You want to earn as much money as possible. To live of your well earned profit. Are you going to create a film and just hope for the best? Or do you think ahead when you want to make the best musical theatre piece ever? Well, one of your first steps as a (executive) producer is to create a business model for your idea. But how do you do it? Read this blog and you will know.
Note that in this article, I’ll focus specifically on the film and musical theatre industry. However, the principle can be applied to all creative sectors.
What is a business model?
Let’s start at the beginning. Before you can draft your business model, you need to know what it is. And I’ll be straightforward: you have the business model as taught in college and you have the business model that people ask you to present when you start working. And in my experience, they differ quite from each other in what you put in your end presentation. In terms of content, they are very connected.
If we google the definition of a business model, the Cambridge dictionary gives me:
‘A description of the different parts of a business or organization showing how they will work together successfully to make money’
The Oxford dictionary shows me:
‘A plan for running a business, identifying where the money will come from, who the customers are, how they will be reached, etc’
So looking at these two descriptions, there’s really no difference between a business model and a business plan. It’s a document that describes different aspects of your business and that brings focus to your idea’s execution. You need to know who your customers will be and more importantly what their needs and wishes are, so you can adjust your marketing (and maybe even your idea) to their satisfaction. I heard someone say that there can be no musical for everybody: trying to create a musical for everyone is a setup for failure. Dare to make choices and find your niche of an audience.
One way to create this business model or business plan is the Business model canvas by Osterwalder and Pigneur, which exists of 9 building blocks. Each block describes a segment of your plan. Together they create an overview of your business plan and business strategy. I will discuss this canvas later in this blog.
When do you need a business model?
Before we go to the canvas, I want to discuss why and when you should make a business model.
Its function depends on the role you have. If you’re a executive producer, you want to know the volume of your projects with all their costs and tasks to do. If you’re an investor, you want to see the numbers and the idea to evaluate how plausible your idea and execution will be. The better your plan, the easier it is to convince an investor. If you’re the creator looking to find a producer, investor and a team, you will need the business model to know what to ask and whom. If you go to a producer with the story that you have a wonderful idea, the producer will ask you for more details. The business model will help you provide those.
Now, don’t go sending your business model around to everybody in the hope that they will take on your project. A business model is often quite secretive. You don’t want everybody to know your exact costs and expected revenue. When you first approach people for your project, it is your idea that should grab their attention. For TV, I’ve written how you can do this, you can find that blog here. You can use the same ideas for film and musical theatre, although there are some other possibilities as well. Key is to make sure your idea is clear and summarized.
As used in practice
Then we come to the point of how the term business model is often used in working life. When the CEO asks me for the business model, they don’t want to see a whole plan with 9 building blocks described. That would mean that they would have to plouter through a document of ten pages. They’re not interested and don’t have the time to read it all. All they want to see is a simple template where they can see with one glance what that costs will be and the revenue. And it must answer the most important question: when will you break even and when do you start making a profit? I’ve made a very VERY simplified version for both the film and the musical theatre industry, so you understand what I mean:
And isn’t only for the CEOs. An investor or others who want to join your team may also want to see this template. Some might want to read the whole plan, some want a summary that sounds good. Always think ahead for whom you present the numbers. An investor wants to know how long it takes to earn his investment back. A creative might want to know how high their royalty will be. Do you show gross profit or net profit?
Are these two uses of the term business model related? Yes, they very much are. First of all, the costs and the revenue are two building blocks of the canvas. But in reality, they are the next step of the business model. Based on your plan and strategy, you can guess – which is 99% of the time – or calculate your revenue and costs.
The Business Model Canvas
The canvas is the most used model to create your business plan. It’s only one of many options, but the gross will use this model as it’s quite easy to use. I only give an outline here. If you want to know more about it, I suggest buying this book Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers. (Not an ad, just my recommendation from experience)
The nine building blocks of the canvas are: Key Partners, Key Activities, Key Resources, Value Propositions, Customer Relationships, Channels, Customer Segments, Cost Structure and Revenue Streams. Let’s go through them.
1. Value propositions
Let’s start with the value propositions. This is key for any creative product. Without value, there’s no reason to create a film, series or musical. In the creative sectors, you have an idea that will give your audience a new perspective on something. You, as the artist, want to establish something within the spectator. For other sectors, this building block may not be as important as it’s not always the starting point for creating a product. They may want to improve their performance or establish their brand better and the product is the solution for a problem they have. Read this blog if you want to read more about the differences between the creative sector and other sectors.
