Optional Audio Introduction

  

Updated: 07/07/2006


Module 7

 

 

Costing-Out

A Production 

 

division markerUnfortunately, the best things in life are not always free. This especially applies to television shows, which, in some cases, cost several million dollars an hour to produce.

Although you may have a truly great idea for a script—one that you are certain will make you famous!—unless you can raise the money to get it produced, it will simply remain that—a great idea.

So, the first question you will have to grapple with is what it's going to cost to produce your program.

Even if you have no interest in producing, per se , the better grasp you have on this issue the better your chances of success. Why waste your time coming up with great ideas if they have little chance of being produced?

And, keep in mind that no production company—at least none that expects to stay in business very long—will commit to doing a production without some idea of how much it's going to cost.

The process of finding this out is called costing-out a production.

So, how do you do this?

First, especially for complex productions, expenses can be divided into categories. It has been traditional to think of expenses as falling into two broad areas: above-the-line and below-the-line.    

 

Above-the-Line/Below-the-Line

division markerAlthough the "line" involved can get a bit blurry at times, above-the-line expenses generally relate to the performing and producing elements: talent, script, music, office services, etc.

Below-the-line elements refer to two broad areas:

To accurately cost out a major production it's necessary to go beyond the above-the-line and below-the-line designations and divide production into at least 15 categories.

Obviously, for smaller productions many of these categories would be dropped.

With the help of a computer spreadsheet program you can list these categories and enter projected costs in each area. If you also enter formulas in the program to automatically generate totals, you will be able to adjust expenses as needed during production and immediately see the effect on the bottom line.

 

Renting vs. Buying Equipment

division markerYou'll note that one of the categories covers rental equipment. Except for studio equipment that's used every day, it's often more economical to rent equipment rather than buy it. There are several reasons for this.

First, production equipment, especially cameras and recorders, tends to become outdated rather quickly. It's possible to spend more than $70,000 on a top-notch CCD camera. If you do, you assume that you will be able to recoup the cost through several years of use.

If you were able to pay cash for a $70,000 camera and use it for five years, the cost would break down to $14,000 a year, plus repair and maintenance costs.

Even though the camera might still be reliable after five or more years, compared to the newer models it would be outdated. Parts for repair might even be hard to get.

If the equipment were rented, several production facilities would probably end up using it. This means that a rental company could write off the initial investment more quickly on their taxes, making it possible to more rapidly replace the equipment with newer models.

Second, if equipment is rented, it's the rental company rather than the production facility that's responsible for repair, maintenance, and updating. If equipment breaks down during a shoot (production), most rental companies will replace it within a few hours.

Next, rental can represent an income tax advantage.

When equipment is purchased, it has to be depreciated (written off on income tax) over a number of years.

Sometimes this time span exceeds the practical usefulness of the equipment. This means that the facility may be faced with having to sell the used equipment in order to recoup some of their initial investment.

Schools often get used equipment in this way because donated equipment represents a tax write-off for the companies involved.

Even so, if non-studio equipment is rented, the expenses can be immediately written off of taxes as part of a production expense.

Although rules governing income taxes regularly change, deducting the costs of rental equipment can represent a quicker, simpler, (and in many cases a greater) tax deduction.

Finally, when equipment is rented there is greater opportunity to obtain equipment that will meet the specific needs of the production. Once equipment is purchased, there can be pressure to use it, even though at times other makes and models might be better suited to the specific needs of a production.Determining Costs

Even for consumer-grade equipment the cost of rental (which may be only $50 a day) might make sense if it's only going to be used for a few days.  

Again, in each of these examples we are talking about equipment that's not used every day.  An example would be equipment needed for an on-location (non-studio) shoot.

 

Approaches to

Attributing Costs

division markerOnce the cost for a production is figured out, you may need to justify it, either in terms of expected results or cost effectiveness.

There are three bases on which to measure cost effectiveness:

Cost Per Minute

division markerThe cost per minute is relatively easy to determine; you 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 would be $4,000.
 

Cost Per Viewer

division markerC ost per viewer is also relatively simple to figure out; you simply divide the total production costs by the actual or anticipated audience.

As we noted in Module 4, in the field of advertising, CPM, or cost-per-thousand is a common measure. If 100,000 people see a show that costs $5,000 to produce, the CPM would be $50. On a cost-per-viewer basis this comes out to be only five cents a person.
 

Cost Per Measured Results

division markerThe last category, cost per measured results, is the most difficult to determine.

For this we must measure production costs against intended results. In commercial television we might sell 300,000 packages of razor blades after airing one 60-second commercial. If our profit on 300,000 packages was $100,000 and we spent $1,00,000.00 producing and airing the commercial, we might question whether it was a good investment.

Of course, once produced, most ads are aired more than once. (Sometimes endlessly, it seems!)

This means that the cost of future airings simply centers on buying airtime. If the cost of TV time was $10,000 and we sold 300,000 packages of razor blades each time the commercial aired, we would soon show a profit. Plus, we could figure it all out on a simple calculator.

 

Return on Investment

division markerBut things may not be this simple.  

What if at the same time we are also running ads in newspapers and on radio, and we have big, colorful razor blade displays in stores? Then it becomes difficult to determine the cost effectiveness of each medium.

So the question becomes, which approach is paying off and which one isn't?

Plus, razor blades can be counted, but determining the returns on other "products" can be much more difficult.

How do you quantify the return-on-investment of a public service announcement (PSA) designed to get viewers to stop smoking, to "buckle up for safety," or to preserve clean air and water.

Even if before-and-after surveys are done to try to measure changes in public awareness of these issues, it can be almost impossible to factor out the influence of a particular type of public service announcement from the host of other voices that the public regularly encounters on these issues.

Apart from doing in-depth interviews with viewers, we may have to rely largely on "the record."

If we find that a series of 60-second TV spots increases razor blade sales by 300,000, we might safely assume that a 60-second PSA might also have some influence on smoking, buckling seat belts, and clean air and water.

division markerWith some of the major preproduction concerns covered, our next step is to become familiar with some of the tools we'll be using in the production process.

To understand these we'll need to start with the basics of the medium, itself. 


   


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