Loud Family Inc.
Confidential Information Overview
This Confidential Information Overview (this “CIO) contains confidential information regarding LOUD FAMILY
INCORPORATED (the “Company”). By accepting this CIO the recipient agrees that it will cause its directors, officers,
employees, advisors and other representatives to, use this CIO and any other information supplied by or on behalf of
the Company only to evaluate a possible transaction with the Company (the “Transaction”) and for no other purpose,
will not divulge any such information to any other person and will not copy or reproduce in whole or in part this CIO.
The recipient, by acceptance hereof, acknowledges its duty to comply with this certain Confidentiality Agreement
between the recipient and the Company.
The information contained in this CIO was obtained from the Company and other sources believed by the Company to
be reliable. No assurance is given as to the accuracy or completeness of such information. This CIO does not purport
to contain all the information that may be required or desired to evaluate the Company or the Transaction and any
recipient hereof should conducts its own independent analysis of the Company and the data contained or referred to
herein and the Transaction. In determining whether or not to proceed with a Transaction, the recipient must rely on
their own examination of the Company and the Transaction.
No person has been authorized to give any information or make any representation concerning the Company or the
Transaction not contained in the CIO and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. Statements in this CIO are made as of the date hereof. The delivery
of this CIO at any time thereafter shall under any circumstances create an implication that the information contained
herein is correct as of any time subsequent to the date hereof or that there has been no change in the business,
condition ( financial or otherwise), assets, operations, results of operations or prospects of the Company since the
date hereof. The Company undertakes no obligation to update any of the information contained in this CIO, including
any projections, estimates, or forward looking statements.
Any statement, estimate, or projection as to events that may occur in the future (including, but not limited to,
projections of revenue, expenses and net income) were not prepared with a view toward public disclosure or
complying with any guidelines of the American Institute of Certified Public Accountants, any federal or state securities
commission, or any other guidelines regarding projected financial information. Such statements, projections, and
estimates are inherently imprecise and unreliable and the assumptions upon which they are based my prove to be
incorrect. Achieving such statements, estimates or projections will depend substantially upon, among other things,
the Company achieving it’s over all business objectives and other factors (including general, economic, financial and
regulatory factors) over which the company may have little or no control. There is no guarantee that any of these
statements, estimates of projections will be attained. Actual results may vary significantly from the statements,
estimates, and projections and such variations may be material and adverse.
Recipients should not construe the contents of this CIO as legal, tax or investment advice. Recipients should consult
their own competent council, accountant, tax, business and other advisors as to legal, accounting, tax, business and
other matters concerning the Company or any Transaction. This CIO does not purport to be all- inclusive or to contain
all the information that the recipient may require. Recipients are advised of the need to conduct their own thorough
investigation of the Company and its industry.
Table of Contents
Risk Management Overview……………………………………..5
Box Office & marketing/Distribution…………………………6
Appendix A – Projected Investment Return……………………………………………………………….8
Appendix B – Bios/Resumes……………………………………………………………………………………….9
Cinedigm Digital Cinema Corp…………………………………………………………………………………….12
Appendix C – Film Industry Overview………………………………………………………………………...13
Appendix D – Tax Legislation……………………………………………………………………………………….20
Appendix E – Risk Management Details………………………………………………………………………21
Appendix F – Contact Information………………………………………………………………………….……22
The Noble Executive Summary
Loud Family Inc. is seeking $10 million to complete full production of the film The Noble in 2010.
$10 million investment is backed by a Risk Management Procedure, allowing for a possible risk of only
10 cents on the dollar.
Loud Family Inc. will be using its subsidiary Loud Studios and partner studio (To be decided) to finish the
Pre-Production and Production of the film.
Cinedigm Digital Cinema Corp. is a digital distribution company that owns 70% of the digital screens in
the United States. It is calculated that there is a minimum of 18% profit every 1000 theaters. Cinedigm
Digital Cinema Corp. has an LOI with Loud Family Inc. for 1000 theaters.
Investor will have priority in being re-imbursed in an amount equal to one hundred and twenty five
(125%) percent of his/her entire capital contribution to the Company. At this point the investor will own
100% of his/her side of The Noble for the life of the project.
There is an Option that will allow the Company to buyout the investor at a 200% the equity investment
after the recoupment percentage of 125% is re-imbursed.
The Noble is structured on the Federal Tax Credits, Tax Reliefs, and Tax Incentives of its full production
processes. This structure allows for a 100+% percentage of the investment before distribution and
revenues. There is also revolving equitable exit strategies structured as part of the Risk Management
Risk Management Overview
This is a breakdown of how the risk of investing $10 million into The Noble is managed:
$10,000,000 – The Noble
At the end of the two year period, if there is no profit, the following monies are projected to be
returned to the investor even before domestic sale!:
$10,000,000 (Production in Georgia warrants 30% in tax credit)
$10,000,000 (Post-Production in Michigan warrants 42% tax credits)
$ 1,800,000 (Minimum distribution sales based on Cinedigm projections of 18%)
In addition, Accredited Investors are eligible for a 35% percent tax relief in accordance with Section 181
of the American Jobs Creation Act of 2004. Accumulation of the percentages above (30, 42, 18, 35) there
is a coverage of 125% on the investment. Again, this is not predicated on any domestic distribution or
The Noble is a gripping action thriller about Quin Kemet; A corporate spy for an insurance company.
