A NEW FILM PRODUCTION BUSINESS PLAN

FIREFLY FILM FACTORY

FOR INFORMATION ONLY This is a business plan for confidential use only and may not be reproduced, sold, or redistributed in any manner without prior consent from Promotivate Studios.

This business plan does not constitute an offer to sell, nor is it a solicitation or an offer to purchase securities. This business plan has been submitted on a confidential basis, solely for the benefit of a qualified investor, and is not for use by any other persons. By accepting delivery of this document, the recipient acknowledges and agrees that: (i) in the event the recipient does not wish to pursue this matter, the recipient will immediately and permanently destroy all electronic copies, computer files, and correspondence containing this plan; and (ii) the recipient will not copy, fax, reproduce, or distribute this plan, in whole or in part, without permission; and (iii) all of the information contained herein will be treated as confidential and cannot be shared with other parties.

© Promotivate Studios & Firefly Film Factory

615 Lost Grove Circle Winter Garden, Florida, 34787 USA +1-321-948-4388 https://www.promotivatestudios.com promotivate.studios@gmail.com

Tag-lines and/or catch-phrases for Firefly Film Factory: “Follow The Light” “Lighting Your Way In The Dark”

TABLE OF CONTENTS 1 / The Executive Summary

2 / The Company

3 / The Industry

4 / The Market

5 / Distribution

6 / Risk Factors

7 / The Financial Plan

CHAPTER 1

THE EXECUTIVE SUMMARY Strategic Opportunity

• North American movie box office revenues in 2019 were $11.32 billion

• Global box office revenues in 2018 were an all-time high of $41.7 billion

• In 2018, lower budget films turned risk-taking breakouts into global blockbusters: A Quiet Place, ($17 million budget), The Nun ($22 million budget) and Peter Rabbit ($50 million budget) each earned over $336 million in global box office sales

• The Coronavirus pandemic caused so many people to consume film and Television content at an accelerated pace that studios, networks, and streaming services are desperately seeking new content to meet demand

• The film industry has historically prospered during economic and global hardship as consumers turn toward escapism and motivational storytelling for inspiration

The Company Firefly Film Factory will be a high-concept, lower budget, feature filmmaking entity, engaged in the development and production of visually sumptuous, emotionally enthralling, and intellectually provocative movies for theatrical, television, and electronic distribution. This new film studio will combine breathtaking imagery with powerful stories of the human spirit, alluring a mass audience with unique, timeless, and enlightening tales.

The company plans to produce three films over the next six years with budgets ranging from $500,000 to $5 million.

Management Team The company’s founders convey over thirty years of successful entrepreneurial experience and in-depth expertise in motion picture development, production, exhibition, marketing, and sales. The team will be complemented by a support group of creative and technical personnel from Hollywood and independent filmmaking circles.

The Product With compelling characters in adventurous and conflicted situations, great movies have the power to stir the soul and demonstrate to each of us that we are not alone in our struggles in this world. Through extensive ties with a new breed of visual storytellers, Firefly Film Factory will deliver an initial slate of three feature films, nourishing the hearts and minds of audiences, providing abundant value and positive, lasting, brand awareness.

Firefly Film Factory expects each film to stand on its own and to produce profits that finance successive projects, strategically leveraging the Company as the world’s leading independent production Studio, with commercially successful films and artistic, award-winning accolades, driving further marketing and expansion efforts.

The Industry Low budget, independent film successes like Memento, a slick $4.5 million film that made $25.5 million, The Usual Suspects, budgeted at $4 million and earning $23 million, El Mariachi, a slender $7,000 project that managed $1.6 million in domestic box office sales, and Sex, Lies, & Videotape, a $1.4 million film earning $24.7 million in its theatrical release alone have demonstrated that little money can go a long way in the business of making movies. By definition, an independent film is one that is financed by any source other than a major U.S. studio. Independent films vary widely in budget, generally from thirty thousand to several million dollars. Operating with minimal overhead expense, independents spend more time developing rich and fascinating characters in compelling and unique situations. Because of limited financial capacity, independents plan their budgets more carefully and often realize higher profit ratios than major studios.

