Kevin Smith's Red State Movie Nearing Profitability... Even Prior To Regular Theatrical Release

from the not-bad dept

We've written a few times about filmmaker Kevin Smith and why he's a content creator (not just filmmaker) you should be paying attention to if (like most of us around these parts) you're interested in new business models for content creators. That's because he's really done an amazing job (for years) combining the two key elements that we believe are at the heart of any new successful business model: connecting with fans and giving them a reason to buy. The key thing is that he doesn't go through the motions on either part (as many do), but really goes to great lengths, both in connecting and in giving really powerful reasons to buy.

Lots of folks panned him for his plan to take his latest movie, Red State, on a nationwide tour this spring, followed in the fall with a standard theatrical release -- but via his own distribution efforts, rather than teaming up with a US distributor (they're still working with foreign distributors due to lack of familiarity or simple feet on the ground in those markets). As we noted at the time, the plan didn't seem all that crazy when you looked at it. He's done very successful Q&A tours where he just performs by himself. This time around he'd be doing the same thing... but with a movie. And, part of the reason why all of this works is because he's made a real, rather than superficial, effort to connect with his fans.

It seems like the plan is working so far. At the very end of a (somewhat touching, if slightly fawning) blog post about Quentin Tarantino, Smith mentions in passing some details about the economics of Red State, concerning the tour and other deals in place, which show that the film is pretty close to being out of the red (no pun intended, really) and into the black:

Over the course of the 15 shows of the Red State USA Tour, we made almost one million dollars from ticket and merchandise sales. A few times, we had the highest per screen average in the country. We started out with a record-making show at Radio City Music Hall and went on to average 1100 people per screening. Had we booked ourselves into smaller houses, we could’ve SOLD OUT every show; but being in the larger houses cost us nothing extra.

And apparently, we managed to pull 1100 a night solely from our podcasts: when asked nightly if they heard about the show from a show at SModcast.com, an overwhelming 85/90% of the audience indicated yes (Jon swears it was 100% in Seattle). That bodes well for SIR.

You take what we made on the tour, you add that to the $1.5mil we’ve pulled in from foreign sales thus far (with a few big territories yet to sell). Add to that $3mil we’re on the verge of closing for all North American distribution rights excluding theatrical (which means VOD/HomeVideo/PayTV/Streaming).

The flick cost $5mil to make, but $4mil after the California tax incentive. One of the only things Jon and I promised the Red State investors in exchange for letting us handle American theatrical distribution ourselves was that their $4mil would be covered as soon as possible – something very few other production entities can promise or even offer. Invest a million dollars in almost any production, and you rarely if ever get your money back within five years, let alone the one year it’s looking like it’s gonna take for our guys to make their money back.

Add up all those figures above and you’ll notice our gains are higher than our spending. And without any dopey marketing figures to have to recoup, once we close the aforementioned deals (which Jonn Sloss & LawCo are working to close as we speak), simple math dictates Red State is in the black – long before any wide release. That’s music to the ears of any investor who only put up their money in September.

Now, he claims that "this business bullshit should only be important to the investors," but I disagree. I think it's important and helpful for those who are blazing new trails to share whatever they're comfortable sharing so that others can learn from it. And, by learn from it, I don't mean to mimic it. I'm not talking about cargo cult copying. But learn from the general concepts, and see what can be applied to other situations.

And, given a world with Hollywood accounting, where most movies are designed on purpose to "lose" money on paper, it's quite interesting (and nice) to see a different path being taken.

Now, there is one element that I'm not clear on and perhaps some of you with experience in the movie industry can help out. I tried to reach out to Kevin himself on Twitter, but the man's busy (and sick) and (from the sound of it) getting even less sleep than I do. Here's the part that I'm confused about: I'm familiar with startup investing, where investors (generally VCs) plow a bunch of money into a company in exchange for equity. In those cases, they don't ever expect to get paid back out of revenue, but through the eventual sale of their equity (hopefully for many, many, many, many times what they paid for it). However, in this case, Smith is talking about getting the investment back to his investors quickly (out of the revenue). So, if that's the case... do they still have a financial stake in the later success of the movie? Is it structured as a combination of loan and equity, where they have to pay the investors back first, but then there's also upside on the latter part? Because if they're just getting their principle back, that's nothing special. No one invests in something just to get their money back. They invest for upside. Does it work like a record label deal? Where the "investment" is really an "advance," and the first chunk of revenue all goes to paying back that advance, and then after you "recoup" (as is about to happen here), there's a royalty split? I'm guessing it's something like that, but it would be nice to know the details.

But, even without that information, one thing that is nice to see is an experiment in trying something different with how a film is marketed, distributed and monetized is already working. That's exciting.

Filed Under: business model, funding, investment, kevin smith, profitability, red state