Award Sounds

I mentioned some ideas about setting up a production company in order to complete the Side Project that I want to do.

In this article, I'll expand on those ideas and document a few issues that will have to be handled at some point in the organisation's lifetime.

Background

For a start, I don't intend to set up a traditional production company that has access to typical funding, equipment, etc. Instead it will be largely based on people being involved on a voluntary basis and rewarding involvement if the money's there to do so. Unfortunately this is as far as many get. Read around on a variety of creative sites and you'll see a number of projects that either remain a pipedream, are based on dodgy foundations (e.g. one person could scupper the organisation) or revert back to one person, perhaps involving a couple of close friends.

I want to move beyond that. It works in other industry sectors so it should be able to work in this sector with some modification.

The main issue I see again and again relates to how much time people put in and what they expect to get out of it. In the back of my mind, I'm always curious about the legal structure and implicit contracts between the people that are involved.

Here are some options:

Option 1) Everybody receives a share of the profits

Once a group figure out they need a structure other than working as friends, this seems to be the logical first step. It's a common set-up, but relies a lot on trust and assumptions. It has some issues with investment within the organisation and from without. A lot of people may sign-up to what looks to be a good organisation (and still may be a good organisation) only to find that the profits don't materialise despite some people making money out of it.

Benefits:

• Fair
• Looks good on paper
• If the movie or series of movies don't make a profit, then neither do those involved, so no expectation of payout
• Should help motivate members into pushing distribution
• Can apportion the share according to the effort/talent involved

Concerns:

• Accounting can find ways so that the movie never makes a profit.
• What happens when the production company makes more than one movie, how to allocate funds, accrue debt accordingly?
• The first production will get hit with a lot of the cost (e.g. buying cameras, editing suites, etc), so profits will be a long way off
• How to accommodate external investment

Option 2) Some roles are salaried, everybody receives a share of the profits

A step up from option 1, this usually entails the main people who drive the project forwards recouping a small salary or fixed payments out of the organisation before profits are calculated. Again, it appears to be a logical step forwards, ensuring that those that put most in receive an fixed payment for their efforts. If the organisation returns a profit, then I guess it works. Do you have an example of this structure working successfully?

Benefits:

• Fair for the people who are putting a lot of time in
• Looks good on paper
• Means that the salaried members are protected from the lack of effort/talent by the non-salaried members
• Should help motivate members into pushing distribution
• Offers an incentive for non-salaried to find salaried positions
• Can apportion the share according to the effort/talent involved
• Creates continuity in the organisation

Concerns:

• Creates a divide between the salaried and non-salaried
• The non-salaried may give up earlier
• Accounting can find ways so that the movie never makes a profit.
• If the project doesn't make a profit, then the non-salaried members are working to pay the salaries of the salaried members
• What happens when the production company makes more than one movie, how to allocate funds, accrue debt accordingly?
• The first production will get hit with a lot of the cost, so profits are a long way off

Option 3) Everybody receives a share of the revenue

By saying that the share is out of revenue, it reduces the risk of the production company accounting classing the project as a loss and the members receiving nothing. It means that anybody who contributes receives a share. It still may be a small amount, especially for the projects being funded by add-on advertising. It may be good to provide small shares with this model so members get paid, but get paid less (for the advantage of getting paid earlier).

Benefits:

• Even if the movie makes a loss, members will get paid
• Earlier payout for members
• Better motivation for members

Concerns:

• Production company will quickly end up in debt paying out from revenue without recouping costs
• Less money for the production company to reinvest in future projects
• Members do the minimum to get their share and no more (isn't that a potential risk in any structure though?)
• How can the organisation afford to purchase kit?

Option 4) Split the revenue into 50% going to costs, 50% to share

A variation on option 3 where the production company has a better control over what comes in and what goes out. The 50% figure is arbitrary for this, but initially seems a good place to start. Your experience may suggest a different figure. This mitigates some of the risk that the company has in paying out from revenue (e.g. also having to pay tax, costs, debts).

Benefits: