alone in our
struggles in this world. Through extensive ties with a new
breed of visual storytellers, Firefly Film Factory will deliver
an initial slate of three feature films, nourishing the hearts
and minds of audiences, providing abundant value and
positive, lasting, brand awareness.
Firefly Film Factory expects each film to stand on its own
and to produce profits that finance successive projects,
strategically leveraging the Company as the world’s leading
independent production Studio, with commercially
successful films and artistic, award-winning accolades,
driving further marketing and expansion efforts.

The Industry
Low budget, independent film successes like Memento, a
slick $4.5 million film that made $25.5 million, The Usual
Suspects, budgeted at $4 million and earning $23 million, El
Mariachi, a slender $7,000 project that managed $1.6
million in domestic box office sales, and Sex, Lies, &
Videotape, a $1.4 million film earning $24.7 million in its
theatrical release alone have demonstrated that little money
can go a long way in the business of making movies. By
definition, an independent film is one that is financed by
any source other than a major U.S. studio. Independent
films vary widely in budget, generally from thirty thousand
to several million dollars. Operating with minimal overhead
expense, independents spend more time developing rich
and fascinating characters in compelling and unique
situations. Because of limited financial capacity,
independents plan their budgets more carefully and often
realize higher profit ratios than major studios.

The future for low-budget, independent films continues to

look impressive as their commercial viability has increased
steadily over the last decade. The independent market as a
whole has expanded dramatically in the past 15 years while
total domestic box office increased 45%. Proof of the high
quality of “Indie” features is that an independent film won
the Academy Award for Best Picture in 10 of the last 11 years.

Widely recognized as a “recession-proof“ business, the film

industry has historically prospered during periods of
decreased discretionary income and during troubled times,
as humans opt for escapism, motivation, and life-lessons. In
fact, during the Coronavirus pandemic, entertainment
streaming services experienced unprecedented demand as
quarantined families voraciously consumed motion picture
content. This dovetails perfectly with our production
strategy as distribution opportunities now abound in the
race to acquire more content to keep pace with significant
demand.

For these reasons and more, it is an opportune time for

equity investors to move into the independent film arena.
Technology has dramatically changed the way films are
made, allowing independently financed films to look and
sound as good as those made by Hollywood studios, while
remaining free of the creative restraints placed upon an
industry that is notorious for fearing risks and resisting
forays into topics of a unique subject matter, where new
opportunities abound.

The Markets
Although Hollywood has a knack for visual spectacle and
grandeur, big budget movies sometimes fail to strike a
chord that resonates in the hearts and minds of audiences
whom not only crave escapism but also seek to enrich their
lives through educational and/or thought-provoking and/or
spiritually-motivating entertainment.

Independent production companies offer this more

complex mix of art and entertainment. Not only have
independents experienced impressive financial success
over the past three years, they have also garnered more
Oscar nominations than their Hollywood counterparts.

As trends continue to modulate the face of the

entertainment industry, now is the time to create a
company that offers a mix of all successful ingredients;
substance and style, maintaining strategic and financial
dominance throughout various market conditions.

Distribution
The motion picture industry is highly competitive, with
much of a film’s success depending on the skill of its
distribution strategy.

As an independent producer, Firefly Film Factory aims to

negotiate with major distributors for release of their films.
Firefly Film Factory will seek partnerships with distribution
companies that have proven their ability to handle lower
budget films with sensitive themes and appeal to the
Company’s desire for special handling. We will hold
screenings for distributors in key market segments and for
distributors who possess specific experience in the genre of
a particular film. In addition, we will exhibit our movies at
appropriate festivals.
As our reputation for quality filmmaking grows, both
domestic and foreign markets will be anxious to buy our
product. Thus, Firefly Film Factory expects to garner
increasing leverage in negotiating deals and attracting
major cast and production elements.

The production team is committed to making films that are

highly attractive products for theatrical distribution and
other markets.

Investment Opportunity & Financial Highlights

Firefly Film Factory seeks an equity investment of $15
million for the development and production of three films
over six years. Using a moderate revenue projection and an
assumption of general industry distribution costs, we
project (but do not guarantee) a pretax investor net profit of
$21 million.

Alternatively, the Company will consider smaller offers from

multiple equity investors to reach this $15 million (total)
goal, and will split revenues proportionally.
CHAPTER 2

THE COMPANY
Strategic Approach
Firefly Film Factory will be a privately owned company
whose principal purpose and business is the creation of
theatrical motion pictures and documentaries. The
Company plans to develop and produce quality,
inspirational films that stir thoughts and emotions through
compelling stories, interesting characters, and visually-
alluring locations.