The future for low-budget, independent films continues to look impressive as their commercial viability has increased steadily over the last decade. The independent market as a whole has expanded dramatically in the past 15 years while

total domestic box office increased 45%. Proof of the high quality of “Indie” features is that an independent film won the Academy Award for Best Picture in 10 of the last 11 years.

Widely recognized as a “recession-proof“ business, the film industry has historically prospered during periods of decreased discretionary income and during troubled times, as humans opt for escapism, motivation, and life-lessons. In fact, during the Coronavirus pandemic, entertainment streaming services experienced unprecedented demand as quarantined families voraciously consumed motion picture content. This dovetails perfectly with our production strategy as distribution opportunities now abound in the race to acquire more content to keep pace with significant demand.

For these reasons and more, it is an opportune time for equity investors to move into the independent film arena. Technology has dramatically changed the way films are made, allowing independently financed films to look and sound as good as those made by Hollywood studios, while remaining free of the creative restraints placed upon an industry that is notorious for fearing risks and resisting forays into topics of a unique subject matter, where new opportunities abound.

The Markets Although Hollywood has a knack for visual spectacle and grandeur, big budget movies sometimes fail to strike a chord that resonates in the hearts and minds of audiences whom not only crave escapism but also seek to enrich their

lives through educational and/or thought-provoking and/or spiritually-motivating entertainment.

Independent production companies offer this more complex mix of art and entertainment. Not only have independents experienced impressive financial success over the past three years, they have also garnered more Oscar nominations than their Hollywood counterparts.

As trends continue to modulate the face of the entertainment industry, now is the time to create a company that offers a mix of all successful ingredients; substance and style, maintaining strategic and financial dominance throughout various market conditions.

Distribution The motion picture industry is highly competitive, with much of a film’s success depending on the skill of its distribution strategy.

As an independent producer, Firefly Film Factory aims to negotiate with major distributors for release of their films. Firefly Film Factory will seek partnerships with distribution companies that have proven their ability to handle lower budget films with sensitive themes and appeal to the Company’s desire for special handling. We will hold screenings for distributors in key market segments and for distributors who possess specific experience in the genre of a particular film. In addition, we will exhibit our movies at appropriate festivals.

As our reputation for quality filmmaking grows, both domestic and foreign markets will be anxious to buy our product. Thus, Firefly Film Factory expects to garner increasing leverage in negotiating deals and attracting major cast and production elements.

The production team is committed to making films that are highly attractive products for theatrical distribution and other markets.

Investment Opportunity & Financial Highlights Firefly Film Factory seeks an equity investment of $15 million for the development and production of three films over six years. Using a moderate revenue projection and an assumption of general industry distribution costs, we project (but do not guarantee) a pretax investor net profit of $21 million.

Alternatively, the Company will consider smaller offers from multiple equity investors to reach this $15 million (total) goal, and will split revenues proportionally.

CHAPTER 2

THE COMPANY Strategic Approach Firefly Film Factory will be a privately owned company whose principal purpose and business is the creation of theatrical motion pictures and documentaries. The Company plans to develop and produce quality, inspirational films that stir thoughts and emotions through compelling stories, interesting characters, and visually-alluring locations.

The Company’s objectives are as follows: 1) Produce films that celebrate unique facets of life and

the human spirit and are commercially viable for a mass audience.

2) Purchase and develop scripts with outside writers. 3) Execute and exhibit three films within six years, with

budgets ranging from $500,000 to $5 million. 4) Establish domestic and foreign distribution routes,

negotiating deals with local, regional, national and international companies.

5) Implement new technology, maximize utilization of film crew, and streamline production routines that reduce expenses.

6) Design strategies for capital growth re-investment opportunities.