For this building block, you want to describe what value you deliver to the customers. You can also describe which problem of the customer you’re trying to solve, although this often doesn’t account for the creative sector. Write down what product and service you want to provide for each customer segment (think for example about arrangements) and what specific need of them you want to satisfy.
2. Key activities
Key activities are things you need to do to acquire your value propositions. So if you want to add value by helping customers clean their hair, your activity is to create a shampoo.
In the creative sector, your key activities are often set within the medium you plan to use. Activities are creating a script, holding auditions, creating a choreography, making decor and props, and much more. For films, you need to take filming and releasing into account. For musical theatre, you need to think about rehearsal times and booking a theatre. Also, don’t forget about things like networking and getting investors.
Moreover, write down what activities you need to undertake for your distribution channels (which can be a theatre, cinemas, streaming services and such) and for revenue streams (where are you going to sell your tickets?). If you want, this is where you can make a beginning for your marketing plan.
3. Key Partners
These are partners you need to proceed with your business. So if you’re the executive producer, think about investors, suppliers, your crew and cast. Make a list of them. Also write down per partner what key resource you want to acquire from them and what key activity they perform.
The reason you want this list is so that you can try to optimize your partners and you also know who to look for. If you need very specific resources, like a lot of after-effects in movies or large LED screens in musical theatre, you know which companies to approach. You will also find out that your choice of partners may be limited. You better get a deal with them quickly and you may also have to pay them more as you don’t have a competitor to go to. You can then later budget this accordingly.
4. Key resources
What are the key resources you need to get your value proposition? Do not only think about physical things, like lights, cameras and costumes. Intellect is also part of your resources. Make sure you have the copyrights for your idea, patents where needed. If you don’t have the rights to execute your idea, the game is over. Other resources are also humans, software and finances. So write down how many cast and crew members you need. And make sure to write it out completely! Don’t write down just ‘cameras’, but write down ‘3 cameras on tripods, 1 steady-cam, etc. Not just a set of actors, but 3 main roles, 5 supportive actors, 30 man ensemble, 50 extras. You get the idea. Again, you will need this, so you can better specify your costs later on.
5. Customer relationships
What kind of relationship do you want with each customer segment? And what do they expect from you? Write it down. Also, write down if you already have a relationship with one of them, maybe you’ve done a show before and the audience is the same.
Another thing you should also think about is the customer service. This is not so much about your product, the film or the show, but about the service surrounding it. Think about ticket selling, parking space around a theatre, dinner arrangements and breaks during a movie or show. This you can use again as part of your marketing plan.
The canvas defines channels as possibilities to reach your audiences. In the original model, it’s very marketing based. In de cultural sector, you can also see this as the question of which medium you use. Are you going for a film? Are you going for a live performance? Or will you go for a written story in a book? And for films, are you going for the cinema or are you going straight for a streaming service?
Other questions that you want to answer here are: how will you reach your audience for the first time? How do you make them buy tickets? What is your after-sales? This is describing your marketing funnel. I’m not going to describe that one here, but if you want to know more, I suggest you read a few blogs about it on Neil Patel’s website.
Do make sure, though, that you describe all channels. Some will cost you money or you will need to do some networking to get there. If that’s so, it will influence your other building blocks.
7. Customer Segments
For whom are you creating value? Who should see your movie or musical theatre show? And don’t say everybody! Choose your market and divide your segments. This can be through demographic or geographic segmentation. You can also look at preferences, how often someone goes to cultural events and any other segments you might think of.
Once you have your segments, write them out. So one of your customer segments can be female, 50-75 years old, go to the theatre about 5 times a year and love to go with their young children. The more specific you are, the easier it will be to decide what kind of customer relationship you want with them and more importantly, how to build it.
Costs & Revenue
Before I go to the final two building blocks, let’s take a look at the first seven. If you’ve written it all out, you can make a list of everything and everyone you will need. From it, you can conclude a few things. You know all the actions you have to take, so you can make a timeline of what you want to do when. You can calculate your costs, including the marketing spend. You can also make an estimation of your customers, how big that group is and how many might come to your film or musical.
Now you have to start playing with numbers. Because you need to figure out your ticket prices. How you do this, really depends on your revenue. If you receive grants, you can keep your ticket price lower. For films, cinemas have standard prices, so you will have to count with the standard amount to receive from them (be aware that you will never receive the full price a customer pays. Cinemas also need to survive, so you will only get a percentage of the entire ticket price). So you will have to focus on the number of tickets that you sell to calculate your revenue.