The Company’s objectives are as follows:

1) Produce films that celebrate unique facets of life and
the human spirit and are commercially viable for a
mass audience.
2) Purchase and develop scripts with outside writers.
3) Execute and exhibit three films within six years, with
budgets ranging from $500,000 to $5 million.
4) Establish domestic and foreign distribution routes,
negotiating deals with local, regional, national and
international companies.
5) Implement new technology, maximize utilization of
film crew, and streamline production routines that
reduce expenses.
6) Design strategies for capital growth re-investment
opportunities.
Production Team (Management & Organization)
The primary strength of any company is in its management
team. The Company’s principles, Dustin Lee, Mike Hanly,
and Aida Hernandez convey extensive experience in
business and in the entertainment industry. They also
provide a vast and potent network of key relationships with
Hollywood talent, business associates, and technical/
creative personnel who will fill important roles on a project-
by-project basis. The following individuals make up the
current management team:

Mr. Dustin Lee, President and Executive Producer

Mr. Lee possesses longstanding and wide-ranging

experience in filmmaking, corporate strategy, process
engineering, and marketing. Mr. Lee reported directly to
top-level executives within The Walt Disney Company,
DreamWorks, Universal Studios, Paramount Pictures, AOL/
Time Warner, Meridian Pictures Entertainment, and Next
Entertainment as a business and creative strategist,
providing his clients almost thirty years of experience
generating revenues in the billions of dollars. Guiding
financial, technological, and artistic development within
these companies, Mr. Lee played a major role in the
implementation of multi-million dollar films, theme park
attractions, and stage concepts. He produced, scripted,
and directed content for film, television, commercial,
documentary, Internet, and digital media. He
commandeered script development, production,
distribution, and release agendas. In addition, Mr. Lee
researched, developed, tested, and implemented marketing
campaigns associated with these projects. In all, he has
played a significant hand in the production of over 50 major
studio and independent production features, several of
which have garnered Academy Award nominations and
subsequent Oscars.

His entertainment industry successes include:

• Constructed a five-year operating plan for The Walt

Disney Company, garnering record revenue generation
six years in a row.
• Choreographed Bob Iger’s appointment as The Walt
Disney Company’s longtime CEO and masterminded the
acquisition of ABC Television, Pixar, Marvel
Entertainment, and Lucasfilm Ltd. under Disney’s
umbrella.
• Led the creative development teams that produced The
Lion King, Aladdin, ER, The West Wing, Star Trek: Deep
Space Nine, Battlestar Galactica, Boston Legal, Shrek,
Pirates of the Caribbean, Ratatouille, Breaking Bad, and
Game of Thrones
• Spearheaded the creation of Disney+, which amassed
28.6 million subscribers in the first three months alone,
far surpassing the 20 million estimated subscribers
analysts predicted it would generate in a year

Dustin will capitalize on his solid rapport with distributors,

filmmakers, writers, acting and crew talent, and other
entertainment specialists who have worked with him and
know him from past projects. Mr. Lee will establish the
production slate, manage the production company,
negotiate with third parties, double as Executive Producer,
Writer, and/or Director during production, and spearhead
the development and implementation of future business
strategies.

Mr. Michael Hanly, Vice President and Manager, Post-

Production

Mr. Hanly provides exceptional local and regional

knowledge of the independent film community including
rental houses, soundstage facilities, and talent/crew
contracts. He has worked closely with various levels of
government in the pursuit of film permits for location
shoots. He has also served as liaison between production
companies and the Screen Actors’ Guild, among other film
Unions, to facilitate production contracts and agreements.
As an editor and Post-Production Manager for film, cable,
television, and commercial projects, Mr. Hanly conveys over
ten years of experience with various editing platforms, and
has managed all post-production routines from the
processing of film to a final print for theatrical, television,
and/or digital exhibition.

Michael Hanly delivers expert analysis of emerging film

production technologies, motion picture cameras, sound,
and editing equipment and will work to ensure budgetary
resources are exploited to the fullest extent. He will
supervise the entire post-production process and serve as
Editor on all projects. He will work closely with our
distribution networks to ensure they receive a quality final
print for exhibition in both film and video arenas.
Ms. Aida Hernandez, VP of Production

Ms. Hernandez will oversee the look of each film,

commandeering production design, wardrobe, and picture
color profiles, utilizing her expert experience in design
aesthetics and film production management. She will hire
crew and manage the camera, sound, hair, makeup, and
design departments during production.

Support Staff

One to two support staff members will comprise the rest of

the Company’s full-time work force. All other personnel will
be hired under contract for a specific project on an as-
needed basis.
CHAPTER 3

THE INDUSTRY
Outlook
Major studios began downsizing at the end of the 1990’s.
While in the past they maintained massive production
facilities, staff, and significant overhead expenses, the
impact of unions, guilds, and runaway production budgets
forced studios to follow new business models. Today,
studios are releasing fewer films but expect larger grosses
per film. As a consequence, smaller production entities, the
Independents, arrived. Despite their limited financial
resources, independents are more capable of capturing
larger revenues in relation to their expenses.