After a delivery goes horribly wrong, a package shows up at Quin’s door.
The contents of the package send Quin into a frenzy of events leading
him to the truth about the company he works for.
In the meantime a vicious delinquent is setting up a coup d’état using an
unlikely tool of the surreptitious criminal organization; the Syndicate.
Choosing to confront his company, Quin leads himself into a life of
deceit, deception, manipulation, and danger that will connect him to the
malicious world of the Syndicate, and tear him apart as he uncovers the
truth about who he really is.
Heavy lies the crown…
Box Office & Marketing/Distribution
The Noble, upon its completion, will be immediately shopped around the Major Studios, including
Universal, Paramount, The Weinstein Company, Lionsgate, Sony, and Warner Brothers. Producer Elias
Kelley has access to the executives at most of these companies.
The primary goal of the Company’s marketing efforts will be to achieve domestic theatrical release for
the film, since this is the single most important determinant of the pictures performance in the
subsequent markets of home video, cable, and broadcast television, and foreign markets. The Noble has
the potential has the potential for a huge sale because the budget is low, and the script is excellent.
Action, Suspense, Thriller, Trilogy
Film Budget Worldwide Gross ROI
Star Wars: A New Hope $11,000,000 $797,900,000 720%
Rocky $ 1,000,000 $225,000,000 11,150%
Good Will Hunting $10,000,000 $225,933,435 226%
Harsh Times $ 2,000,000 $ 5,963,961 29%
Further information can be found ton the-numbers.com
The following plan of production will commence once The Noble has been funded.
Packaging: During this stage, the Company will “package the film” (attaching actors, directors,
key production personnel and other talent)
Preproduction: During this period (this period is eight weeks before the start of production), the
Company will open a production office; hire the crew, engage a location scout to secure the
locations were shooting will take place, secure rentals or purchase of camera and lighting
packages; preparation of shooting schedules; etc. At this time all the actors will be cast and
Production: The production period (less than 45 days) will be the time that the principal
photography will be shot. After this time, all of the scenes for the movie will be finished, or “in
Postproduction: During the postproduction period (approximately three to four months), the
director and editor will select the best “takes” of the various scenes and edit those takes into an
assembly of the entire film. Also, music will be acquired or composed, recorded and added to
the film; an “optical” facility will create fades and dissolves between scenes, and shoot the
“titles” sequences. The director may also do “looping sessions” (re-recording the actors’ voices
in a sound studio) and “Foley sessions” (creating sound effects)
• Preproduction - 8 Weeks
• Production - 45 Days
• Postproduction – 2-3 Months
• Picture Lock (Total Time for Finished Product) – 6 Months
• Sellable Film in 6 Months
Goal: The Noble is sold and profitable within 8 Months.
Projected Investment Return
First payout goes to investors until 125% of the investment is recouped.
After 125% recoupment the profit is split 30/70 between the investors and the production company.
The 70% production company split consists of percentages given to the director, producers, actors,
actresses, writers, etc.
On the investment side, your individual investment reflects the percentage of the film you own, in the
case of The Noble 100% of the investor’s side of the film for the life of the project.
Total Budget: $10,000,000
Sales of the Film: $18,500,000
First Payout: $12,500,000
Remaining money to be split: $6,000,000
$1,800,000 to Investor
$4,200,000 to Production
Total Investment = $10,000,000
Example of Investor Payout = $14,300,000
Return on Investment over 2 Years (Excluding TV, Pay-Per View and Ancilliary Markets) = 55.06%
CEO, Elias Kelley
Elias Kelley is the Founder and CEO of Loud Family Incorporated, an Entertainment Media Content company. He
began the company at the age of 17, after graduating Cambridge Rindge and Latin, the same high school of the film
stars Matt Damon, and Ben Affleck. For the next 5 years Elias would network and structure his business and content
to a bankable perfection.
Elias Kelley has the hard work and dedication of any success. His leadership skills have put lost Civil Rights artifacts in
museums. His speaking skills have helped him in becoming a spokesperson for Laureate Sports at the age of 13,
granting a $100,000 plus investment from the Optimist Club of Lincoln, NE. Elias has been engaged in the focus
programs of iMac, Pandora, Photoshop and Maya receiving the certificate of excellence in the area of content and
The only child to a Communications professor, Elias has had 22 years of education and crafting of his ability to interact
with the individual, micro and macro audiences. He has a natural business savvy and a deep passion to succeed at any
endeavor he sets his mind to, as he demonstrates clearly in his role as the CEO of Loud Family Inc.
