Although you may have come up with a truly great idea for a production -- one you're certain will make you famous! -- unless you can raise the money to get it produced it'll remain simply that: a great idea.
So the first question is what will it cost to produce?
Even if you have no interest in producing, the better your grasp of this issue, the better your chance of success.
And keep in mind that no production company will commit to a production without a reasonable idea of how much it will cost.
We call this process costing out a production.
Traditionally, we think of expenses as falling into two broad areas: above-the-line and below-the-line.
Above-the-Line and Below-the-Line
Although the "line" blurs at times, above-the-line expenses generally relate to the performing and producing elements: talent, script, music, and others.
Below-the-line elements refer to two broad areas:
To cost out a major production accurately, you can go beyond the above-the-line and below-the-line designations and divide production into at least 15 categories:
1. preproduction costs
Smaller productions, of course, will not involve all of these categories.
You can list these categories in a column on the left side of a computer spreadsheet program, such as Microsoft Excel or the spreadsheet program in the free Open Office suite.
Under each category you can then add items and their costs. You can then add corresponding formulas that will automatically generate totals for each category as you go along.
Renting vs. Buying Equipment
Note that one of the categories covers equipment rental. Except for studio equipment that's used every day it's often more economical to rent equipment rather than buy it.
There are four basic reasons.
First, production equipment becomes outdated quickly. At more than $70,000 for a topnotch video camera, you might assume you'll recoup the cost through several years' use. If you pay cash for a $70,000 camera and use it five years, the cost breaks down to $14,000 a year, plus repair and maintenance expenses.
Even though the camera might still be reliable after five years, compared to the newer models it will be outdated. After a while it may even be difficult to find parts.
Several different production facilities can use equipment available for rent, however.
This means the rental company can write off the initial investment on their taxes more quickly, making it possible to replace the equipment with newer models.
Even for consumer grade equipment, the rental cost (which may be only $50 a day) might make sense if you'll use it for just a few days.
Second, the rental company, rather than the production facility, is responsible for repair, maintenance, and updating.
If equipment breaks down during a shoot (production), rental companies will typically replace it within a few hours.
Third, renting provides an income tax advantage. When equipment is purchased, it must be depreciated (written off on income tax) over a number of years.
But sometimes this time span exceeds the practical usefulness of the equipment. This may mean that the production facility will need to sell the used equipment in order to recoup some of their initial investment. (Companies often donate their equipment to schools for a tax write-offs.)
If you rent equipment you can write it off immediately as a production expense.
Although rules governing income taxes change regularly, deducting the cost of rental equipment can represent a quicker, simpler, and in many cases greater, tax deduction.
Finally, when you rent equipment, you increase the opportunities to obtain equipment that will meet the specific needs of your production.
Purchasing equipment can generate pressure to use it, even though at times other makes and models might be better suited to your needs.
Again, in each of these examples, we're talking about equipment that you wouldn't use every day.
Once you figure out the cost of a production, you may need to justify it, either in terms of cost-effectiveness or expected results.
There are three bases on which to measure cost effectiveness:
Cost Per Minute
Cost per minute is relatively easy to determine; simply divide the final production cost by the duration of the finished product. For example, if a 30-minute production costs $120,000, the cost per minute is $4,000.
Cost Per Viewer
Cost per viewer is also relatively simple to figure out; divide the total production cost by the actual or anticipated audience.
In the field of advertising, CPM or cost-per-thousand (not cost per million) is a common measure.
If 100,000 people see a show that costs $5,000 to produce, the CPM is $50. On a cost-per-viewer basis, this comes out to be only five cents a person.
Cost Per Measured Results
Cost per measured results is the most difficult to determine. Here, we must measure production costs against intended results.
Suppose that after airing one, 60-second commercial we'll sell 300,000 packages of razor blades at a resulting profit of $100,000. If we spent a million dollars producing and airing the commercial, we would have to question whether it was good investment.
But, advertisers air most ads more than once.
If the cost of TV time is $10,000 and we sell 300,000 packages of razor blades after each airing, we will soon show a profit.
All of these "measured results" are easily determined by a calculator.
Return on Investment
Things may not be this simple, however.
What if we also run ads in newspapers and on radio, and we have huge, colorful displays in stores?
Then it becomes difficult to determine the cost-effectiveness of each medium, and the question becomes, which approaches are paying off and which aren't?
And there can be another issue. We can count razor blades, but it may be more difficult to determine the returns on other "products."
For example, it's very difficult to determine the effectiveness of programming on altering human behavior and attitudes.
How do you quantify the return on investment of public service announcements designed to get viewers to stop smoking, "buckle up for safety," or preserve clean air and water?
Even if we conduct before-and-after surveys to measure changes in public awareness, it can be almost impossible to factor out the influence of the host of other voices the public may encounter on that issue.
Apart from in-depth interviews with viewers, we may have to rely largely on "the record."
If we know a series of 60-second TV spots increases razor blade sales by 300,000, we might assume a 60-second PSA (public service announcement) would also have some influence on smoking, buckling seat belts, and preserving clean air and water. The question is how many people modified their behavior as a direct result of your PSA?
This is important for nonprofits and other organizations to know in order to determine the best use of their informational and educational dollars.
With some of the major preproduction concerns covered, our next step is to become familiar with the tools of production.
To understand these, we'll need to start with the basics of the medium itself.
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