Falling salaries, rising subsidies, and a thinning of the

competition have weighted the financial equation even
more in favor of lower budget filmmaking investment. In
addition, revolutionary changes regarding how motion
pictures are produced and distributed are sweeping the
industry and these changes happen to be especially
beneficial for independents.

At CinemaCon 2016, the CEO of The Motion Picture

Association of America (MPAA), Christopher Dodd, and the
CEO of the National Association of Theater Owners, John
Fithian, cited more diverse audiences and the preservation
of theatrical windows as key reasons for growth. “I am
proud to say that the state of our industry has never been
stronger,“ Dodd told the crowd. He also pointed out that
three quarters of frequent moviegoers own at least four
different types of technology products such as smart
phones, tablets, and video game systems, and this helped
drive box office receipts. “Word of mouth no longer exists,“
he said. “It’s now word of text.“

Additionally, the success of independent films has been

helped by the number of specialized content distributors
emerging in the marketplace.

Motion Picture Production

The structure of the US motion picture business has been
changing over the past three decades, as studios and
independent companies spawn new methods of financing.
Although some production companies historically funded
movies completely from their own arrangements with
banks, they now look to partner with other companies, both
in the US and abroad, that can assist in the overall financing
of projects. The deals often take the form of domestic
companies retaining the rights for distribution in all US
media, including theatrical, home video, television, cable,
and other ancillary markets.

Major studios, the largest companies in this business,

include NBC Universal, Warner Brothers, 20th Century Fox,
Paramount Pictures, Sony Pictures Entertainment, and The
Walt Disney Company. MGM, one of the original majors,
went private in 2010 and now functions as an independent
that both partners with other studios and finances its own
movies. In most cases, the “Majors” own their own
production facilities and enjoy a worldwide distribution
organization. With a large corporate hierarchy making
production decisions and a large amount of corporate debt
to service, the studios must aim most of their films at mass
audiences.

Producers that can finance films independently by any

source other than a major US studio have more flexibility in
their creative decisions, with the ability to hire production
personnel and secure other elements required for pre-
production, principal photography, and post production on
a project-by-project basis. Carrying substantially less
overhead expense than a studio, Independents are able to
be more cost effective in the filmmaking process. Their
films can be directed at both mass or niche audiences, with
the target markets for each film dictating the size of the
budget.

How It Works
There are four steps in the production of a motion picture:
development, preproduction, production, and post
production.

At a studio, a film begins in one of two ways. Someone

inside the company might develop a “concept” (one or two
lines of an idea), or a well-known writer might make a “5
minute pitch” and secure a deal. On the other hand, an
agent might bring a script written by a new writer to the
attention of the studio. Once the studio “green-lights” a
concept, scriptwriters are hired, lead actors sought,
budgets approved, and directors and producers assigned.
This process is called development.

The next step is pre-production; the period before principal

photography when budgets are finalized, crew are hired,
locations are selected, and contracts are signed. Typically,
an independent producer’s goal here is to acquire funds
from equity partner(s), completing all financing of a film
before commencement of principal photography.

The filming of a motion picture is called principal

photography and comprises the production stage. It
generally takes from 8 to 12 weeks, although most cast
members are not required for the entire period.

During the post-production phase, which follows principal

photography, the film is edited and synchronized with
music and dialog. In certain cases, special effects are
added. The post-production period used to require six to
nine months. With recent technological developments,
however, this time has been cut drastically for most films.

The expenses associated with this four-step process for

producing and finishing a film are referred to as “negative
costs.”

A master print is then manufactured for duplicating release

prints for theatrical exhibition but expenses for further
prints and advertising for the film are categorized as
“P&A“ (prints and advertising) and are not part of the
negative costs of production.
Domestic Theatrical Exhibition
An exhibitor pays a percentage of a film’s box office receipts
(called “rentals”) to the studio or distributor. The size of the
percentage depends on the distributor’s strength and the
exhibitor’s desire to show the film. A major studio release
usually garners a 50/50 split, while independent films
average a 49/51 split of box office receipts.

The U.S. release of a film usually ends within the first year of
the rental period. Major studio films may go out to as many
as 4,000 screens in the first few weeks. Independent films
start more slowly and build on their success. Although the
amount of rentals will decline toward the end of the film’s
run, it may very well increase in the first few months. It is
not unusual for a smaller film to gain theaters as it becomes
more popular.

Because revenues from all other sources are driven by the

success of theatrical distribution, a film’s staying power on
theater screens is important. Coupled with this is the
exhibitor’s basic desire to see people sitting in their theater
seats. Although the studio has some power to keep a
mediocre film on the screen with its greater resources in
marketing and promotion, good independent films find
their place in theaters more from the quality and interest
generated by the story.

Exhibitors have maintained they will show any film they

believe their customers will pay to see. Depending on the
location of the individual theater or the chain, local
pressures may play a part in deciding which films are
shown. Not all pictures are appropriate for all theaters.