President, Venita Kelley
Venita Kelley, Ph.D., is the founder and CEO of Kelley Communications and Consulting, a
Cultural competence, leadership development, and media consulting firm. Her expertise is in
Media, intercultural communication, and leadership development.
She was recently named as Ohio Governor Ted Strickland’s official representative for Closing the Achievement Gap,
an initiative to improve the educational progress of at-risk students. Dr. Kelley previously served as urban scholar for
the cultural competency professional development training segment of the initiative, based in the Institute of Urban
Education at Central State University.
Dr. Kelley’s experience includes fellowships at Harvard University and Cornell University;
positions as an Associate Dean of leadership development; as a professor of Communication and
Ethnic Studies with affiliated status in Film and Women’s Studies; and intercultural
communication consultation and training with local and federal government, K-12 and university
systems, medical schools, and foundations.
Her scholarly foci include intercultural and inter/intragender competency, images of culture and gender in media,
African American rhetoric and culture, and African American women’s communication strategies, and leadership
She is a popular speaker, noted as a master teacher, and has an award-winning
local and national service background. Dr. Kelley holds a B.A. in Social Science with a concentration in Mass
Communication, Cinema & Literature from the University of California in Berkeley. She received her M.A. in Mass
Communication and Public Policy from Howard University, followed by a Ph.D. in Intercultural and Public
Communication from the University of Kansas.
CFO, Lillian Holliday (Tentatively)
COO, Anthony Kelley
Anthony Kelley started managing businesses before he went back to working his way through college at San Francisco
State. During college he took three different businesses to profitability. After twelve plus years he managed to get a
degree in Broadcasting and Film, Business management and marketing, Psychology and Sociology, and Humanities.
He also has an Associate degree in Live Sound Engineering. An MBA was added some years later.
Anthony has worked for small and large (international) organizations. Working in many capacities, technical
service, technical service training, customer support management, ect... All these responsibilities made him ready for
higher executive duties. Managing, overall performance of organizations, and stepping into roles, such as
manufacturing, marketing, sales, purchasing, finance, personnel, training, administrative services, computer and
information systems, property management, and transportation. In a consulting role, (his own business) these skills
were tested and honed again and again.
Anthony has highly developed personal skills. An analytical mind able to quickly assess large amounts of
information and data, has the ability to consider and evaluate the relationships between numerous factors, and is
able to communicate clearly and persuasively. His successful qualities include leadership, self-confidence, motivation,
decisiveness, flexibility, sound business judgment, and determination.
Senior Vice President, Rogelio Landin
Born in Detroit, first generation Mexican-American, educated in public schools, Rogelio Landin has committed his life
to directly and indirectly improving the quality of life for the disadvantaged. He continues to strive for excellence in
all that he endeavors, consistently applying this commitment to the areas of Education, Employment and Economic
Development. In each of these disciplines he has amassed a series of firsts, creating, initiating and generating
systems, policy, process and procedures that have served to advance paradigm shifts effectively promoting change.
In the area of Economic Development, he was a pioneering advocate for inclusion of historically disadvantaged
diversity groups seeking access and parity to contracting opportunities, allowing them to contribute to their
community’s self-determination. During his career in the private sector his experience in international trade provided
a global perspective to our economic interdependency as relates to the manufacturing and energy sectors.
In the area of Workforce, recapturing and cultivating our greatest resource, human capital, he applied his private
sector skills to developing market driven, true engagement, performance based placement systems creating the first
real business services model. His macro approach is recognized for its efficiencies and effectiveness and was asked to
be modeled in a Technical Assistance Guide (TAG) for the U.S. Department of Labor and was subsequently showcased
at two national workforce conferences.
In Education, he has responded to a call from educators to identify and make available to urban districts
supplemental educational materials capable of contributing to increasing literacy and math proficiencies while also
being reflective of the diversity found in urban communities. These types of materials have a profound relevance in
providing a culturally competent context to the educational experience. His company Performance Books is the first
minority owned enterprise to be granted a national partnership with the National Head Start Association and is the
first to be approved for membership in the Educational Book and Media Association.
Throughout, he has maintained a relentless, unwavering involvement in politics that spans from local to international,
whenever possible, working through, with and for affinity groups. This experience produced an astute, top-down
skilled negotiator, allowing him to engage the system and successfully move seamlessly within political
Rogelio Landin is foremost analytical and strategic, providing for the formulation of solutions. Precision in execution,
followed with applied statistics focused toward Return on Resource, Objective and Investment performance
evaluation metrics completes a comprehensive skill set.
10 | P a g e
An effective communicator, he utilizes his ability to articulate with eloquence, to “make things make sense and to
make things make cents” bridging bias, leveling playing fields where double-standards once existed, improving the
11 | P a g e
Cinedigm Digital Cinema Corp.
Cinedigm integrates all the parties in the Digital Cinema supply chain with management software,
services and secure delivery; end-to-end, plug-and-play.
