How it works: the film industry

How does a film idea progress from script to silver screen? Industry insider Matthew Reeves reveals all

The script

Without this, there's no movie (which isn't strictly true, but a script does help). So at some point a writer has to get creative and spill their brains onto a page. The script can come from anywhere; it could be a book adaptation, the story of someone's life or a genuine work of creativity. The aims of the writer are twofold: came up with a great script that they can sell, and have it made.

A writer aims to sell their script to a producer through an option contract. There is an initial payment to the writer for the right to develop (that is, change) the script and if the first day of shooting actually occurs, ownership is transferred to the producer for an additional fee. These can be very low payments - $1000/$4000 for a very low budget film, but top Hollywood scriptwriters sell their work for $250,000/$1m a go. It isn't uncommon for amazing scripts to be rejected over awful shockers by producers' friends and sons of film finance lawyers. It really is who you know.

The producer

The producer is the money person who buys the scripts, hires the director, actors and crew and organises the making and selling of the film. The producer is usually employed by a production company. Production companies are often referred to as "independent", but all this really means is that they don't have a distribution deal with a major studio, that is, Sony, MGM, 20th Century Fox, Paramount, Warner and Universal. While studios can buy scripts the usual way, they also have the power and money to decide they need, "a kids' fantasy movie, with an A-list actor, for release in the summer holidays in 2011", get a writer to craft it, attach a producer, put up the funds themselves, make the movie (in their own studios), and distribute it themselves.

Once a producer has acquired a script, their end game is to sell the finished movie to a distributor for more than they invested. There are a couple of ways to do so. A new producer with less of a reputation will need to raise finance from somewhere: personal savings, private investment, a wealthy relative or credit card. Producers with a better reputation can go about things a different way. They can contact a desirable actor's agent, send a script and make a financial offer to them with, crucially, payment deferred until shooting starts. Once the producer has a cast of known actors, you can create a sales package, that is, a script with a confirmed cast. All being well, a savvy, connected producer can have a distribution deal before having paid anyone. And then all they have to do is make the film come in on budget.

However, until a producer gets a "reputation", this option may not be open to them. Therefore there is a lot of financial pressure on the creation of an ultra-low budget movie. What drives up costs? People and locations. Actors, extras and crew all rather selfishly want to get paid, and each time you move locations, the whole cast and crew has to move and be put up in a hotel, which tends to get costly. The solution for an up-and-coming producer is a "self contained thriller", the classic naff horror movies which fill our cinemas. Shopping list: one location (a house/studio); five or six pretty, young, unknown actors to be trapped in it; a man in a mask (can be played by a stand-in until you see his face). As the story unfolds, people die which means they are out of the story, off set and not paid for any more days' work. Creating a very low budget film is appealing to the distributor as they can make quite reasonable profits off a straight to DVD bargain basement film. The producer is also likely to make a lot of money from the sale to the distributor (front end profit) and from the additional cinema or DVD sales (back end profit).

There are further financing options for the producer. Most countries offer some form of tax credit to films produced there, as it shows off glorious Glasgow, or similar. Interestingly, the USA does not do so. For the producer, taking advantage of such tax credits reduces costs significantly. To reduce the risk further, co-productions are used. For example, a Canadian-German co-production will cash in on both Canadian and EU tax credits, splitting the financing and the risks of the film.

In general, financing is hard to come by and unstable; private investors and family members get cold feet, or go bankrupt, and more often than not a script will never make it to the screen. For this reason at any one time an experienced, professional producer is likely to have multiple scripts "in development". One producer I know of has 20. That's 20 writers all hoping for that second paycheck. The producer only expects to make two of them.

A great producer has the ability to make huge money, but also has the ability to go bankrupt very fast. With most of the risk of a film on their shoulders, it is undoubtedly an insanely stressful job. As the majority of producers are self employed, making a bad film (which might have taken two years) can be pretty bad for the blood pressure.

The distribution company

The role of the distribution company is to get the finished movie into cinemas and out in DVD format. They have the advantage of knowing the budget, actors and have sometimes seen the whole finished film before investing, so a seasoned distributor may be able to pick up a bargain and make a hefty profit.