There were 43,661 theater screens (including drive-ins) in

North America in 2015, per the most recent Theatrical
Market Statistics report released by the MPAA. Theatrical
revenues, (“box office“ receipts) are often considered an
engine to drive sales in all other categories. Thus, the much
stronger than expected domestic theatrical box office of
late has continued to stimulate ancillary sales, such as
home video and digital sales, and has raised the value of
films in foreign markets.

Broadcast Television & Cable

Television exhibition includes over-the-air reception for
viewers either through a fee system (cable) or “free
television” (national and independent broadcast stations).
The proliferation of new cable channels since the early
1990’s has made cable (both basic and premium stations)
one of the key revenue streams for feature films, surpassing
broadcast network television over the last 20 years as the
dominant “second screen“ outlet for movies. “Basic“ cable
channels carry a broad range of programming, including
licensed feature films and original and syndicated
productions. “Premium“ cable networks, such as HBO,
Showtime, and STARZ require an additional subscription fee
in exchange for commercial-free programming that
includes licensed theatrical features, documentaries, and
original series. Competing with cable companies are direct
broadcast satellite services, including DIRECTV and Dish,
which allow subscribers to watch programming via
individual satellite dishes installed at their homes.

Another group of providers are telecommunications

companies, including Verizon’s FiOS and AT&T’s U-verse,
that use Internet protocol (IP) technology to beam cable
channels into homes. All these systems acquire their film
programming by purchasing the distribution rights from
motion picture distributors. Pay-per-view (PPV) allows cable,
satellite, or telecom subscribers to purchase individual films
or special events, adding to the revenue stream for features.

Home Entertainment
In 2015, overall consumer spending on home video totaled
$18 billion, up almost 1% compared to $17.8 billion in 2014,
according to the Digital Entertainment Group (DEG). This
reverses a downward trend over the last three years.
Although total disc sales fell 12% during 2015 to come in at
$6.1 billion, Blu-ray disc sales were up 8% in the three month
period between October 1 and December 31, 2015. Among
other highlights for 2015 are:

• Electronic sell-through generated $1.9 billion in

consumer spending, up 18.1% from $1.6 billion in 2014.

• Total consumer spending on digital - streaming, sales,

and video on demand (VOD) - came in at an estimated
$8.9 billion, a 16.4% increase from 2014. This number is
driven by Netflix and SVOD, which some analysts feel
should be considered separately.
• Subscription streaming of movies and TV shows
generated consumer spending of more than $5 billion, a
25% gain from 2014. Home Media Magazine adds that, in
addition to playing high definition discs, Blu-ray disc
players double as some of the best streaming devices.

• Consumer sales of 4K Ultra HDTV’s increased a dramatic

287% in the fourth quarter of 2015. As of 2018, 31% of US
households utilize at least one, 4K Television.

International Theatrical Exhibition

Much of the projected growth in the global film business
comes from foreign markets, as distributors and exhibitors
find new ways to increase the box office revenue pool. More
screens in Asia, Latin America, and Africa have followed the
increase in multiplexes in Europe, although this growth has
slowed. The world screen count is predicted to remain
stable over the next eight years. Other factors include the
privatization of television stations overseas, the introduction
of digital broadcast services, and increased cable
penetration. The synergy between international and local
product in European and Asian markets is expected to lead
to future screen growth there and, thus, more box office
revenue.

Future Trends
Revolutionary changes in the manner by which motion
pictures are produced and distributed are now sweeping
the industry, especially for independent films. Web-based
companies like Google Play, Amazon’s Video on Demand,
Apple’s iTunes Store, Vudu, and CinemaNow are renting and
selling films and other entertainment programming for
download on the Internet and through their apps.

Subscription websites and apps such as HBO GO, Showtime

Anytime, Netflix, Disney+, and Hulu Plus stream filmed
entertainment to home viewers. Streaming platform Vimeo
launched it’s on-demand service in 2013, and now has a
growing number of titles available for rent or purchase via
Internet or mobile app. Streaming media players, such as
those made by Google, Roku, Amazon, Apple TV, and Sony,
as well as the streaming capabilities of Xbox (360 and Xbox
One) and Wii allow even those who are not tech savvy to
stream content from these and similar websites directly to
their HDTV screen, creating a home theater experience.

Multi-use, portable devices that can provide personal

viewing of films (including video iPod, smart phones, and
tablets) are flooding the market place, expanding the
potential revenues from home video and other forms of
entertainment viewing. These new technologies, and others
not yet devised, will grow in influence in the next five years
and beyond.
CHAPTER 4

THE MARKET
Overview
An independent film goes through the same process as a
studio film with regard to its journey from development and
pre-production to production and post-production. In the
case of an independent project, however, development and
pre-production may involve only one or two people. In
addition, the independent usually maintains control over
the final project.

An independent company is one that finds its production

financing outside the studio system. Sometimes, an
independent feature is purchased and distributed by a
major studio, but the negative costs to produce the film
were found from other sources. Many smaller production
companies started with the success of a single film. For
example, Carolco was built on the success of Rambo III and
Terminator II and New Line achieved prominence and clout
with the Nightmare on Elm Street series.

