Mhmm.

Okay. Cool.

Yes.

Mhmm.

Okay. So before clarifying with some questions, let me recap the prompt real quick. So our client is production film studio, which is thinking about releasing the the their latest 5th movie in their franchise, Leo versus Spade Invaders. And, basically, they have 2 options of the release, either exclusively selling the rights to the streaming companies or as originally with their plan to release it using regular movie theaters. And they have hired us to understand which option is the better 1.

Okay. Well, can can I have some information on how both of these channels of distribution actually work? Maybe there are some steps or just general information on on the business model. So, basically because I'm a little bit off from from the movie production part. And if there would be some explanation, that would be great.

Okay.

Okay. I see. Well, then is there any information on what are the

financial options of the of these 2? Maybe there is some information on pricing or some general numbers in regard to to each of these options, like pricing for the tickets, pricing for their for the rights of streaming services to use it. So I can at least maybe further estimate the revenues part or the cost part?

Mhmm.

Okay. Well, I I I think I got everything, which is essential for now. Let me have some time to structure my thoughts and come back to you.

Okay. I'm well. Mhmm. Yeah. I I I can start. So, basically, I have decided to evaluate both options based on 4 factors. Mhmm. The the the 1st the 1st 2 are touching upon the financials. So the the revenue part and the cost as the initial investments for each of them.

And the 3rd factor would be well, I I I named it as external factors, specifically to this pandemic, like, Sevent and some others. And the the 1st 1, I

I decided to separate it from external factors and name it as client client's preferences Okay. Client's behavior.

So if we dive in from the 1st 1, from the revenues part well, for the 1st option, I would try to come up with the following 2 brackets, which would be that ticket prices that are usually in this year Okay. And the numbers of expected tickets to be sold. Now if we talk about the prices, understanding that there is a pandemic right now and less demand might be for the theaters, maybe the prices are very affected by by this and to see to what extent this dramatic fall in prices might have been due to this event, we we can at least estimate or try to understand what are the changes in prices, which would lead to changes in revenues. Now in terms of the numbers of tickets sold, well, this this is, to some extent, might also be related to some external factors, like government regulations. Maybe in the theaters,

certain amount of people are allowed to sit, and maybe there there is just some space between them, which basically means that the fewer ticket tickets will be sold. Okay. Now if we talk about the revenue part in the option 2, so I would go with options for basically, in the rows. I will go with each option, analyzing it with the different factors. So in the 2nd option, the revenue would come in as far as I understood, that would come from the direct purchase of the streaming platform's exclusive rights. So basically, they pay us 1 time right. And we already know that they are willing to pay $100,000,000

100, oh, $150,000,000. Mhmm. Mhmm. $150,000,000 in exclusive rights, which is comparatively better than the pandemic times, but still less compared to the previous 3 movies in the same franchise. So now everything will come down to the costs and what has been there. And, I mean, initial investments to produce the film. So Mhmm. Understanding

I would divide the cost to the variable costs.

My maybe variable and fixed because in my opinion, it's it's more appropriate rather than dividing to capital expenditures and operating expenditures in this case. So to to the fixed cost, everything would incur things like payments for the actors, administrative staff, salaries for this organize organizing the the scenes for the films, renting out the spaces, and etcetera. Mhmm. While for for the variable stuff,

maybe to the specifics of the film production,

I would I would incur

something well, let's name it as a man of well, failed production overhead. Basically, the costs that are associated directly with the production of the film.

Okay. Something like the the electricity that has been used during the the tech technical parts. The technical parts that have been bought or have been rented out, all all would be here. Now and from the external factors, I would analyze as a I somehow touched upon them in the revenues part, but I would love to make the 2nd the the the restatement and maybe some clarifications again. So for the option 1, the external factors that would affect definitely the the option would be the government regulations

as to the the what what kind of a regime currently is in the country. Are people still allowed to go to the movie theaters? Is is there even an option like this where it's totally banned, like, as it was in back in 2020 where there is some lighter versions of this regulation. Do we somehow need to pay extra fees to release this in in due to the higher risks of people getting infected again or well, it's it's also related to to certain extent with regulations.

Well and for the option 2, this would be external factor, which I come up with would be the bargaining power of

streaming services considering they have the bigger demand right now. People are watching TVs from home. They definitely understand the power position they have, and they might actually use a very big discount and basically evaluate the option with a big discount, basically, the rights. And from the client's preference side, well, it's just either 2 options. If people prefer to go out or they prefer to stay at home and feel safer. And so, basically, evaluating all of these 4 options for 4 factors for 2 options,

I would myself prioritize looking more into streaming services and trying to understand how they come up with this valuation, specifically in the revenues part. What what did they take into consideration?