Distribution is really a marketing job, which is a tricky task, and takes a heck of a lot of money. The expense of marketing is why so many sequels are made, known as "pre-sold franchises". Take American Pie, Sex and the City or The Simpsons Movie. It doesn't take a genius to realise that these movies can be pushed with a much tighter budget. It's why films like those in the Twilight saga will start shooting a sequel before the editing of the previous one has finished. If they can churn them out fast enough, the marketing buzz from the first movie has barely died down, or you can at least ride the coat tails of the DVD release. Producers and distributors alike love these.

A producer can sell the rights to any number of distributors based on their experience, country and expertise. One distributor might be used for US cinemas, one for US DVD sales, one for European sales, and so on. To coordinate these, a sales agent can be utilised, who will take a cut of the sales revenue.

But what if no distributor is interested in your film, which may have been made with nobodies, on a nothing budget and with no room left for marketing. How can you get the word out? The answer is film festivals. Cannes, Venice and Sundance are free marketing Meccas. You can enter Cannes, the most influential film festival in the world, for €50. There's no guarantee your film will get chosen to feature, but it will get watched. If it does get chosen, thousands will see it, newspapers will review it and many distributors will be circling, looking for a bargain. Paranormal Activity was shown at Slamdance Film Festival, and a year and a half later it was released across the USA. It's arguably the best $70 the producer has ever spent.

The cinema

Probably the dullest part of the process. They choose which distributor's films they want to show and powerful distributors play cinemas against each other for maximum film rights. Say it's Harry Potter release night. If there's two cinemas on one street, chances are the highest bidder will get it. Either that, or both cinemas will have to pass back an extortionately high percentage of the ticket cost to the distributor. Usually a combination of the two. From the distributor, a cut of the profits also gets passed to the producer. Which explain why popcorn is so expensive at your local Odeon.

The agents

Between each player I've described, there are countless agents: sales agents, literary agents, talent agents. These guys are the hustlers; they play people, connect people, match actors with scripts, producers with distributors. They spend the same huge amounts on wining and dining as they do on their phone bills. The more people they connect, the more profits are made of which they can take a cut. Naturally, the agent who manages the most A-list clients can be very wealthy. If they take a 20 per cent share of an actor's earnings, they only need to put five A-listers in a film to make as much as any of the stars.

The most profitable movie ever?

Shot on a budget of only $15,000, Paranormal Activity made a gross profit of over $196 million, translating into a whopping 1,300,000 per cent return on investment.

The film is a supernatural horror flick which revolves around a young couple who move into a new apartment which, surprise surprise, turns out to be haunted. The story is told through their documentation of the "paranormal activity" on their video camera.

Paranormal Activity is the ultimate success story for any aspiring filmmaker. Director Oren Peli went to great lengths to realise his vision in the most cost effective way. Set exclusively in the lead characters' apartment, it is a classic low-budget "self-contained thriller". However, Oren took economy one stage further: he set the film in his own home and, over a period of years, went about painting walls, amassing furniture and even building a set of stairs in order to get the look he wanted.

Such steps were not the only cost-cutting measures he undertook. There are only five actors in the entire film. The two leads, paid $500 each, were found on Craigslist. There was no script, just a rough outline of events. Peli had chosen actors who naturally fitted the roles he had in mind, and so he allowed them to ad lib their lines in order to keep the dialogue natural. All of the production was filmed by Oren and a friend on a hand-held video camera to give a "realistic feel", and the pair managed to shoot and edit the entire film in seven days.

Peli entered the film into two film festivals, which are the ultimate way to gain cheap exposure for a low budget film. The film was entered into Slamdance film festival for $30, dollars where it was spotted by a junior talent agent. He represented Peli and managed to get the film seen by Dreamworks who bought the rights, intending to make a sequel. However, during a test screening, the audience began to leave the cinema scared. Dreamworks decided a sequel wouldn't be needed, and put out the original $15,000 film and the rest, as they say, is history.

The film made over $190 million dollars at the box office, though some of this will be absorbed by various distribution fees. But it is highly unlikely Peli will see anything like this amount. However, he is now firmly in set up in Hollywood, with Paranormal Activity 2 released around the world last year. His bank balance at least should not be giving anyone sleepless nights.

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