The company provides three, key, fully integrated solutions: management software and services for
distributors (TDS) and exhibitors (EMS); fully managed electronic delivery of movies and other content,
using satellite or fiber interchangeably, with proactive, notification to all parties throughout the process;
and vendor-agnostic, in-theatre application software (TCC) to serve as the single point of operations and
storage for all of the POS, projection systems and content in a multiplex. Our platform enables different
types of hardware to work together seamlessly.
In the summer of 2005, Cinedigm, using hardware from Christie Digital Systems, announced a major
studio-backed plan to deploy up to 2,500 DCI-compliant digital projection systems throughout the
United States by the fall of 2007. This plan expanded to more than 3,700 systems and represents by far
the largest such deployment in the world. In addition to its major impact on Cinedigm’s performance for
years to come, the plan is expected to provide a template for the conversion of all 107,000 screens
As the universe of digitally equipped theatres increases, so does the opportunity for Cinedigm to grow
its business. Cinedigm, in recognizing this growth potential, has already begun to expand current
products for the domestic and international marketplace.
12 | P a g e
Overview of Film Industry
The Movie Industry is one of most exciting and informative businesses in the world, a business where the
revenue of a single feature film (such as Titanic), can approach or exceed $1 billion.
In 2001, worldwide gross revenues generated by motion pictures in all territories and media (including
music and ancillaries) amounted to over $40 billion. Over 70% of the population rents or goes to movies
regularly, thus accounting for over 1.5 billion movie attendances each year in the U.S.
Prior to 1985, feature motion pictures had one major source of revenue in the United States and abroad:
the movie theater. Today much of the world is undergoing a mass communications revolution; hence, new
movie markets (such as home video, cable and pay-per-view) have been growing so rapidly that they are
no longer just Ancilliary markets to the basic theatrical market but have become basic markets in
Industry statistics reveal that the past ten years have marked an overall increase of at least 30% in many
"Ancilliary markets" and, over 200%, as in the case of home video. The ability to exploit a movie in many
markets diminishes investment risk and increases earning potential. In many instances, low budget
movies have lost money theatrically and still earned profits overall from Ancilliary sales.
With the advent of the new computer-based technologies, "cable" markets and direct digital-delivery of
motion pictures via satellite and the Internet are expected to increase dramatically over the next five
years, creating an accelerated demand for original and re-run motion pictures.
The worldwide market for the sale and exploitation of feature motion pictures is divided into "territories"
and "media." The territories are divided into two major regions known as "foreign territories" and
"domestic territories." The broad foreign territories are Europe, "Australasia," Latin America, Eastern
Europe and Others (that include Israel, the Middle East, South Africa and Turkey). The United States and
Canada are usually grouped together and referred to as the "domestic territory," from the point of view of
the United States.
The current "media" by which feature motion pictures are delivered to the territories includes movie
theaters, home video cassettes, cable TV (monthly subscription and pay-per-view), direct broadcast
satellite TV, free broadcast TV (Network and Syndication), and ancillaries (such as airlines and libraries).
According to a study conducted by Monitor Co., the movie and television industries contributed over $16
billion to the State of California's economy, directly employing 164,000 and indirectly employing another
184,000. The study also found that the vast majority of feature films and television programs are
produced by independent producers. Independent production is becoming more prevalent in other areas of
the United States, especially Nevada, North Carolina and the Tri-State Area (of New York, New Jersey and
There are thousands of screenplays in development at any given time, however each year only 450 to 500
of these are produced into 35mm motion pictures. Although the majorities undergo principal photography
in the United States, approximately 60 to 80 are shot offshore (including Mexico and Canada). Of these
approximately one-third come from the major studios (also known as the MPAA companies), and
approximately two-thirds from the "independents." "Independents" are those companies engaged in the
production and/or distribution worldwide in all media of all motion picture and television programs that are
not generated by the recognized major studios. It includes those independent productions, even those
distributed by a major studio, in which the producer retains a significant ownership interest and is at risk
for a significant portion of the production cost.
Of the 450 to 500 features produced each year, less than half receive a theatrical release. Thus a
significant number of features do not get a theatrical release but are released directly to home video and
13 | P a g e
other media. There were over 350 features released in 1998 by major and mini-major studios as
compared to about 290 in 1997.
Producing and/or financing the above product are approximately 7 major studios (8 if you count
DreamWorks SKG), 16 mini-major studios, 50 to 80 major independent production companies and over
1,750 smaller independent production companies, many of which may never produce even one feature or
produce only one feature every two or more years.
Including the major studios, there are over 600 entities that directly or indirectly distribute feature motion
pictures to the various worldwide markets (with approximately 350 specializing in foreign territories and
approximately 250 specializing in domestic territories). Of these, approximately 225 companies distribute
motion pictures to the theatrical markets, 250 to home video, 310 to television, 70 to pay-per-view and
95 to the syndication markets.
Exhibiting the above feature output are 4 major television networks, 37 cable channels (of which 6 or 7
are major cable networks) and hundreds of independent stations in the United States.
The Theatrical Market
Theatrical exhibition is the traditional market for the initial presentation of "feature" motion pictures.