Production Team (Management & Organization) The primary strength of any company is in its management team. The Company’s principles, Dustin Lee, Mike Hanly, and Aida Hernandez convey extensive experience in business and in the entertainment industry. They also provide a vast and potent network of key relationships with Hollywood talent, business associates, and technical/creative personnel who will fill important roles on a project-by-project basis. The following individuals make up the current management team:

Mr. Dustin Lee, President and Executive Producer

Mr. Lee possesses longstanding and wide-ranging experience in filmmaking, corporate strategy, process engineering, and marketing. Mr. Lee reported directly to top-level executives within The Walt Disney Company, DreamWorks, Universal Studios, Paramount Pictures, AOL/Time Warner, Meridian Pictures Entertainment, and Next Entertainment as a business and creative strategist, providing his clients almost thirty years of experience generating revenues in the billions of dollars. Guiding financial, technological, and artistic development within these companies, Mr. Lee played a major role in the implementation of multi-million dollar films, theme park attractions, and stage concepts. He produced, scripted, and directed content for film, television, commercial, documentary, Internet, and digital media. He commandeered script development, production, distribution, and release agendas. In addition, Mr. Lee researched, developed, tested, and implemented marketing

campaigns associated with these projects. In all, he has played a significant hand in the production of over 50 major studio and independent production features, several of which have garnered Academy Award nominations and subsequent Oscars.

His entertainment industry successes include:

• Constructed a five-year operating plan for The Walt Disney Company, garnering record revenue generation six years in a row.

• Choreographed Bob Iger’s appointment as The Walt Disney Company’s longtime CEO and masterminded the acquisition of ABC Television, Pixar, Marvel Entertainment, and Lucasfilm Ltd. under Disney’s umbrella.

• Led the creative development teams that produced The Lion King, Aladdin, ER, The West Wing, Star Trek: Deep Space Nine, Battlestar Galactica, Boston Legal, Shrek, Pirates of the Caribbean, Ratatouille, Breaking Bad, and Game of Thrones

• Spearheaded the creation of Disney+, which amassed 28.6 million subscribers in the first three months alone, far surpassing the 20 million estimated subscribers analysts predicted it would generate in a year

Dustin will capitalize on his solid rapport with distributors, filmmakers, writers, acting and crew talent, and other entertainment specialists who have worked with him and know him from past projects. Mr. Lee will establish the production slate, manage the production company,

negotiate with third parties, double as Executive Producer, Writer, and/or Director during production, and spearhead the development and implementation of future business strategies.

Mr. Michael Hanly, Vice President and Manager, Post-Production

Mr. Hanly provides exceptional local and regional knowledge of the independent film community including rental houses, soundstage facilities, and talent/crew contracts. He has worked closely with various levels of government in the pursuit of film permits for location shoots. He has also served as liaison between production companies and the Screen Actors’ Guild, among other film Unions, to facilitate production contracts and agreements. As an editor and Post-Production Manager for film, cable, television, and commercial projects, Mr. Hanly conveys over ten years of experience with various editing platforms, and has managed all post-production routines from the processing of film to a final print for theatrical, television, and/or digital exhibition.

Michael Hanly delivers expert analysis of emerging film production technologies, motion picture cameras, sound, and editing equipment and will work to ensure budgetary resources are exploited to the fullest extent. He will supervise the entire post-production process and serve as Editor on all projects. He will work closely with our distribution networks to ensure they receive a quality final print for exhibition in both film and video arenas.

Ms. Aida Hernandez, VP of Production

Ms. Hernandez will oversee the look of each film, commandeering production design, wardrobe, and picture color profiles, utilizing her expert experience in design aesthetics and film production management. She will hire crew and manage the camera, sound, hair, makeup, and design departments during production.

Support Staff

One to two support staff members will comprise the rest of the Company’s full-time work force. All other personnel will be hired under contract for a specific project on an as-needed basis.

CHAPTER 3

THE INDUSTRY Outlook Major studios began downsizing at the end of the 1990’s. While in the past they maintained massive production facilities, staff, and significant overhead expenses, the impact of unions, guilds, and runaway production budgets forced studios to follow new business models. Today, studios are releasing fewer films but expect larger grosses per film. As a consequence, smaller production entities, the Independents, arrived. Despite their limited financial resources, independents are more capable of capturing larger revenues in relation to their expenses.

Falling salaries, rising subsidies, and a thinning of the competition have weighted the financial equation even more in favor of lower budget filmmaking investment. In addition, revolutionary changes regarding how motion pictures are produced and distributed are sweeping the industry and these changes happen to be especially beneficial for independents.