Yes. And if everything is fine and well, just check the the investments part, I would I would try to stick with the option 2, but I want to prioritize 1st understanding how they come up with this number.

Yes. Come up with the number? How yes. Why they are basically saying that this is the they are ready to pay this amount? There there has to be

Well, if if there is no information on this, the 2nd thing that I would prioritize well, logically for me is to understand if we even break even, what what is the initial investments that was incurred to produce the film? Is there any information on this?

Well,

knowing that the external factors already include the pandemic and potential government regulations,

Do we do we have maybe some extra information on this? Do we have something to also kind of include in in these external factors or everything is already here?

Oh, in the in the Teams. Right? In the Teams chat. Yeah.

Yes. I see it right now. Revenue for previous 4 films. Mhmm. Entitled US box office.

Before I

start understanding I'm just trying to analyze, could you please tell me what is the total US box office?

So do do I understand it correctly that the the right bar, which is in billion dollars, this is the in relation to total box office in The US?

Mhmm. While the left 1 is for the film franchise.

Mhmm. Okay. Well,

yeah. 1st thing that I can say Mhmm. Is that there is definitely a trend. We we where we can actually see that initially, all posted the box office in The US and the franchises were making good amounts of money. And they actually had a certain amount of gross annually approximately to, well, at least the the films produced every year at around 20 to 25% more

and maybe a little less for the total box office. While the external events definitely crushed the amount of money that has had been made by by the whole industry and our clients' last film released in 2020.

Well, what we can

what we can get from here Mhmm. That would help us to understand specifically with the options,

Maybe it would be trying to understand

to what extent did the the total box office change for a specific number, which which was currently or recently 20 20?

Yeah. Well, I I'm in a little bit

yeah. I I would prioritize doing this. But if this is not a way to approach this, maybe you can redirect me just to make sure.

As I I would approach this as so the the total box office is our kind of a total market, while each film is basically showing us potentially the market share of our client. Mhmm. So trying to estimate this trend or the last market share that our client had would be a good thing for us to maybe then forecast it for this year, basically, knowing this link between them between the total revenues and the revenues that our client has produced.

Well, for the last year as of 2020,

is this okay if I take at around 1,700,000,000 or 1,600,000,000 as the total box office in The US? It's Or should I take it $1.01 and a half billion.

And 50,000,000 for the total market for for the total sales of the front of lost film in different cheese.

Okay. So what I would make is just dividing the the the revenues to the total market and just to get the market share. Okay. So we have 0 0.5 times 1,500,000,000.

50.

Well,

this would bring us to approximately 3.33% of the total market.

Mhmm.

Yeah. So we we can kind of understand

that it is a 2.2% at least in 2020. Should I recheck what what was the relationship or the market share in 2019?

Yeah. Our client wants to understand if selling to selling the streaming rights would be a better option where releasing the movie in the theaters

So

if knowing this number, we can actually we know the offer that the streaming services is making us. So we can kind of a vice versa calculate what well, what needs to be the total market considering we would make 150 millions right now.

How much the movie is going to make us? Yeah. Right.

Oh, yeah. We we yeah. Because this is specifically for that box office. Okay. But then do we have any information of estimated box office maybe in 2021?

Mhmm.

Okay.

Just to make sure, can I repeat to you as I got it everything? So Mhmm. Number of open seaters is expected to be 80% of 20 19 levels, which were 5,000 at a time.

Number of seats per screen is 100.

Showtime procedure is 20.

And the average ticket price is $10.

And the occupancy is different during the weekends. It's 50%. And during the weekdays, it's 25%.

Okay. Yeah. And just lastly, because I know we have number of seats in a screen, should I take that we have 1 screen in 1 theater?

Well, then yeah. Knowing that we need to estimate what would be the total market and then trying to understand what would be the revenue, I would make the calculations and come back to you.

Or should or do you want me to guide you through my calculations directly?

Well, if we being off screen, what what I know is that in in McKinsey, they prefer if you just explain the way how you like like your logic and then make the calculations in the BCG. Well, sometimes they might prefer actually going through the calculations with you.

I I I myself usually prefer doing the 2nd option, but I have to I have been told many times that I should not do this to not lose a lot of time and so maybe the option 1 would be better 1 if I explain the logic.