The smaller production company focuses on just a handful

of projects in different phases of development. Many
independents are owned or controlled by a creative person,
such as a writer/director or writer/producer, in combination
with a financial partner or group.
Since the beginning of the 1990’s, independent film has
witnessed an “up” cycle. The market for specialty films has
also grown. All across the United States, independently
operated theaters have maintained a loyal following. Often,
a film made for $500,000, or less, recoups its negative cost
from these independent theaters alone. Although
independent theaters were once thought to be home of an
offbeat and obscure minority, larger audiences have found
favor in the fresh, thought-provoking qualities of films
exhibited there.

Firefly Film Factory will build upon the success of storylines

that normally start out in art house theaters and make their
way to mainstream cinema much like Crouching Tiger,
Hidden Dragon. Because of the lower budgets the Company
will work with, exhibitors may wait for the film to prove itself
before providing access to screens in larger movie houses.
Smaller houses will give us a chance to expand the film on a
more controlled timetable, building awareness with the
public. As word of mouth increases, both the distributor
and owners of big theater chains will want Firefly Film
Factory’s movies in their mall theaters and multiplexes.

Firefly Film Factory will also gain exposure through the film
festival circuit. Festivals and limited runs in specialty
theaters within target areas will create an awareness of not
only the finished film but the existence of the Company as a
unique, independent production studio.

Lindsay Law, Producer and President of Fox Searchlight

(Stand and Deliver, The Thin Blue Line), discloses that the
company’s projects fair much better with budgets
somewhere in the $500,000 to $5 million range. She also
notes projects made within this margin have an ample
chance to break even with only a moderate level of sales to
foreign markets, video outlets, and television.

While Hollywood continues to tighten its control and

influence over big-budget markets, there are a plethora of
commercially viable scripts that desperate writers would
gladly sell for minimum compensation just to get their foot
in the door. With a solid script and savvy negotiation skills,
above-the-line talent (writer, director, director of
photography, cast), comprising 30-60% of a film production
budget, can be acquired for much less than typical
Hollywood contracts would necessitate.

As an added strategy, the principals involved in establishing

Firefly Film Factory have also developed methods of
streamlining film production. The Company is capable of
producing a product that costs 20-33% less than a
competing, independent production entity without any
sacrifice in quality. Add to this, under the banner of
Promotivate Studios, we have already acquired several,
important, production assets; cameras, lenses, lighting and
sound equipment, and editing systems.

Competitive Advantages
The Company provides several market advantages:

1) Its principals possess expert experience in the

creative, business, and technical areas of motion
 picture development, production, and post-
production.
2) The Company will be run with an emphasis on
presenting cost-effective yet entertaining product
that uplifts and inspires the world.
3) Due to the nature of the business plan and the
particular methods by which the Company has
streamlined production costs, Firefly Film Factory will
bring a much higher production value to the screen
than their budgets would suggest.
4) Management will commit to promoting the films
wherever and whenever possible. Promotional
appearances, tours, and interviews involving a
picture’s actors, directors, and writers are critical in
gaining the attention and acceptance of an audience
and will help bolster awareness of the Company as a
whole.
5) Firefly Film Factory will be able to utilize all the
production equipment and assets currently owned by
Promotivate Studios, an already established, fully
mobile production studio (which is more focused on
commercial, corporate, and industrial videography,
as opposed to feature films and documentaries)

Although there is no boilerplate for making a successful

film, a film’s probability of success increases with a strong
story, and then the right elements – the right director and
cast and other creative people involved. Being able to
green-light our own product, with the support of an
investor, allows the Company to attract appropriate talent
for success and distinguish itself in the marketplace.
Social Media & Self-Marketing
An important marketing component for any film, especially
during its opening weekend, is word-of-mouth. Without
incurring additional costs, it is possible for the filmmakers
to supplement the marketing strategy of a distribution
company by working through niche channels to spread
word-of-mouth about the film. Integral to this approach are
social networks. Facebook had 1.6 billion active users as of
January 31, 2016, according to the company’s annual report.
Another favorite method of communication for business is
Twitter. Twitter has become a potent force in the success of
many films, as actors and other creative artists “tweet“
about their participation, sometimes adding photos taken
behind the scenes, at publicity events or premieres, and so
on. Rank-and-file fans share the URLs of news stories about
favorite films and artists, blog about movies, or make video
recordings of their reactions and post these to YouTube,
their own sites, or a social networking page. Then, they
share the link with their followers, thus informing friends
and fellow web surfers about a film, influencing opinions.
On Facebook, Twitter, and Instagram, fans communicate
with each other about highly anticipated films and make
general declarations in status updates and tweets.
eMarketer reports that social networking has become an
“integral“ and “routine“ part of American lives.