At CinemaCon 2016, the CEO of The Motion Picture Association of America (MPAA), Christopher Dodd, and the CEO of the National Association of Theater Owners, John Fithian, cited more diverse audiences and the preservation of theatrical windows as key reasons for growth. “I am proud to say that the state of our industry has never been

stronger,“ Dodd told the crowd. He also pointed out that three quarters of frequent moviegoers own at least four different types of technology products such as smart phones, tablets, and video game systems, and this helped drive box office receipts. “Word of mouth no longer exists,“ he said. “It’s now word of text.“

Additionally, the success of independent films has been helped by the number of specialized content distributors emerging in the marketplace.

Motion Picture Production The structure of the US motion picture business has been changing over the past three decades, as studios and independent companies spawn new methods of financing. Although some production companies historically funded movies completely from their own arrangements with banks, they now look to partner with other companies, both in the US and abroad, that can assist in the overall financing of projects. The deals often take the form of domestic companies retaining the rights for distribution in all US media, including theatrical, home video, television, cable, and other ancillary markets.

Major studios, the largest companies in this business, include NBC Universal, Warner Brothers, 20th Century Fox, Paramount Pictures, Sony Pictures Entertainment, and The Walt Disney Company. MGM, one of the original majors, went private in 2010 and now functions as an independent that both partners with other studios and finances its own movies. In most cases, the “Majors” own their own

production facilities and enjoy a worldwide distribution organization. With a large corporate hierarchy making production decisions and a large amount of corporate debt to service, the studios must aim most of their films at mass audiences.

Producers that can finance films independently by any source other than a major US studio have more flexibility in their creative decisions, with the ability to hire production personnel and secure other elements required for pre-production, principal photography, and post production on a project-by-project basis. Carrying substantially less overhead expense than a studio, Independents are able to be more cost effective in the filmmaking process. Their films can be directed at both mass or niche audiences, with the target markets for each film dictating the size of the budget.

How It Works There are four steps in the production of a motion picture: development, preproduction, production, and post production.

At a studio, a film begins in one of two ways. Someone inside the company might develop a “concept” (one or two lines of an idea), or a well-known writer might make a “5 minute pitch” and secure a deal. On the other hand, an agent might bring a script written by a new writer to the attention of the studio. Once the studio “green-lights” a concept, scriptwriters are hired, lead actors sought,

budgets approved, and directors and producers assigned. This process is called development.

The next step is pre-production; the period before principal photography when budgets are finalized, crew are hired, locations are selected, and contracts are signed. Typically, an independent producer’s goal here is to acquire funds from equity partner(s), completing all financing of a film before commencement of principal photography.

The filming of a motion picture is called principal photography and comprises the production stage. It generally takes from 8 to 12 weeks, although most cast members are not required for the entire period.

During the post-production phase, which follows principal photography, the film is edited and synchronized with music and dialog. In certain cases, special effects are added. The post-production period used to require six to nine months. With recent technological developments, however, this time has been cut drastically for most films.

The expenses associated with this four-step process for producing and finishing a film are referred to as “negative costs.”

A master print is then manufactured for duplicating release prints for theatrical exhibition but expenses for further prints and advertising for the film are categorized as “P&A“ (prints and advertising) and are not part of the negative costs of production.

Domestic Theatrical Exhibition An exhibitor pays a percentage of a film’s box office receipts (called “rentals”) to the studio or distributor. The size of the percentage depends on the distributor’s strength and the exhibitor’s desire to show the film. A major studio release usually garners a 50/50 split, while independent films average a 49/51 split of box office receipts.

The U.S. release of a film usually ends within the first year of the rental period. Major studio films may go out to as many as 4,000 screens in the first few weeks. Independent films start more slowly and build on their success. Although the amount of rentals will decline toward the end of the film’s run, it may very well increase in the first few months. It is not unusual for a smaller film to gain theaters as it becomes more popular.

Because revenues from all other sources are driven by the success of theatrical distribution, a film’s staying power on theater screens is important. Coupled with this is the exhibitor’s basic desire to see people sitting in their theater seats. Although the studio has some power to keep a mediocre film on the screen with its greater resources in marketing and promotion, good independent films find their place in theaters more from the quality and interest generated by the story.

Exhibitors have maintained they will show any film they believe their customers will pay to see. Depending on the location of the individual theater or the chain, local

pressures may play a part in deciding which films are shown. Not all pictures are appropriate for all theaters.

