How do you split costs/profits?
 

I'm looking into a few projects where it looks like I'll provide the technical and another person will provide the content/talent.

I have at least three different projects with three different people cooking, but I'll mention one here...

The other person is an author and considered somewhat of an expert in his field. He's writing a new book, so we started talking about a companion DVD. He's not in a financial position to hire me, but I believe his expertise, connections and "gravitas" in the field are worth quite a bit.

Do I just tell him I'll handle shooting, editing and paying for the initial order of DVDs (1,000 to start) and then we split the sales? If so, what's a good split? 50/50?

Keep in mind, this person did not approach me and say "do this for free", but instead we met while working on an unrelated project - I recognized the potential and approached him about this video project.

I don't want to get shorted, but I don't want to short him either.

Chris: I think in a case like that, I would establish what a reasonable budget for the project SHOULD be, establish what the effective selling price of the DVDs would be and "lay claim" to the amount of the budget as DVDs sell at a mutually agreeable rate.

If you KNOW you'll sell all 1000 and the break even point for the budget is at 478, see if you can take all proceeds from the first 478 and then a small residual on further sales.

Alternately, until you recoup fair costs, you get 75% of DVD profits and he gets 25% and then when the production costs are covered, you go 50/50.

That's how I would handle it.

That's a good idea. I'll run the numbers so I have something to present to him when we meet.

This type of agreement is what makes up the bulk of my income. It can be great for you, but has HUGE risks.

Generally, I create the concept for the video, put up the money, take it right through to printing the discs and set up fulfillment/shipping/online sales. I take 100% of the gross until all my expenses are paid back, then split the remainder 50/50. I take that much because I'm shouldering all the risk that it may or may not sell... and it's a HUGE risk because it depends on:
1) the client having their shit together and producing the script. This has never happened properly in my experience. "Oh, I'll wing it" brings tears to my eyes. Buy a teleprompter and make them write it out. If they won't, quit.
2) the client has to be able to properly promote it. I made one DVD for someone, and it took SIXTEEN MONTHS for them to put it up on their website for sale. SIXTEEN MONTHS before I started to get any money back. Mad? Yes.
3) the client really has you by the balls for the whole process. I was about $10k and 40 hours into a project when the client said "I'll sink the whole project before I release something I'm not 100% happy with." That's admirable, but when it is YOUR money on the line, not so much fun. From that point on, I got client/talent to sign release forms for their performance, so I could release the project on my own if it came to that. Fortunately it hasn't.

Whatever you do... get EVERYTHING in writing. Pay a lawyer to read it. Seriously. So many things can go wrong (I've been relatively lucky). Put time clauses in it. List everything that the client will do and when they will do it by. Put fallbacks in it (as in, if client doesn't do X by Y, I'll get..." ANd lastly, put "if the project has not been completed by X, the client owes the production costs in full.
Everything I've learned about doing business this way, has been the hard way. On the flip side, royalty checks while you are sitting on a cruise ship are nice, very nice. Except for the crappy economy anyway.

Hope this helps.

EDIT: Also, put in the fine print that if they "fire" you from the project, they owe you for every cent you've put into it up to that point. It hasn't happened to me yet, but I know people who is has, and it isn't pretty.

Dylan,

Great post.

This is one of the most tricky situations for video companies/producers.

I had a large "front end" project fall apart on me last year and it hurt, but it does seem to be fun to be creating something from the ground up.

I would be interested in finding out what sort of projects you are doing as mine had to deal with wildlife and was a great challenge, especially the "I'll wing it approach!"

Much of this is very similar to the model used in the popular music industry and the performing arts industry. They always talk splits, but after recoupment. Production costs get deducted from the income stream, then they begin to generate profits. Many projects never get out of the recoupment phase. My own business does similar when we are producing CDs and DVDs - all limited appeal stuff. Only a couple have left me out of pocket, but few generate real regular income.

Great caveats there Dylan.

I once worked on a project with some friends for free... it was a great idea but really our first documentary project and we were just working for fun/experience (including the writer/producer). Well, the project got shelved forever. Whatever no big deal... sucks to work so much but honestly I felt like it wasn't very good work as we were inexperienced.

Well, a couple years go by and the original writer/producer gives the project to his brother and they call me and ask if I want to work on it again (for free of course). This is fine but I want the project to finish at this point. So I suggest that we have a contract that says that I'll work for free but if the project isn't finished by X date then I will get paid for every hour I put in. They said they didn't think they could do that... I responded "well, it doesn't sound like you guys are very serious about this project, so I'm not interested."

In actuallity they did finally finish the project and used my footage (which is fine)... then I get an email saying I have a ticket at the door for the screening. I asked if I could get tickets for my wife and daughter and was told that I would have to pay for them (at $12 bucks a pop!). I said... I'll just wait for the dvd... I assume I'm getting one right?! They said I was... I'm still waiting.

I also heard rumors that some of the original people that worked on the project only got "thanked" and not actually credited for what they did.

Great friends right?!

I guess the moral of all of this blabbering is that you should be careful, lots of friendships are ruined in business partnerships. :(

Kevin, sounds like in your situation the business venture did you a favor.