In musical theatre, you may want to have a certain period in mind when you want to break even. So say you want to break even after six months: this means you have to divide your total costs over these 6 months. Often you look at the numbers per week, so what are your costs per week? That’s the minimum revenue you need to make. Divide that by the average seat occupation (don’t expect to be 100% filled!) and you know the minimum price you should ask for your musical. However, be aware that the costs may differ per week. Often royalties are paid out as a percentage, so if your income increases, your costs get higher as well.
By now, you should have three lists. One is with your expected revenue or the different options that you anticipate. One is with your (pre-)production cost. This one you can create from the seven building blocks. For films, I’ve created a list a while ago of all elements you should take into account. You can find it here and use it as a checklist. For musical theatre, you can take that list – as many elements are similar – and adapt it for a live show. The last list is of your costs during its release or running-time.
These are the lists that CEOs want to see combined when they ask you for a business model! Or they can ask for the business case, that’s the same in this case.
Do you have the lists ready? Then let’s go to the last two building blocks.
8. Cost structure
I can be pretty short about this chapter, since you already have an overview of all your costs. This is where you put down your two lists of the costs regarding the production and the distribution. So all your costs, like salaries, insurances, equipment, rentals should be accounted for. Often, if your idea based on an underlying product, you have to deal with intellectual property rights and royalties. So make sure you have researched this and add them to your cost structure.
9. Revenue streams
Now, this is what you want to know! How much profit are you going to make? Are you going to be rich? The most likely answer is: no. But let’s take a look separately for movies and musical theatre.
Movies are a hit and miss. Your revenue will largely come from the first few weeks or months when it’s released in cinemas. That is the ticket sale. Then, you have a second wave when you release it on a streaming service (let’s ignore DVD-sale, although they do still make some revenue). The streaming service will pay you for having your film on their platform. Although there are some rare cases of films becoming a big hit years afterwards – like The Nightmare Before Christmas – you will most likely know what your income will be in the first year. This is counting on the fact that you’ll be released in the cinemas.
There are also lots of films that won’t be shown in cinemas. They will immediately be shown on streaming services: think about Prime originals and Netflix originals. They don’t have revenue that’s specifically based on the movie. The costs of producing that movie will be compensated by the number of subscribers the streaming platform has. And its success will then be measured by the statistics (often kept secret) of how many people have watched the movie instead of its revenue. And then there movies in which the cinema’s aren’t interested in. They may end up on a streaming service or maybe just be put on YouTube.
Moving on to musical theatre. Most shows make losses. There’s a saying that 7 out of 10 Broadway shows make a loss, 2 break even and only one makes a profit. You don’t need to have your show on Broadway, but it gives you some idea of success.
Your revenue is also more spread out. You get revenue for every show that you perform, often 8 times a week. This revenue must compensate costs to keep the show running and also the pre-production costs and the royalties you must pay. In the end, about 8 to 12% is your gross profit. So that’s pretty low. However, if your show is doing well and runs for a long time, you can get some pretty cash out of it. Then you can go touring with the show, sell it to other countries and release it for amateur groups. Some of the Broadway shows made a loss in New York but recouped their costs eventually when their show got staged elsewhere.
I should also note that there are other revenues that you may want to think about. In some countries, especially in Europe, you can receive a grant to create your movie or show. It will mean that you have to apply for them, but they can make your life a lot easier. Another way is crowdfunding: put your idea online and have others sign up for it. You should see them as investors, but not all want royalties in return.
To wrap it up
This blog should give you a pretty good idea of how to create a business model (and also a business plan and business case) for your idea to execute. Whether it’s a film or a musical, you will get a long way with the nine building blocks.
I make it sound pretty easy. Just write it all out, make a few lists and you have your business ready to start. But if it was this easy to calculate your entire show, everybody could have a smash hit. A lot is guessing as well. You don’t know how many people will come to the show every evening until the show is playing on stage. And you don’t know how many people will go to the cinema, especially if a few other good movies are being released in the same period. So make sure to play around with the numbers. Can you cut the costs somewhere? Have you included a worst-case scenario in your financial overview?
If you’re still unsure how to create a business model, try out the business model canvas on an existing movie. Often, there are already some details online, like the production budget. So you can compare your estimation with the actual numbers and check if your business sense is in the right direction.
It takes time and practice to develop a good sense of how valid your business case and business model is. Over time, you will find it easier to estimate how much something costs as you get more experience in it. You will know how much something cost last time. But the only way to get there is to do it.
So start up Word, grab a piece of paper, whatever works for you. And start writing! Good luck!