There were 43,661 theater screens (including drive-ins) in North America in 2015, per the most recent Theatrical Market Statistics report released by the MPAA. Theatrical revenues, (“box office“ receipts) are often considered an engine to drive sales in all other categories. Thus, the much stronger than expected domestic theatrical box office of late has continued to stimulate ancillary sales, such as home video and digital sales, and has raised the value of films in foreign markets.

Broadcast Television & Cable Television exhibition includes over-the-air reception for viewers either through a fee system (cable) or “free television” (national and independent broadcast stations). The proliferation of new cable channels since the early 1990’s has made cable (both basic and premium stations) one of the key revenue streams for feature films, surpassing broadcast network television over the last 20 years as the dominant “second screen“ outlet for movies. “Basic“ cable channels carry a broad range of programming, including licensed feature films and original and syndicated productions. “Premium“ cable networks, such as HBO, Showtime, and STARZ require an additional subscription fee in exchange for commercial-free programming that includes licensed theatrical features, documentaries, and original series. Competing with cable companies are direct broadcast satellite services, including DIRECTV and Dish,

which allow subscribers to watch programming via individual satellite dishes installed at their homes.

Another group of providers are telecommunications companies, including Verizon’s FiOS and AT&T’s U-verse, that use Internet protocol (IP) technology to beam cable channels into homes. All these systems acquire their film programming by purchasing the distribution rights from motion picture distributors. Pay-per-view (PPV) allows cable, satellite, or telecom subscribers to purchase individual films or special events, adding to the revenue stream for features.

Home Entertainment In 2015, overall consumer spending on home video totaled $18 billion, up almost 1% compared to $17.8 billion in 2014, according to the Digital Entertainment Group (DEG). This reverses a downward trend over the last three years. Although total disc sales fell 12% during 2015 to come in at $6.1 billion, Blu-ray disc sales were up 8% in the three month period between October 1 and December 31, 2015. Among other highlights for 2015 are:

• Electronic sell-through generated $1.9 billion in consumer spending, up 18.1% from $1.6 billion in 2014.

• Total consumer spending on digital - streaming, sales, and video on demand (VOD) - came in at an estimated $8.9 billion, a 16.4% increase from 2014. This number is driven by Netflix and SVOD, which some analysts feel should be considered separately.

• Subscription streaming of movies and TV shows generated consumer spending of more than $5 billion, a 25% gain from 2014. Home Media Magazine adds that, in addition to playing high definition discs, Blu-ray disc players double as some of the best streaming devices.

• Consumer sales of 4K Ultra HDTV’s increased a dramatic 287% in the fourth quarter of 2015. As of 2018, 31% of US households utilize at least one, 4K Television.

International Theatrical Exhibition Much of the projected growth in the global film business comes from foreign markets, as distributors and exhibitors find new ways to increase the box office revenue pool. More screens in Asia, Latin America, and Africa have followed the increase in multiplexes in Europe, although this growth has slowed. The world screen count is predicted to remain stable over the next eight years. Other factors include the privatization of television stations overseas, the introduction of digital broadcast services, and increased cable penetration. The synergy between international and local product in European and Asian markets is expected to lead to future screen growth there and, thus, more box office revenue.

Future Trends Revolutionary changes in the manner by which motion pictures are produced and distributed are now sweeping the industry, especially for independent films. Web-based companies like Google Play, Amazon’s Video on Demand, Apple’s iTunes Store, Vudu, and CinemaNow are renting and

selling films and other entertainment programming for download on the Internet and through their apps.

Subscription websites and apps such as HBO GO, Showtime Anytime, Netflix, Disney+, and Hulu Plus stream filmed entertainment to home viewers. Streaming platform Vimeo launched it’s on-demand service in 2013, and now has a growing number of titles available for rent or purchase via Internet or mobile app. Streaming media players, such as those made by Google, Roku, Amazon, Apple TV, and Sony, as well as the streaming capabilities of Xbox (360 and Xbox One) and Wii allow even those who are not tech savvy to stream content from these and similar websites directly to their HDTV screen, creating a home theater experience.