Despite intense competition with other forms of entertainment (such as music and sports), movie
attendance has exceeded one billion paid-admissions annually since 1976. According to statistics provided
by the Motion Picture Association of America (MPAA), U.S. box office hit $8.4 billion in 2001, a 9.8%
increase over the previous year. Worldwide box office receipts for feature motion pictures have grown
from $1.2 billion in 1970 and $2.8 billion in 1980 to over 15 billion in 2001. This increase is all the more
remarkable because Ancilliary markets such as home video, cable and (foreign) television markets have
undergone explosive growth during this same period.
Despite these burgeoning statistics, the fact remains that motion pictures with high production and
marketing costs, often entail greater risks with less likelihood of return than lower-cost pictures released
in the non-theatrical markets. The reasons: marketing and promotional costs (combined with substantial
fees paid to exhibitors, usually 40% to 65% of box office gross), distribution fees (usually 33%),
overhead, interest and expenses (paid usually to studio distributors) and gross participations, greatly
reduce the revenue stream flowing to the producer and net profit participants. According to the MPAA the
average negative cost of a studio feature motion picture (which includes production cost, studio over head
and capitalized interest) as of 2001 was $47.7 million. As of 2001 the average initial marketing costs
(prints and advertising) as of the feature is in excess of $20 million. Five years ago the average negative
costs of a feature was $39.8 million. These statistics alone make the task of recouping production and
marketing costs for MPAA pictures formidable. Low and medium budget pictures produced by the
independents (typically for less than $1.5 million and $10 million, respectively), have less difficulty
recouping, however low budget pictures often go direct to home video in lieu of a release in the theatrical
Theatrical exposure, no matter what the projection medium, is often a major method of enhancing the
value of the Ancilliary markets (home video, cable and free TV), as these ancillaries benefit directly from
word-of-mouth advertising and ad campaigns created by the theatrical release. Thus, any increase in the
value of Ancilliary rights decreases the reliance on theatrical exhibition as a source of revenue. On the
other hand, a successful theatrical release has proven time and again to be extremely valuable for
exhibitors, distributors and producers alike.
As of 2001 there were approximately 6,596 theaters with 36,110 indoor "screens" and 474 drive in
theaters with 654 drive-ins "screens" in the United States. As of 1996 there were approximately 7,215
theaters with only 28,864 indoor "screens" and 583 drive in theaters with 826 drive-ins "screens" so
clearly the average number of screens per theater has been going up, while the number drive in screens
and theaters have been dropping steadily.
As of 1998, there were approximately 32 theater circuits in the U.S. with more than 100 screens each.
The top three circuits at that time were United Artists (2,398 screens), Cineplex Odeon (1,715 screens)
and American Multi-Cinema (1,623 screens).
14 | P a g e
The average studio feature ("A-Picture") is in first-run release for approximately 8 weeks garnering
between 1,000 and 2,700 screens and grossing $10 to $40 million over such period. The same picture is
in second-run theaters for the balance of its theatrical life, such being approximately 6 months.
Independent pictures gross much more modest sums, but, as mentioned, their production and marketing
budgets are considerably less as well. The top 10 grossing limited release films of 1995, for instance,
grossed between $9.4 million (The Brothers Mc Mullen) and $3.7 million (Bad Company).
About 16 new major features are introduced to the theatrical marketplace each month, playing 800 to
2,500 screens, or an average of about 1,650 screens. Since first-run is usually 8 weeks, this means that
between 12,800 and virtually all of the existing 26,500 screens (during the peak times of Summer and
Christmas holidays), are booked with major studio product, leaving, at best, between 6,850 and 13,700
screens available for independent productions for limited periods of time or during off-season periods.
Each independent production plays on about 5 to 75 screens (or an average of approximately 40 screens)
making it possible for about 260 pictures to be absorbed by the market in each 6-month period.
Home Video Market
According to the Television Bureau of Advertising, as of 1994, 79% of all TV households (such numbering
211 million, excluding Alaska and Hawaii) had a VCR, such number of VCR being approximately 70 million.
According to Neilson Media Research as of 2001 there are now 96.2 million VCR households and 105.5
million TV households.
Although growth in the worldwide home video market as of 2001 seems to be rebounding, this market,
once considered an Ancilliary market, out-paced even the most optimistic growth projections over the past
decade and has emerged as a "basic" market. While theatrical exhibition will never be replaced (any more
than television replaced radio or movies), home video can be key to a picture's success in other markets.
According to the U.S. Bureau of Census, there are over 22,000 establishments in the United States
dedicated to renting and selling home video cassettes. When one considers the thousands of other outlets
(such as super markets, department/convenience stores, gas stations and increasingly ubiquitous vending
machines), this figure is considerably higher.