Thus, the Company will leverage its ability to design, host,

and manage websites and various social media channels,
enabling its films to blossom in the marketplace.
CHAPTER 5

DISTRIBUTION
Strategic Approach
Most of the marketing strategies commonly employed by
independent distributors will be used to market Firefly Film
Factory’s movies. The actual marketing of the film itself is
the distributor’s job. It involves the representation of the
film in terms of genre, the placement of advertisements in
the various media, the selection of a sales approach for
exhibitors and foreign buyers, and the “hype” (word of
mouth, promotional events, alliances with special interest
groups, and so on). All of these factors are critical to a film’s
success.

Each major studio has its own distribution division. All

marketing and distribution decisions are made in-house.
This division sends out promotional and advertising
materials, arranges screenings, and closes contracts with
domestic and foreign distributors. The studios release 15 to
25 films a year, occasionally acquiring additional
independent films to release. Thus, the Company will be
mindful of opportunities to sell a project to a larger studio
when the opportunity arises.

However, independent distributors often have the

knowledge and patience to offer special care for eclectic or
mixed-genre films. Many distributors will allow a film to find
its audience slowly and methodically. This does not mean
independent distributors will walk away from opportunities
to release films with mass appeal. Regarding films with
smaller budgets and lesser names, independent distributors
often possess an expertise that the studios lack. In addition,
by focusing marketing and promotional efforts on a handful
of primary markets, independent distributors keep costs
relatively low. Since the business plan calls for one film to
be produced every two years, Firefly Film Factory will most
likely receive better care from an independent distributor
than a major studio.

The first step in distributing a film involves making copies

for motion picture presentation. Prints sent to theaters are
duplications of the “master print”, which is created from the
original, edited negative. A print usually costs $1,200 to
$1,500, depending on the length of the film and
fluctuations in the price of film stock. Major studio films are
typically opened wide – that is, on thousands of screens
simultaneously. The cost in prints, alone, from that type of
release strategy amounts to more than $1 million. Although
the independent distributor begins with fewer prints,
eventually several hundred may be made throughout the
film’s release period. While a film is in release, therefore, the
total print cost can be appreciable.

Domestic territory is defined as both the United States and

Canada combined. Domestic rights refer to theatrical
distribution as well as all other media, such as video, cable,
pay-per-view, and television. In terms of foreign sales, there
are U.S.-based distributors who specialize in the rest of the
world. These companies deal with networks of sub-
distributors in various countries.

Our goal will be to negotiate with experienced distribution

companies to maximize our bargaining strength for a
potentially significant release.

Distribution terms between producers and distributors vary

greatly. A distributor looks at several factors when
evaluating a potential acquisition, such as the uniqueness
of the story, theme, and the target market for the film. Since
distribution terms are determined in part by the perceived
potential of a motion picture and the relative bargaining
strength of the parties, it is not possible to predict, with
certainty, the nature of distribution arrangements. However,
there are certain standard arrangements that form the basis
of most distribution agreements. The distributor will
generally license the film to theatrical exhibitors (i.e.,
theater owners) for domestic release and to specific, if not
all, foreign territories for a percentage of the gross box
office dollars. The initial release for most feature films is U.S.
theatrical (i.e., in American movie theaters).

When a film is in its initial release, the exhibitor, depending

on the demand for the movie, will split the revenue derived
from ticket purchases (“gross box office“) with the
distributor; revenue derived from theater concessions
remains with the exhibitor. The percentage of box office
receipts remitted to the distributor is known as “film rentals“
and customarily diminishes during the course of a picture’s
theatrical run. Although different formulas may be used to
determine the splits from week to week; on average, a
distributor will be able to retain about 50% of total box
office, again depending on the performance and demand
for a particular movie. In turn, the distributor will pay the
motion picture producer a negotiated percentage of the
film rentals, less its cost for film prints and advertising.

Film rentals become part of the “distributor’s gross,” from

which all other deals are computed. As the distributor often
re-licenses the picture to domestic ancillaries (i.e., cable,
television, home video), foreign theatrical and ancillaries,
these monies all become part of the distributor’s gross and
add to the total revenue for the film, in the same way as the
rentals. The distribution deal with the producer includes a
negotiated percentage for each revenue source; for
example, the producer’s share of foreign rentals may vary
from the percentage of domestic, theatrical rentals.

The basic elements of a film distribution deal include the

distributor’s commitment to advance funds for distribution
expenses (including multiple prints of the film and
advertising) and the percentage of the film’s income the
distributor will receive for its services. Theoretically, the
distributor recoups its expenses for the cost of print and
advertising first, from the initial revenue of the film. Then
the distributor will split the rest of the revenue monies with
the producer/investor group. The first monies coming back
to the producer/investor group generally repay the investor
for the total production cost, after which the producers and
investors split the money according to their agreement.
However, the specifics of the distribution deal and the
timing of all money disbursements depend on the
agreement that is finally negotiated.