Multi-use, portable devices that can provide personal viewing of films (including video iPod, smart phones, and tablets) are flooding the market place, expanding the potential revenues from home video and other forms of entertainment viewing. These new technologies, and others not yet devised, will grow in influence in the next five years and beyond.

CHAPTER 4

THE MARKET Overview An independent film goes through the same process as a studio film with regard to its journey from development and pre-production to production and post-production. In the case of an independent project, however, development and pre-production may involve only one or two people. In addition, the independent usually maintains control over the final project.

An independent company is one that finds its production financing outside the studio system. Sometimes, an independent feature is purchased and distributed by a major studio, but the negative costs to produce the film were found from other sources. Many smaller production companies started with the success of a single film. For example, Carolco was built on the success of Rambo III and Terminator II and New Line achieved prominence and clout with the Nightmare on Elm Street series.

The smaller production company focuses on just a handful of projects in different phases of development. Many independents are owned or controlled by a creative person, such as a writer/director or writer/producer, in combination with a financial partner or group.

Since the beginning of the 1990’s, independent film has witnessed an “up” cycle. The market for specialty films has also grown. All across the United States, independently operated theaters have maintained a loyal following. Often, a film made for $500,000, or less, recoups its negative cost from these independent theaters alone. Although independent theaters were once thought to be home of an offbeat and obscure minority, larger audiences have found favor in the fresh, thought-provoking qualities of films exhibited there.

Firefly Film Factory will build upon the success of storylines that normally start out in art house theaters and make their way to mainstream cinema much like Crouching Tiger, Hidden Dragon. Because of the lower budgets the Company will work with, exhibitors may wait for the film to prove itself before providing access to screens in larger movie houses. Smaller houses will give us a chance to expand the film on a more controlled timetable, building awareness with the public. As word of mouth increases, both the distributor and owners of big theater chains will want Firefly Film Factory’s movies in their mall theaters and multiplexes.

Firefly Film Factory will also gain exposure through the film festival circuit. Festivals and limited runs in specialty theaters within target areas will create an awareness of not only the finished film but the existence of the Company as a unique, independent production studio.

Lindsay Law, Producer and President of Fox Searchlight (Stand and Deliver, The Thin Blue Line), discloses that the

company’s projects fair much better with budgets somewhere in the $500,000 to $5 million range. She also notes projects made within this margin have an ample chance to break even with only a moderate level of sales to foreign markets, video outlets, and television.

While Hollywood continues to tighten its control and influence over big-budget markets, there are a plethora of commercially viable scripts that desperate writers would gladly sell for minimum compensation just to get their foot in the door. With a solid script and savvy negotiation skills, above-the-line talent (writer, director, director of photography, cast), comprising 30-60% of a film production budget, can be acquired for much less than typical Hollywood contracts would necessitate.

As an added strategy, the principals involved in establishing Firefly Film Factory have also developed methods of streamlining film production. The Company is capable of producing a product that costs 20-33% less than a competing, independent production entity without any sacrifice in quality. Add to this, under the banner of Promotivate Studios, we have already acquired several, important, production assets; cameras, lenses, lighting and sound equipment, and editing systems.

Competitive Advantages The Company provides several market advantages:

1) Its principals possess expert experience in the creative, business, and technical areas of motion

picture development, production, and post-production.

2) The Company will be run with an emphasis on presenting cost-effective yet entertaining product that uplifts and inspires the world.

3) Due to the nature of the business plan and the particular methods by which the Company has streamlined production costs, Firefly Film Factory will bring a much higher production value to the screen than their budgets would suggest.

4) Management will commit to promoting the films wherever and whenever possible. Promotional appearances, tours, and interviews involving a picture’s actors, directors, and writers are critical in gaining the attention and acceptance of an audience and will help bolster awareness of the Company as a whole.

5) Firefly Film Factory will be able to utilize all the production equipment and assets currently owned by Promotivate Studios, an already established, fully mobile production studio (which is more focused on commercial, corporate, and industrial videography, as opposed to feature films and documentaries)

Although there is no boilerplate for making a successful film, a film’s probability of success increases with a strong story, and then the right elements – the right director and cast and other creative people involved. Being able to green-light our own product, with the support of an investor, allows the Company to attract appropriate talent for success and distinguish itself in the marketplace.

