Wednesday, March 27, 2013

Time for a Nonprofit Studio?

Easily the biggest piece of entertainment news this month was that the Veronica Mars Kickstarter campaign raised several million dollars overnight.

As many people have pointed out, this is a problematic and cynical way to finance movie. The filmmakers asking fans to be equity investors in a for-profit business venture, but instead of receiving equity — ownership of the movie — instead they get a T-shirt.

If the movie is profitable, all the profit goes to the people who refused to take the risk of investing their own money.

A more equitable approach for funding independent movies like this would be if a nonprofit film studio produced them.

The primary difference between a nonprofit and for-profit organization is that the nonprofit does not have equity owners. Any profits stay within the organization rather than be redistributed to the owners. Nonprofits are allowed to engage in commercial activity (as long as it is relevant to its mission) and can pay staff millions of dollars (as long as there is some justification for the salary, such as it being the market rate). Special characteristics of nonprofits include not having to pay taxes, and people being able to receive tax deductions in return for donating money to the charity.

Before discussing what a nonprofit film studio would look like, let’s consider a real-world analogous example: The Metropolitan Opera in New York.



The Met Opera has an operating budget of $320 million dollars, making it the largest performing arts organization in the world. And it has $410 million in assets. Its earned revenue is $155 million (mostly ticket sales) and it receives a total of $194 million in contributions and grants. Its leading conductors and singers are being paid millions; salaries in the orchestra start at around $140k and go up to $330k.

I use the Met as an example to point out two things: 1) There are already extremely large nonprofits in the business of producing something to which tickets are sold; and 2) Just because the organization is a nonprofit doesn’t mean it has to pay people meager wages. The only rule the IRS has on nonprofit pay is that it has to be commensurate for the individual’s skills and experience — it cannot be arbitrary.

The Met is a nonprofit as opposed to a for-profit business because without the substantial amount of donations it receives, to do what it is currently doing it would need to charge twice as much for tickets — they’re already selling out 80 to 90 percent of the house on any given performance, so there are no more tickets it can sell. If it were to one day switch to a for profit organization, budgets for shows would be slashed and ticket prices would be increased to some degree so its expenses would not surpass ticket sales. And that takes us back to Veronica Mars.


If a producer tells a studio that their low budget indie will cost $7 million to make, and the studio doubts that it will make more than $5 million at the box office, the studio is likely going to tell the producer to find a way to make the movie for $2 million less. But if the studio had a revenue stream from contributions, a 70% ROI would actually be a really great return. Remember, for every dollar the Met Opera is spending to put on operas, it’s only seeing 48-cents in earned revenue. The 52-cent shortfall is being made up by donations.

A nonprofit studio would once and for all solve the problems of film being both an art form and business. Some movies are simply bad investments, yet, they are also great and important works of art. And people looking to earn a return on their investment don’t want to fund movies where there’s little chance for that — which is why movies like Battleship get funded and Veronica Mars does not.

A nonprofit studio would still be in the business of selling movie tickets, but thanks to contributed money, movies wouldn’t necessarily have to turn a profit or even breakeven. This would allow the studio to take more risks and even just do things that it knows will be a disaster but still feels strongly about.

So I hear the question you are asking: why would people want to donate money to a nonprofit studio?

They’d do it for all of the same reasons people currently donate money to arts charities. Some people just really believe in the art, others, especially major donors, want to be associated with a prestigious organization and rub shoulders with the stars. Some people just want the tax deduction.

And the reason that this is a more optimal funding method than Kickstarter is that all of the profit from a nonprofit funded movie would sit in the studio and be reinvested in future movies — everyone at the studio and involved with the movie just gets a salary (even if that salary is very generous).

If the Veronica Mars movie goes on to make $50 million, the fans that financed it are obviously going to feel shafted when all of that money is going into the pockets of people who did not finance the film.


1 comment :

Martin Gagné said...

The time is now :-)

On behalf of the Space Opera Society, I want to personnaly thank you.

Your article has been a source of inspiration for us.

Please spread the word :-)

www.spaceoperasociety.org


Martin Gagné
Director of operations