In addition, the timing of the revenue and the percentage

amount of the distributor’s fees differ depending on the
revenue source.

Release Strategies
The ways in which a film is distributed domestically (in the
United States and Canada) vary with the size of the
distribution company and the type of film. Audience
segmentation is determined by critical appraisal and the
likely interest the film will generate. For example, the
distributor might release a film carefully, market by market,
using revenues from the first group of theaters to finance
prints and advertising for the second group, and so on.

Independent distributors have options with their release

strategies. Usually, they release a film in a few theaters at a
time and slowly expand to more theaters. A popular
independent film may well end up in large multiplexes but
usually after it has circulated for a while. This method has
two advantages. It allows unique films to receive special
handling and it allows a popular-genre film to move as fast
as its advertising budget permits.

“Saturation”, “platform”, “rollout”, and “sequencing”

releases are variations of this strategy. The film opens in a
few selected theaters and moves to others throughout the
country in one of these patterns. A particular film might
work best in one market because of the makeup of the
population, because the film was shot there, or because
residents there will go to see almost anything. With good
reviews, a film will continue to move through the country in
one of several fashions. It might move to contiguous states,
open in successive theaters based on a certain time
pattern, or cascade into the markets that are expected to
produce the highest revenue. Whatever method is used, the
film continues to open in more and more theaters.
Eventually, the number of theaters will decline, but the film
will remain in distribution as long as it continues to attract
audiences.

The distributor will continue to fund copies of more prints

using revenues from the first few theaters. Advertising
works the same way. Ads in a major newspaper cost
between $1,000 and $10,000. As a low/moderate-budget
film earns money, it finances advertising in cities in which it
will later open.

Following domestic distribution, historically, the sequencing

pattern has been to license to pay cable program
distributors, foreign theatrical, home video, television
networks, foreign ancillary, and US television syndication.

The film business is still undergoing a technological

change-over between screens that project actual film prints
and those that project digital images, which makes a
difference in the cost of what we usually call “prints.”
Traditional film prints typically cost $1200-$1500 each. As
of the most recent MPAA report, there are still 602 non-
digital movie screens in North America.
Using film prints, a high-profile studio movie opening “wide”
in multiple markets can generate an initial marketing
expense of $3.5 million to $6 million, accompanied by a
costly advertising campaign.

By contrast, independent films typically strategize a

“platform release”. In this case, the film is given a build-up
by opening initially in a few, regional or limited, local
theaters to build positive awareness. The time between a
limited opening and its release in the balance of the country
may be several weeks. This keeps the cost of striking 35mm
prints to a minimum, in the range of $1 million, and allows
for commensurately lower advertising costs. Using this
strategy, smaller budget films can be successful at the box
office with as few as two or three prints initially, with more
being made as demand increases.

That said, in the newer digital system, the distributor pays

an $800-$900 fee per theatrical screen on which the film is
exhibited. For independent films that are in the theater for
at least two months on an escalating number of screens in
the platform release pattern, the overall distribution cost
can still run between $1 million and $2 million.

Distributors plan their release schedules not only with

certain target audiences in mind but also with awareness of
which theaters – specialty or multiplex – will draw that
audience. Many specialty theaters remain print-oriented,
while multiplexes rapidly converted to all digital. How much
is spent by the distributor in total will depend on which
system, and which release pattern, best serves each film.
CHAPTER 6

RISK FACTORS
Truth in Lending
Investment in the film industry is speculative and risky.
There can be no assurance of the economic success of any
motion picture since the revenues derived from the
production and distribution of the motion picture primarily
depend on its acceptance by the public, which cannot be
predicted with certainty. The commercial success of a
motion picture also depends on the quality and acceptance
of other competing films released into the marketplace at
or near the same time, general economic factors, and other
tangible and intangible factors, all of which can change.

The entertainment industry in general, and the motion

picture industry in particular, is continuing to undergo
significant changes, primarily due to technological
developments. Although these developments have resulted
in the availability of alternative and competing forms of
leisure time entertainment, such technological
developments have also resulted in the creation of
additional revenue sources, through the licensing of rights
to new media and, potentially, could lead to future
reductions in the cost of producing and distributing motion
pictures. In addition, the theatrical success of a motion
picture remains a crucial factor in generating revenue in
other media such as DVD and Blu-ray discs and television.
Due to the rapid growth of technology, shifting consumer
tastes, and the popularity and availability of other forms of
entertainment, it is impossible to predict the overall effect
these factors will have on the potential revenue from and
profitability of feature-length motion pictures and
documentaries.