Social Media & Self-Marketing An important marketing component for any film, especially during its opening weekend, is word-of-mouth. Without incurring additional costs, it is possible for the filmmakers to supplement the marketing strategy of a distribution company by working through niche channels to spread word-of-mouth about the film. Integral to this approach are social networks. Facebook had 1.6 billion active users as of January 31, 2016, according to the company’s annual report. Another favorite method of communication for business is Twitter. Twitter has become a potent force in the success of many films, as actors and other creative artists “tweet“ about their participation, sometimes adding photos taken behind the scenes, at publicity events or premieres, and so on. Rank-and-file fans share the URLs of news stories about favorite films and artists, blog about movies, or make video recordings of their reactions and post these to YouTube, their own sites, or a social networking page. Then, they share the link with their followers, thus informing friends and fellow web surfers about a film, influencing opinions. On Facebook, Twitter, and Instagram, fans communicate with each other about highly anticipated films and make general declarations in status updates and tweets. eMarketer reports that social networking has become an “integral“ and “routine“ part of American lives.

Thus, the Company will leverage its ability to design, host, and manage websites and various social media channels, enabling its films to blossom in the marketplace.

CHAPTER 5

DISTRIBUTION Strategic Approach Most of the marketing strategies commonly employed by independent distributors will be used to market Firefly Film Factory’s movies. The actual marketing of the film itself is the distributor’s job. It involves the representation of the film in terms of genre, the placement of advertisements in the various media, the selection of a sales approach for exhibitors and foreign buyers, and the “hype” (word of mouth, promotional events, alliances with special interest groups, and so on). All of these factors are critical to a film’s success.

Each major studio has its own distribution division. All marketing and distribution decisions are made in-house. This division sends out promotional and advertising materials, arranges screenings, and closes contracts with domestic and foreign distributors. The studios release 15 to 25 films a year, occasionally acquiring additional independent films to release. Thus, the Company will be mindful of opportunities to sell a project to a larger studio when the opportunity arises.

However, independent distributors often have the knowledge and patience to offer special care for eclectic or mixed-genre films. Many distributors will allow a film to find its audience slowly and methodically. This does not mean

independent distributors will walk away from opportunities to release films with mass appeal. Regarding films with smaller budgets and lesser names, independent distributors often possess an expertise that the studios lack. In addition, by focusing marketing and promotional efforts on a handful of primary markets, independent distributors keep costs relatively low. Since the business plan calls for one film to be produced every two years, Firefly Film Factory will most likely receive better care from an independent distributor than a major studio.

The first step in distributing a film involves making copies for motion picture presentation. Prints sent to theaters are duplications of the “master print”, which is created from the original, edited negative. A print usually costs $1,200 to $1,500, depending on the length of the film and fluctuations in the price of film stock. Major studio films are typically opened wide – that is, on thousands of screens simultaneously. The cost in prints, alone, from that type of release strategy amounts to more than $1 million. Although the independent distributor begins with fewer prints, eventually several hundred may be made throughout the film’s release period. While a film is in release, therefore, the total print cost can be appreciable.

Domestic territory is defined as both the United States and Canada combined. Domestic rights refer to theatrical distribution as well as all other media, such as video, cable, pay-per-view, and television. In terms of foreign sales, there are U.S.-based distributors who specialize in the rest of the

world. These companies deal with networks of sub-distributors in various countries.

Our goal will be to negotiate with experienced distribution companies to maximize our bargaining strength for a potentially significant release.

Distribution terms between producers and distributors vary greatly. A distributor looks at several factors when evaluating a potential acquisition, such as the uniqueness of the story, theme, and the target market for the film. Since distribution terms are determined in part by the perceived potential of a motion picture and the relative bargaining strength of the parties, it is not possible to predict, with certainty, the nature of distribution arrangements. However, there are certain standard arrangements that form the basis of most distribution agreements. The distributor will generally license the film to theatrical exhibitors (i.e., theater owners) for domestic release and to specific, if not all, foreign territories for a percentage of the gross box office dollars. The initial release for most feature films is U.S. theatrical (i.e., in American movie theaters).