Video stores usually purchase between 5 and 25 video cassettes of each major studio release for as much
as $79 per cassette. It is not uncommon for such an outlet to purchase 100 copies of a blockbuster
release and discounted prices can be expected for such quantities, as well as lesser quantities, especially
to large chains, such as a Blockbuster Video chain. Of the total universe of video outlets, including
dedicated video establishments, only about 5,000 tend to regularly purchase features made by
independent production companies. In such case, each outlet typically purchases at least two video
cassettes (in case one breaks) for as much as $40 to $65 a cassette. Each cassette rents approximately 2
to 10 times a week, depending on how many copies of a particular title the video store has on display and
According to Investor's Business Daily, Paul Kagan Associates project that by 1999 revenues generated by
the domestic home video market will be approximately 185% of the domestic theatrical market.
Cable TV Markets
Of the 108 million TV households in the U.S., (such representing a 97.5% penetration), 60.5 million
subscribe to cable TV.
There are two kinds of cable TV. The first is regular cable TV known as "pay TV" the second is "pay-per-
view." Pay TV, which is subscribed to and paid on a monthly basis, includes basic service and is available
with premium channels such as HBO and Cinemax. Pay-per-view is paid for upon the user's demand -
currently by calling an 800 number or ordering it on a hotel television set. Consumers only pay for what
they purchase directly.
Pay TV has grown steadily over the past ten years, accelerating somewhat during the past five years with
the addition of new pay TV subscriber services. According to the U.S. Bureau of Census, 45% of all
television households currently subscribe to basic cable services. Of these, many subscribers pay a
premium for additional services such as HBO, Showtime and Cinemax. Often cable companies compete
vigorously with the home video window for a prior run option.
15 | P a g e
The main staple for most pay television services is feature motion pictures which have been released
theatrically. Home Box Office has a 400 film appetite annually and Cinemax, its sister service, has a 200
film appetite. These services combined represent approximately 50% of the market. Showtime/The Movie
Channel has approximately 30% of the market, while the other smaller services make up the remainder.
Pay-per-view on cable is gaining market share rapidly and may eventually replace both subscription cable
and home video by the turn of the century. The number of pay-per-view customers is over 20 million, up
from 6 million in 1989. Combined cable sales total approximately 20% of theatrical revenues.
It is not anticipated that there is a market for independently produced low-budget features on network
television except in the case of extremely successful pictures, or in the event pictures are made-for-
television (such as movies-of-the-week, also known as MOWs).
Syndication, the act of selling features to each of the thousands of local independent television stations
across domestic U.S., Canada and abroad, may proceed for 5 years or longer for each film.
Independent television stations (stations not affiliated with a network) have recently become another
source of revenue for theatrical motion pictures and the importance of local independent television
stations is a relatively recent phenomenon, in foreign markets as well.
With the major networks producing movies exclusively for broadcast on their own stations, independent
television stations have become increasingly important outlets for theatrical features produced by
independent producers. Typically, independent television rights are sold to a syndicator who in turn sells
to individual stations or small networks across the country.
While terrible films cannot be syndicated no matter how good the marketing and great films often sell
themselves, the vast majority of films in between can generate significant revenues, equaling or well
exceeding theatrical revenues, given an ample marketing campaign and the long window of time typical of
The New "Ancilliary" Markets
Star Wars was one of the first motion pictures to demonstrate, on a major scale, how valuable Ancilliary
markets (consisting of such spin-offs as toys, games, T-shirts and novelty items) can be. In a continuing
trend to present day, Jurassic Park, for instance, continues to generate spin-off sales which may
eventually be as significant as revenues the picture has already earned in various other markets.
Typically, independently produced features do not generate significant Ancilliary revenues of this nature,
although this trend has been changing in the recent past.
Interactive video and computer games are another huge new market that is rapidly expanding. At this
time it is difficult to predict how significant this new Ancilliary market will become, but it could represent a
major segment of the future motion picture industry.
With the advent of DVD's ("digital video discs," also known as "digital versatile discs"), VHS tape, as the
predominant delivery system for home video, will most likely go the way of 78rpm, 45rmp and 33rpm
vinyl records. In fact, due to DVD's huge storage capacity (4.7 gigabytes per layer, with up to 4 layers
possible within the next five years), light weight and relatively low cost of production, this new medium
may give birth to an entirely new direct-sale, retail market, replacing the current video cassette rental
market of today and modifying the doctrine of first sale.
Direct broadcast satellite, which in essence delivers a cable-quality (or better) image directly to the home
by satellite, has become increasingly popular in recent years due to a wide variety of programming and
reduced costs. It is uncertain at this date as to whether direct broadcast satellite will eventually replace
cable delivery systems or work in tandem with them, as a significant cable infrastructure is already in
16 | P a g e
place. It is conceivable that many foreign and third-world territories will base their infrastructure on
wireless delivery systems and in such case Direct broadcast satellite, as well as direct, high-bandwidth,
Internet delivery, may be the norm in the future.
The Foreign Market
Export sales to foreign markets from independent producers hit an all time high of $1.8 billion (up 22%
from 1996). The European foreign market accounts for 56% of global revenues (all media) generated by
English-language, independently produced films. Television sales (which include pay and free TV), account
for 44% of all foreign revenues and were up 11% over the last year, for the third consecutive year. The
largest single improvement in sales for fiscal 1996, however, was theatrical (up 37%). Home video
remained flat, at 25% of all revenues, as it has the past several years.