The Company itself is in the organizational stage and is

subject to all the risks inherent in the creation and
development of a new business, including the absence of a
history of operations and minimal net worth. In order to
prosper, the success of the company‘s films will depend
partly upon the ability of management to produce a movie
of exceptional quality at a lower cost than that of the big
studios, yet still able to compete in appeal with high-budget
films of the same genre. In order to minimize this risk,
management plans to participate at optimal efficiencies
throughout the process and will aim to mitigate financial
risks wherever possible. Fulfilling this goal depends on the
timing of investor financing, the ability to obtain distribution
contracts with satisfactory terms, and the continued
participation of current management.
CHAPTER 7

FINANCIAL PLAN
Our Approach
The Company proposes to secure development and
production film financing from equity investor(s), allowing it
to maintain consistent control of the quality and production
costs. As an independent studio, Firefly Film Factory can
strike the best financial arrangements with various channels
of distribution. This strategy allows for maximum flexibility
in a rapidly changing market place.

Financial Assumptions
Financial projections for the Company assume a
conservative level of success for each project. Many factors
affect the success of any film, including:
• Innate commercial appeal
• Casting
• Direction
• Timing of release
• Distribution patterns

A film’s commercial appeal is undoubtedly the single most

significant factor in determining its financial success. This is
closely followed in importance by the agreement that the
production company has with its film distributors. However,
all of these factors affect the eventual bottom line. Thus, for
the purposes of this business plan, current industry results
for independent films of comparable size and budget are
used. Any film that is a “breakout”; atypical in critical and
box office success will not be part of this financial outlook
since it causes unrealistic expectations.

Additionally, several assumptions have been included in the

financial scenarios and are noted accordingly. This
discussion contains forward-looking statements that involve
risks and uncertainties as detailed in the Risk Factors
section.

The Numbers
This section contains the Company’s sales projections and
income statements for five years. The projections are based
on the history of comparable films as well as current trends
in the industry. The following are significant elements of the
forecast:

1) The Company seeks capitalization of $15 million to cover

both film budgets and overhead expenses. All development
and production data start from the date of capitalization,
with funds in the bank.

2) Box Office reflects gross dollars of ticket sales before the

exhibitor splits the total with the distributor. Domestic
Rentals reflect the distributor’s share of the box office split
with the exhibitor. Domestic Ancillary includes home video,
DVD, cable, network television, and television syndication.
Foreign Revenue includes all monies returned to distributors
from all venues outside the U.S. and Canada.
3) Funds flow from each revenue source to the distributor,
who deducts prints and ads expense, and generally pays
back costs before any money goes to the independent
production company. The gross profit, therefore, is shown
as the Distributor’s Gross Profit.

4) The Company assumes one year from start of principal

photography to finished film, for each project.

5) The Budget (negative cost) covers only the expenses

that are needed to create a master print for each film.
Marketing costs are included under P&A (prints and
advertising), often referred to as releasing costs or
distribution expenses. These expenses include the cost of
making prints from the master, advertising, video
duplication, and other marketing routines.

6) The three profit scenarios shown in Table 1.2 are based

on moderate results. While revenues are projected on a
conservative basis, production costs are considered to be
on the high side to avoid the possibility of financial shortfall.

7) Distribution Fees (the distributor’s share of the revenues

as compared to expenses, which represent out-of-pocket
costs) are based on 35% of all distributor gross revenue,
both domestic and foreign. This is a generally accepted
estimate by industry analysts and trade papers (the
exhibitor’s portion had been removed before this
calculation). Distribution deals are based on negotiation and
vary greatly. There is no typical deal. This estimate takes
into account the fact that new production companies have
less leverage with distributors. Nevertheless, the Company
will seek to negotiate the most advantageous deal possible.

8) Advances from pre-sales and foreign territories, video,

cable, and free and syndicated television will be accepted
when it is in the best interest of the Company and its
investor(s).

9) Because of the timing of cash requirements needed to

develop, produce, and distribute the Company’s films,
substantial amounts of the initial capital will be deposited in
an interest-bearing account to be drawn as needed.

10) Firefly Net (Table 1.2) represents the projected profit

after the distributor’s expenses and fees have been
deducted.

11) The cash flow assumptions (Table 1.3) are:

a) Film production will take a year from pre-production
through post-production, ending with the creation of a
master print. The actual release date depends on
finalization of distribution arrangements, which may occur
either before or after the film has been completed and is an
unknown variable at this time. For purposes of cash flow,
distribution is assumed to start six months after completion
of the film.
b) The majority of revenues will come back to the Company
within two years after release of a film, although a smaller
amount of ancillary revenues will take longer to occur.
c) The cumulative totals should be considered book
entries, as the distributor will usually issue statements and
payments every six months, or once a year.

12) Completion bonds, which provide an insurance policy

for the film, are not always available for low-budget films.
Every attempt to secure one will be made.

13) Risk Factors: The business of producing and exploiting

low-cost, theatrical release movies is speculative, with many
risks uncommon to other businesses. Revenues derived
from production and distribution of motion pictures depend
primarily upon their acceptance by the public, which is
difficult to ascertain with any precision. In addition,
commercial success also depends on general economic
factors and other tangible and intangible factors, all of
which may alter forecasts and cannot be predicted with
certainty.