When I was growing up, I knew I wanted to make movies (web series’ weren’t a thing yet) and everybody I asked said, “start a production company”. So I did. I was soon on my way to making movies, or so I thought. Then reality set in and I suddenly realized; “Holy shit, I don’t know anybody in the business, how am I going to make my badass movies”? Then that same someone, said, well take your cool equipment and do commercials for the time being and then you’ll make a bunch of money to be able to make your movies”. “Awesome, great idea”. I said.
So, I set out to do just that. My first client was a non-profit trying to keep a historic local airport from getting shut down. They paid me $700. Whoo, my first paying gig. Back then, there were no digital cameras and professional video cameras were super expensive to buy. I wanted it to look good so I rented one. BAM! $250 for one day. I had to hire an editor. BAM! $425. I delivered my project and realized I had made $25. Between my time selling the project and making it took about 10 days. Do the math. Not a great return.
Now that’s a pretty rudimentary example but that profit margin would plague me (as it does almost every production company in existence) for much of my career. The fact is, the act of physical production, just doesn’t make that much profit and can quickly become an albatross around a producers neck. Here’s why:
Running a Production Company
You’re selling your time for money which means you or you and your team are capped at how much you can make because there is only some much time in a week that you can charge against. Once you reach that cap you either need to hire more people or take more time. Both of which will cost you more money. Because of this, most production companies with a few exceptions struggle to simply break even. A good production company averages 8%-13% profit. That’s on a good day.
Limited bandwidth is another major problem. No matter how many people you have working with you, you are limited in how many projects you can be working on at any given time. Again, your income is capped.
You don’t actually own anything. You are a gun for hire (most often making things you don’t believe in). Once you’re done you’re done. You and your team, if you have one, made the final project what it is and if it’s successful you won’t see another dime. The people who hired you will. The people who hired you are actually running the right business.
Building A Content Company
That’s why building a content company is where true success lies. A content company has a thousand different ways it can make money with no cap. Here why:
A content company isn’t limited by time or bandwidth. They can profit from as many series or film concepts that they can make. In addition, they can simply scour the market for other people with great series concepts and make a licensing deal with them. It’s literally endless.
They own all or part of everything they have their hands in which means they can receive residuals and ad dollars from literally hundreds of pieces of content at the same time without having to invest any more time or money. In some cases that can go on for years on a single project. Add it all up and you can start to see why this system makes more sense.
Now, I can hear some of the resistance, “But, Alex, I want to be a filmmaker, not a paper pusher”. That’s why I love the hybrid model. Be both the production company and the content company. You get to do both the art and the business. This is how I do it and I can’t think of a better way to make a living.
In the end, the production part of our world is certainly the sexier part, but the intellectual property part is where the money is made.