As of February of 2000, the most important foreign territories are: Japan, Germany (including Austria),
Italy, the United Kingdom (including Ireland), Spain, France (including French Belgium), Korea, Australia/
New Zealand, Brazil, Mexico.
According to The Hollywood Reporter AFM 1997 Special Edition: Japan is the largest foreign market even
though it is fighting a dilapidated theater infrastructure and declining attendance records. Nevertheless,
consumers spend more than $6 Billion in the home video market (majors and independents), and
significant new markets are opening up with respect to satellite, TV, cable, pay-per-view and DTH
services. Germany, the number one European market, is television-driven; however there are signs of a
leveling out. With a record theatrical year, the country is building multiplexes and will have approximately
5,000 by 2002. Italy is the only major European country without cable. The television market is hindered
by political strife over proposed new communications legislation and the video industry is hampered by
serious piracy. Nevertheless, even though there is a major shortage of theaters, Italy is the top market for
independently produced features. The United Kingdom/Ireland market is steady but highly selective about
theatrical product due to a paucity of local distributors. Nevertheless, it could strengthen due to a new
cable infrastructure going into place. With the lifting of certain quotas on Spain's imports, this territory is
expected to grow with new co-production opportunities for independents. Currently, massive joint efforts
between Spanish and American exhibition entities will provide more multiplex theaters to offset the
decline of the home video market here. France is having problems with theater construction even though
such market is strong for films other than B-pictures due to television quotas and the decline of home
video market. Second only to Japan as Asia's top market for buying motion pictures, South Korea is the
world's fastest growing market. Although the country lacks screens, there are extensive programs to
remedy the situation as the country becomes more open to foreign competition and global markets.
Australia's theatrical market is growing rapidly due to an expansion of its 1,200 screens with additional
multiplexes. Although direct-to-video sales are off and satellite services are precarious, the territory has a
strong market for television and home video which will usher in a dynamically maturing major market
over the next decade. Latin America, long in the doldrums, is experiencing a multiplex boom. The fact that
there is essentially only one distributor-buyer for the entire country makes it relatively easy to sell TV
rights, even though buying power will remain poor until the country's exchange rates improve. There is
now positive indication that this is happening today.
Generally speaking, if an English-language film made for U.S. release does well domestically, it becomes
popular in foreign markets, particularly in Europe.
Of the total U.S. population (which is about 265 million), the two largest groups that go to the movies are
16 to 20 years of age and 30 to 39 years of age. Each group makes up approximately 19% of the
theatrical, movie-going population. Attendees under 30 years old are, and have been, the dominant force
in the movie-going public. Of the total population, 21% go to the movies at least once a month, 34% go
once in 2 to 6 months and 12% go less than once in 6 months. 32% never go to the movies. The national
average price paid for a movie ticket is approximately $7.45.
Box Office Gross Sales - B Pictures
17 | P a g e
Although it should not be construed that it is easy to generate returns as stated below, the figures
represented have been obtained by many independent producers.
Quality B-Pictures produced by independent production companies in the past have been able to routinely
generate revenues in excess of $2 million when one considers not only theatrical, but home video, foreign
and Ancilliary revenues. Using data on the top 253 "low budget," independently produced B-Pictures
covered by The Hollywood Reporter, the average 10-year gross for each feature (adjusted for 1996
dollars), was in the neighborhood of $9 million. The top 8 pictures grossed more than $30 million each
and the top picture earned just over $70 million. The lowest picture in the sample earned $1.6 million.
A feature film "costs" what a producer can't obtain for free, or what costs he or she has deferred for
payment at a later date from the proceeds of the film's exploitation. When one hears of a feature costing
under $50,000 to produce, yet it is making a million dollars at the box office, several facts have usually
been omitted. Among the omitted facts are: (a) most of the cast, crew and equipment costs have been
deferred but are payable out of the sale proceeds. This amounts to $50,000 to $100,000. (b) $10,000 to
$40,000 must be spent in editing to clean up flawed production sound tracks, ADR to improve poor acting
delivery and a host of photographic problems that are routine, must be addressed. (c) $30,000 must be
spent to blow up the 16mm negative to 35mm. (d) better music must be purchased or a score written.
These costs anywhere from $10,000 to $30,000 for a low budget project. Thus the real cost of the
"$7,000 feature" is at least $150,000 to $200,000.
Very occasionally, features made for less than $50,000 will gross hundreds of thousands or even break
the multi-million dollar mark, but more times than not, the low initial production budget is used as "hype"
to promote the picture, or the director of the picture. Return Of The Secaucus 7 and Clerks are examples
of features that were made for under $50,000 and grossed over a million dollars, and they are very rare.
Films costing between $200,000 and $700,000 which gross several million are more realistic examples of
what can be expected from super low budget pictures. She's Gotta Have It, Night Of The Living Dead, The
Blob, Eating Raoul and Grizzly are examples.
