In the office of Sahara Entertainment, Mary sat across from Ronan and asked, "How should we settle this account?"
Yesterday, the overseas copyright fees paid in two installments by Sony Entertainment had all been received. "Human Purge" was a typical financing and shooting project. Ronan had signed contracts with investors in Abu Dhabi and was about to go there for another round of financing, which certainly involved sharing profits with the investors.
But there was a lot of leeway in how to divide it specifically.
"We'll try to standardize our operations as much as possible." Since May, Ronan had been studying Hollywood's financial regulations, accounting standards, and relevant laws. He had enough understanding in this area, having considered it since signing the contract with Sony Entertainment. "This involves the next financing plan; we shouldn't go overboard."
Mary nodded. It wasn't about not doing it at all, but about not going overboard.
Ronan took a sip from his teacup before continuing, "It's customary in the industry to first deduct next year's tax, then a fifteen percent management fee, which also needs to be deducted."
These were legitimate expenses incurred during the production process. While the film was funded for production, Sahara Entertainment was the operational side of the project, and costs such as labor, time, depreciation, office, and operational management incurred during the period also belonged to the costs borne by Sahara Entertainment.
Mary didn't say anything; she just made a note in her notebook. A fifteen percent management fee wasn't much, only 3.75 million dollars.
Of course, this ratio was calculated before tax.
Ronan set down his teacup and continued, "25 million dollars is the licensing fee for both 'Human Purge' and 'Survival in the Wilderness.' It wouldn't be appropriate for each film to bear half of it, right?"
Mary shook her head, reminding him, "We're going there to raise funds; we can't be too unreasonable."
"How about a quarter?" Ronan asked.
This fundraising also involved establishing distribution channels for the next step, and the current investment was for greater returns.
Mary thought for a moment and said, "That's not appropriate. 'Survival in the Wilderness' shouldn't have too high a share."
Ronan nodded slightly, considering, "3 million dollars, then."
As a conscientious entrepreneur and capitalist, he was still quite generous.
In the industry, many companies would let a flop take away a third or even half of the income when packaging.
Indeed, I am a good person.
Hmm... I shouldn't be wrong about this.
Considering that "Survival in the Wilderness" only made 800,000 dollars at the North American box office, the most optimistic estimate for overseas rights would be selling for 500,000 dollars.
Moreover, the overseas rights of this flop film were completely worthless. If not packaged, it would just sit around and rot.
"3 million dollars?" Mary considered for a moment and said, "Selling the two films as a package, with one film occupying only one-eighth, should be fine."
Arabs simply didn't understand the legal and compliant practices of Hollywood. Originally, packaging "Survival in the Wilderness" was to dilute profits.
"And the last item, profit sharing." Ronan said directly, "Let's follow the law and the contract. We are the film production company and naturally entitled to twenty percent of the film's profits."
This was a small clause in the original contract. Sahara Entertainment, as the producer, certainly wasn't working for free and could extract twenty percent of the profits.
Even this twenty percent ratio was Ronan's conscientious discovery to attract investment. Truly unscrupulous companies would distribute based not on profits but on total revenue.
Mary noted down another 5 million dollars in her notebook.
Ronan suppressed his desire to create more expenses and said to Mary, "Make the accounts look better, more standardized."
Mary nodded, "I'll get busy with that."
"Go ahead," Ronan replied.
In just two days, a financial report on the overseas market revenue of "Human Purge" had been submitted by Mary to Ronan.
Of the 25 million dollars paid by Sony Entertainment, after deducting 3.75 million dollars in management fees, 3 million dollars in profit from "Survival in the Wilderness," 5 million dollars in producer's profit, as well as pre-withheld taxes and fees for the Producers Guild, there was a remaining 11 million dollars.
For the sake of the next round of financing, Ronan gritted his teeth.
When they went to Abu Dhabi, presenting relevant reports to the Arabs would prove: Look, I'm someone you can trust.
For Hollywood, investors from the domestic and overseas markets were completely different groups.
Different treatment was common in any country and industry.
With over 10 million dollars in legitimate income, Ronan's confidence grew, and he initiated three plans.
One was the upcoming trip to Abu Dhabi, codenamed "Desert Operation"; the second was to resolve distribution channels, one of the key reasons for continuing financing; and the other was a potential future trip to India, codenamed "Three."
Especially the latter, after studying the laws, regulations, and industry practices here, Ronan was planning a major move.
Robert found out that people coming from India had recently been quite active in Hollywood, and it seemed that some Indian investment institutions were preparing preliminary investigations for future investments in Hollywood.
It's not that they don't want to invest; it's just that they haven't thought about it yet.
Furthermore, Ronan emphasized once again that Sahara Entertainment should follow Lionsgate as an example and acquire a distribution company as soon as possible.
George and Robert had gathered information on two small distribution companies, but after studying them together for a while, Ronan decided to abandon them.
These two distribution companies were too small, and their channels were simply not well established. Acquiring them would be less suitable than establishing a new distribution company.
Ronan understood the importance and critical role of distribution, as evidenced by Lionsgate's distribution of "Human Purge" for Sahara Entertainment.
After six weeks of screening, "Human Purge" exhausted all its potential in the North American market and was taken off screens before Thanksgiving.
Six weeks of screening wasn't long, but it was longer than "Halloween 7," starring Jamie Lee Curtis, which stayed in theaters for just over a week longer.
The North American box office for "Human Purge" ultimately reached 52.5 million dollars, which, compared to the public production cost of 11 million dollars, could be considered a box office hit.
After the film was just taken offline, with the participation of Sahara Entertainment staff, Lionsgate quickly sorted out multiple offline distribution tasks, and large sums of licensing fees, along with North American box office shares, were successively paid.
Regarding licensing fees, Lionsgate has its own channels for VHS and DVD distribution. According to industry norms, the North American home theater rights, consisting of VHS tapes and DVDs, were licensed to Lionsgate for a base transfer fee of $5 million plus a 20% rental sales split.
Then, the rights for ten years of broadcast on public television were sold for $3 million, ten years of cable television broadcast rights for $2 million, and five years of internet broadcast rights for $500,000.
In another major revenue stream of Hollywood commercial films, merchandise rights, horror films have always been weak. The merchandise rights were only sold for $1 million.
Despite being newly established, Lionsgate faced Sahara Entertainment, which was not a newcomer or an outsider to the industry. Overall, they adhered to contractual obligations. After various income was received, profit sharing was initiated with Sahara Entertainment.
Regarding box office earnings, the North American box office reached $52.5 million. Under industry norms, after deducting theater splits and various taxes, Lionsgate's share from the box office was $26 million.
According to the distribution contract, Lionsgate deducted 28% of the total North American box office, which amounted to $14.7 million, including promotional expenses.
The distribution share for home theater rights, new media, and television rights was 20%, totaling $2.1 million.
Merchandise rights accounted for 50%, which was $500,000.
With a total investment of only $6 million, Lionsgate earned $17.3 million from "Human Purge."
This can be considered as huge profits.
Even considering promotional expenses, this low-budget horror film that exploded at the box office can still generate astonishing returns.
Starting from the end of November, Lionsgate successively paid various shares to Sahara Entertainment. In just over a week, Sahara Entertainment received a total of $20.2 million.
After deducting the $11 million public cost and adding Sahara Entertainment's investment in film promotion and distribution, Sahara Entertainment, as the production party, made profits in the North American market, which even exceeded those of Lionsgate, the distributor.