We've already looked at what a sales agent does and how distributors buy rights from them. When you first engage your sales agent, they should provide you with a list of sales estimates for your title. This is an extremely important document that can be crucial to the successful packaging, budgeting, financing, and ultimate distribution of your project.
What Are Sales Estimates?
In each territory, a distributor will usually need to pay some kind of upfront fee to acquire the rights to your project. But how much they pay can vary greatly.
The sales estimates show what your sales agent believes the project is worth in each territory.
The sales agent will break these numbers down on a country-by-country basis (or occasionally a group of countries). These prices are based on their experience, and what they think that they can realistically ask a distributor to pay for the licensing rights in each country.
This will depend on a number of factors such as the cast, genre, plot, and any other elements that might affect the project’s marketability. It is in the overall package that the value lies.
A sales estimate could be high for certain countries where the sales agent feels that there will be greater interest in the project, but lower in others. These numbers can vary greatly depending on the market in each territory.
For example, if you have a movie about baseball, the sales estimates will probably be higher in countries like the US and Japan, where baseball is extremely popular, but lower in other countries where there is much less interest in the sport.
The more commercial and marketable a project is, the more desirable it will be to distributors, which will push the prices up.
No two sets of sales estimates are ever the same. Each project has its own strengths and weaknesses based on the overall package, and the market changes constantly.
Comparing Sales Estimates
A good sales agent should be able to provide you with a list of sales estimates that are aggressive but also realistic. They should be confident of maximizing the project’s value whilst not giving unrealistic expectations of what they can achieve.
When you have several sales agents competing for your project, you can request sales estimates from each of them and see how they stack up against one another.
However, be careful not to run straight to the sales agent simply offering the highest estimates. Some companies will inflate their sales estimates in an effort to get your business when in fact they are just offering unrealistic expectations that could ultimately lead to disappointment.
At the same time, if a company is offering sales estimates that seem far too conservative, then you need to be sure that the sales agent can be aggressive enough and believes in your project sufficiently to match your ambitions for it.
So, while the sales estimates are a critical part of how you choose your sales agent, don’t be too dazzled simply by high numbers without examining them properly.
Ask the sales agent what these estimates are based on, whether they can back them up, and how confident they really are of achieving them.
‘Asks’ And ‘Takes’
When you receive your list of sales estimates, you will probably get two numbers for each territory.
The first (higher) number will represent the ‘Ask’ price. This is the price that the sales agent will quote to the distributor for the licensing rights in their country (the price that they will ask for).
The second (lower) number will represent the ‘Take’ price. This is the lowest price that they will realistically accept from a distributor (barring any major catastrophes) to buy the rights in their country (the price that they will take).
So, these are generally known as the ‘Asks’ and ‘Takes’.
When a sales agent first starts negotiating with a distributor, they will start high, quoting them the ‘Ask’ price.
If there is more than one distributor interested in that territory, or a distributor really wants to close a quick deal on the project, they might feel incentivized to pay an amount somewhere close to (or possibly even more than) the ‘Ask’ price.
However, if there is little competition for the project in that territory, or if it is not particularly commercial or marketable and therefore represents a risk, then the final sale price will likely be much closer to the ‘Take’ number, or maybe even lower.
And it might just turn out that, if nobody wants to pay these prices in a certain territory, you will just have to take whatever you can get.
This is not like buying a product at the grocery store with a fixed price tag on it. Everything is negotiable.
However, the sales estimates should give you a realistic range of what you can expect distributors to be paying.
Why Are Sales Estimates So Important?
Having a set of sales estimates when you are putting your project together can inform many decisions in your finance plan and budget, particularly for higher-budget projects.
The sales estimates are about as close as you can get to a confirmation of market value.
This can help to define your budget, which should be closely related to the amount of money that you believe the project can generate. So, for example, if your sales estimates total $2m but you have a budget of $10m, this is a warning that you are probably spending a lot more money than the market can justify.
This is why equity investors often request sales estimates when deciding whether to invest. They need to see that the project is being made at the right price, and also assess the likelihood of making their money back.
Additionally, if you are looking to raise gap financing against your future foreign sales, which could cover 10%-35% of your budget, the sales estimates are a key document that any financier will examine.
So, when raising financing for your next project, having a set of sales estimates from a reputable sales agent could be a key factor in whether or not you can get your project financed.
To learn more about the Sales & Distribution process, check out our book on the topic: HOW THE HELL… Do I Get My Film Financed: Book Two: Sales & Distribution by Ricky Margolis. For more information on other books in this series, check out all our current releases here.
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