Of course, many pictures have earned much less and many have not recouped their production costs at
all, especially if not completed, produced for too high of a budget or present an unengaging story.
The fact that THE BLAIR WITCH PROJECT, which was shot in digital video at a production cost of about
$25,000 (with a post production cost of $230,000) has grossed over $120,000,000 - will change the
dynamics of the movie industry and may contribute to the demise of the "brick and mortar" major studio/
distributors within the next decade.
Box Office Gross Sales - A Pictures
The Hollywood Reporter, Variety and other trade publications publish, on a weekly basis, the national and
international box office grosses of all MPAA (studio) and Independently-produced features that do
significant business. Ultimately, most A-Pictures have been able to generate receipts of at least $30
million, especially when all media and territories have been exploited.
Many A-Pictures routinely generate $30 million within even 14 weeks of theatrical release. For example, in
the combined last quarter of 1996 and the first quarter of 1997, over 40 pictures took in revenues in
excess of $30 million. When one considers home video, foreign and Ancilliary revenues, such returns may
increase by a factor of two or more. In fact, from October, 1996 through April, 1997, for instance, 12 of
the features in release grossed more than $100 million in the U.S. theatrical market alone. Independence
Day, released in 1996, grossed over $280,000,000 in 10 weeks.
Adjusted for inflation, Gone With The Wind is the top grossing movie of all time. In terms of raw 1993
dollars, (and not considering the recent re-release of the Star Wars trilogy), Jurassic Park is the largest-
grossing movie in history, earning over $900 million in the worldwide theatrical markets alone. Given this
exposure, there is a strong possibility that when Jurassic Park has been exploited in all Ancilliary
worldwide markets (home video, cable, TV, spin-offs, etc.); gross revenues may exceed 2 billion dollars,
especially if it is re-released at some future date.
Usually, the largest, most impressive grosses, are generated by high-budget A-Pictures, financed and/or
released by the MPAA companies; however, such pictures do not always create the optimum rate of
18 | P a g e
return, especially for net profit participants, who, unfortunately, only see profit participation in 5% of the
19 | P a g e
New Federal Tax Legislation
Immediate Write-Off of Expenditures
Frequently Asked Questions
Q: When do the productions need to commence to qualify for the new incentive?
A: The incentive is available for qualified productions commencing after October 22, 2004, and before
January 1, 2009. This incentive has recently been extended for one year.
Q: Can the immediate write-offs be taken in more than one year?
A: Yes, if an election is made to use the incentive, the immediate deduction takes place in the year the
expenditure is incurred. Therefore, if production expenditures are incurred in more than one year, the
immediate tax deduction will be taken in more than one year.
Q: When, where, and how does the “election” to immediately deduct the qualifying expenditures
A: The election is to be made on the tax return for the taxable year in which the production costs are
first incurred. The election must be made by the due date (including extensions of time) of such return.
The manner and form of the election will be determined by the IRS at a later date.
Q: What is the real benefit of this incentive?
A: This is a significant new federal tax incentive that allows producers to take a tax deduction for the full
costs of a production in the year the cost is incurred (as opposed to having the spread or amortize those
costs over a period of years). Deducting the costs up front, while deferring the income from the films
until the later years when it is incurred, will significantly reduce or eliminate the investor’s taxable
income for the film in the early years of exploitation.
Q: Is the incentive transferable?
A: No. However; different entity structures such as limited liability corporations, partnerships, and
others, should be considered to properly allocate costs that could immediately be expensed.
Q: Can this incentive, if extinguished in the coming years, be created through other federal tax credits,
tax reliefs, or incentives?
A: Yes. There are mixtures of state film incentives that can yield the same amount percentage as the
federal legislations tax incentives. These can also be used to increase the amount percentage that can
be accumulated from the federal film sections of the tax code. However this is not as effective unless
slate funding for multiple projects is optioned.
20 | P a g e
Risk Management Details
Georgia’s Current Film Incentives – 20% Tax Credit
• 20% cash rebate, across the board on Georgia expenditures, with a spending threshold of
• Georgia adds an extra 10% if the company shows the GA logo for a period of five seconds, or
adds the logo to the credits of the film.
• There is no cap on the amount that can be spent on productions in Georgia.
Michigan’s Current Film Incentives – 40% Tax Credit
• 40% cash rebate, across the board on Michigan expenditures, with a spending threshold of
• Michigan adds an extra 2% films in one of the 103 Core Communities (over 85% of the state,
including Detroit) in Michigan.
• This incentive can also be used in postproduction including distribution and P&A (prints and
• Labor and Crew: 40-42% Resident and Above the Line. 30% Non-resident Below the Line.
• The only cap will be a maximum of $2 million salary per employee.
• There is no other cap and does not terminate.
21 | P a g e
Loud Family Inc.
1523 US Rte. 42 East Box. 647
Wilberforce, OH, 45384
22 | P a g e