So what I would do firstly is trying to understand what would be the total market size of The US box office. Well, knowing that open theaters firstly, calculate the open theaters. We know the percentage. We know the previous numbers. We can do the estimations. Well, I can tell you right now, we we would have, like, 8 8004 4000 theaters available.

For the then we need to multiply the series to number of screens per seater, which is 1. So we are living with 4,000 screens. Knowing that we have 100 of them, we have 400,000 seats overall

in all the screens, basically, that we have. Mhmm. Then we multiply it to the show time procedure within this certain day, and then we come up with 8,000,000.

knowing the average price of $10, we would have $80,000,000. And now we have the most interesting 1 because this was for each day.

Can I assume, knowing that we have 52 weeks within a year

50 weeks per year. Okay. Then we have 300 of normal weekdays.

And

just a moment. Not 300, but 250. And

and then we have

just a moment. So, basically, we have 50 50 weeks out of which 5 days are weekday. We're basically 250, and then the remaining 2, which is 100 days are the weekends.

So knowing this, we would multiply 80,000,000, which is the for each day, times 100 days, times the occupancy rate, which is

25%. Okay. And then add to this $80,000,000 times 250 days.

I revert. Yeah. In the previous 1, the occupancy would be 50%, and for this 1, would be 25%.

So for the for let's calculate it for the weekends. Knowing we have 50%, well, basically, this means we would have, instead of 80, 40000000 times 100, and this would bring us $4,000,000,000. Okay. Now we add to this

20 millions times 250

to which would bring us to $5,000,000,000 if my estimations are correct.

Yes. And the total would be the total market would be 9,000,000,000. Okay. Which is still less than in 2019. Mhmm. Maybe approximately level of 2017 or maybe less. Now knowing that 3.33% of the market share that we actually have, we can estimate what would be the the what should have been at least the potential revenue that we could have made. So 9,000,000,000 times 3.3%.

Well, in my opinion, it is actually maybe a little too high.

Or do you mean about fair? Do you mean to round it up? Or you mean it's it's not fairly representing

Well,

maybe we should take into account something that could potentially affect these numbers.

The average between the previous years?

So should I calculate for the previous all of this 2014, 2017, 2019?

2 and a half percent. Okay. So we would take 2 and a half percent. Okay. Which is great.

So well, basically, this makes it a lot easier. So

What we need to do is 9,000,000,000 times 2 point half percent or basically dividing it to 40 would bring us to 900 names times 4

divided to 4, and this would leave us with 225,000,000 of expected revenues that we should have made using the average market share. Yes. So this estimation bring us that our film at least would make 225,000,000 using the estimations.

Now which is a lot more considering the revenue of the streaming rights providers.

Well

but do we this information is actually is good enough to make a certain

let's call it not not a conclusion, but a certain decision out of it. But do we have some information of so because you mentioned we we have some information on initial investments and costs. Do we have some information on this trying to understand what would be the total cost structure and and then understanding at least the breakeven or payback or just the profitability option?

Okay. Well, yeah, as I said, so in the we have a marketing distribution fees, and we have the initial production, which, I guess, is the initial amount of money that we incur to produce the film. Okay. Well, I can jump into calculations. So what I would make well, I was trying to figure out what would be the total costs and the profitability. We directly can actually calculate for the option of streaming rights. So we were offered 150,000,000, knowing that we don't have marketing expenses and distribution fees. We would have a profitability of 100,000,000.

Now for the option 2, we would have the production fees of 50,000,000 plus 25,000,000 of the marketing costs and 20% of the revenue. Well, we know that we we would make 225,000,000, and calculating 20% of this would mean for us $45,000,000 of the distribution fees. And the total cost come up to 120,000,000. And knowing that 225,000,000 of the revenue would be made using the regular

25,000,000. Is this what the marketing cost?

Yeah. K. Just a moment. So 50,000,000 of production plus 25 of marketing costs and plus 20% of distribution already.

So the revenue is 225,000,000. And 20% from this would be 45,000,000.

Do you wait.

Yeah. It is 45%.

45,000,000

Wait. It it actually doesn't adapt to 45,000,000. Just a moment. So 225.

Okay. 40. Well, yeah, it it apparently does. So it's 45,000,000. Now we we just sum everything up together. So 50,000,000 plus 25,000,000 plus 45,000,000. Well, 25,000,000 plus 45,000,000 is 70,000,000. Okay. Plus 50,000,000 is 120,000,000 in in total cost. Mhmm. We're releasing in theaters. Now we have the revenue of 225,000,000. Mhmm. And when we did that, we have a profitability of 105,000,000. So we would make 5 hun 5,000,000 more.

Well, considering this, 5,000,000 is still a good amount of money, and nobody would get harm from getting extra $55,000,000 in my opinion.

Yeah. We can actually make certain conclusions already based on that

until if you don't wanna give me some extra information where our client have some extra questions that we should cover before

You mean from the release of the film. Right?

In general. Okay. No.

Okay. Can I can I have some time to

Mhmm.

Well, I decided to go with the distribution channels. Mhmm. So what what what do we have? We have theaters. We have,

as I as I name it, the personal distribution channel, and then we have partnerships with streaming or other companies. So for each of them, what what would the company make in order to maximize each of these distribution channels to make good profit would be for the theaters.

Create more marketing promotions in general,

Maybe using specific most visited movie theaters in order to brand some some of the screens or some of the theaters with their their names, with their brandings, with their recent releases. So it's kind of a branding. And maybe using some PR campaigns, knowing that already they had the Frenchies related to the it was named the Space Invaders. Maybe using a good PR campaign in regard of the the invaders, some facts, or some news about the how you name it? In the law in Russian. I just forget it. Maybe using this as triggers to have a really good PR campaign for the specific niche that they have, maybe. This would be a good way to prom promote their future films as well. Okay. Mhmm. Well, now if we move to personal distribution channels, what I mean, maybe kind of creating a own platform in which they could potentially show all of their films,

which in the long term, yes, it would be very competitive and very investments heavy, but might bring some potential and protect their market shares and their revenues and become help them more sustainable. So it's either developing the platform on their own

Or purchasing some kind of a not popular solution or acquiring a small target company which already has made some movements in this direction. Okay. If there's if there there there are some. And lastly, partnerships with streaming services and other companies would be partnering with a minor streaming services that would decree maybe to partial streaming rights, but not kind of only streaming rights to them and that we cannot release it to the regular theaters. So it's it's just more kind of a brainstorm, but maybe there are some small studios. I'm not sure if Warner Bros do have, but I heard Warner Brothers or was it the different studio in The US, which had kind of a small streaming line. They they basically incorporated it into their

bigger companies. Mhmm. And and they are using this partnership to basically stream their all their films that they produce.

No. Finding,

I think, the new company. Because the 1 who already made an offer, 150,000,000 Uh-huh. Most probably it's a it's a well developed streaming service provider. Okay. Something like Netflix, Amazon, or Apple TV. Uh-huh. But there are some minor players who are at least maybe trying to break into this industry or trying to gain some market share. And having maybe this niche parts or maybe they are streaming for only specific types of films would be a great synergy for us and for them. So basically, using their platform to have a partial rights for them to stream our films

Still for us giving the opportunity to release the films on the theaters. So kind of having combination of both channels, if it is possible. Maybe they can come up with such contracts or

yes. I I would agree with this. And in this case, this thing that needs to be done as kind of a

firstly, assessment, understanding their client segments. Basically, to whom they release these films, their final customers. What are their partners? Do they prefer more spending time with the families going out, or they prefer the streaming providers just sitting at home and watching? And maybe making some service and some marketing research. Well, they can understand if it's a it's a good or bad option.

Yes. Potentially, there is, as you said, the cannibalization issue that might appear. So they definitely need to be very cautious with this option that I mentioned. And maybe they if they come up with the conclusion that the cannibalization is the the the possibility of cannibalization is very high, then they should not, of course, take this option.

Mhmm.

Okay.

Yes.

Okay.

Based on our analysis and research we have performed, we advise you to not sell the rights to the exclusive streaming services for 150,000,000

Because you would only have 100,000,000 of

million dollars of the profitability Okay. From producing the film while selling the releasing the film through the regular theater channel would bring you 105,000,000

Of the profitability. And potential risks that well, could be is that we would stay underdeveloped in terms of partnering with streaming ride services, knowing that many competitors would potentially switch to this option in the future. And maybe this trend can keep up and we we we will not be kind of a in a competitive advantage in the future. It's just kind of a risk factor that I would that we would suggest you to look at. So the further actions that we would recommend you would be assessing to what extent in the future you can work with the streaming right purpose with the streaming live platforms, and on what terms, of course, better for you. So making a a better assessment and better estimations.

Not to sell? Yes. Because we make $5,000,000 more, at least for now. This is in terms of number, this is a better option. But in in the long run, working with the streaming

platforms can potentially be more sustainable business model.

So maybe look at it and assess it for the future kind of films film releases. But for now, the better option would be to receive more in profits.