When a film is in its initial release, the exhibitor, depending on the demand for the movie, will split the revenue derived from ticket purchases (“gross box office“) with the distributor; revenue derived from theater concessions remains with the exhibitor. The percentage of box office receipts remitted to the distributor is known as “film rentals“ and customarily diminishes during the course of a picture’s theatrical run. Although different formulas may be used to

determine the splits from week to week; on average, a distributor will be able to retain about 50% of total box office, again depending on the performance and demand for a particular movie. In turn, the distributor will pay the motion picture producer a negotiated percentage of the film rentals, less its cost for film prints and advertising.

Film rentals become part of the “distributor’s gross,” from which all other deals are computed. As the distributor often re-licenses the picture to domestic ancillaries (i.e., cable, television, home video), foreign theatrical and ancillaries, these monies all become part of the distributor’s gross and add to the total revenue for the film, in the same way as the rentals. The distribution deal with the producer includes a negotiated percentage for each revenue source; for example, the producer’s share of foreign rentals may vary from the percentage of domestic, theatrical rentals.

The basic elements of a film distribution deal include the distributor’s commitment to advance funds for distribution expenses (including multiple prints of the film and advertising) and the percentage of the film’s income the distributor will receive for its services. Theoretically, the distributor recoups its expenses for the cost of print and advertising first, from the initial revenue of the film. Then the distributor will split the rest of the revenue monies with the producer/investor group. The first monies coming back to the producer/investor group generally repay the investor for the total production cost, after which the producers and investors split the money according to their agreement. However, the specifics of the distribution deal and the

timing of all money disbursements depend on the agreement that is finally negotiated.

In addition, the timing of the revenue and the percentage amount of the distributor’s fees differ depending on the revenue source.

Release Strategies The ways in which a film is distributed domestically (in the United States and Canada) vary with the size of the distribution company and the type of film. Audience segmentation is determined by critical appraisal and the likely interest the film will generate. For example, the distributor might release a film carefully, market by market, using revenues from the first group of theaters to finance prints and advertising for the second group, and so on.

Independent distributors have options with their release strategies. Usually, they release a film in a few theaters at a time and slowly expand to more theaters. A popular independent film may well end up in large multiplexes but usually after it has circulated for a while. This method has two advantages. It allows unique films to receive special handling and it allows a popular-genre film to move as fast as its advertising budget permits.

“Saturation”, “platform”, “rollout”, and “sequencing” releases are variations of this strategy. The film opens in a few selected theaters and moves to others throughout the country in one of these patterns. A particular film might work best in one market because of the makeup of the

population, because the film was shot there, or because residents there will go to see almost anything. With good reviews, a film will continue to move through the country in one of several fashions. It might move to contiguous states, open in successive theaters based on a certain time pattern, or cascade into the markets that are expected to produce the highest revenue. Whatever method is used, the film continues to open in more and more theaters. Eventually, the number of theaters will decline, but the film will remain in distribution as long as it continues to attract audiences.

The distributor will continue to fund copies of more prints using revenues from the first few theaters. Advertising works the same way. Ads in a major newspaper cost between $1,000 and $10,000. As a low/moderate-budget film earns money, it finances advertising in cities in which it will later open.

Following domestic distribution, historically, the sequencing pattern has been to license to pay cable program distributors, foreign theatrical, home video, television networks, foreign ancillary, and US television syndication.

The film business is still undergoing a technological change-over between screens that project actual film prints and those that project digital images, which makes a difference in the cost of what we usually call “prints.” Traditional film prints typically cost $1200-$1500 each. As of the most recent MPAA report, there are still 602 non-digital movie screens in North America.

Using film prints, a high-profile studio movie opening “wide” in multiple markets can generate an initial marketing expense of $3.5 million to $6 million, accompanied by a costly advertising campaign.

By contrast, independent films typically strategize a “platform release”. In this case, the film is given a build-up by opening initially in a few, regional or limited, local theaters to build positive awareness. The time between a limited opening and its release in the balance of the country may be several weeks. This keeps the cost of striking 35mm prints to a minimum, in the range of $1 million, and allows for commensurately lower advertising costs. Using this strategy, smaller budget films can be successful at the box office with as few as two or three prints initially, with more being made as demand increases.

That said, in the newer digital system, the distributor pays an $800-$900 fee per theatrical screen on which the film is exhibited. For independent films that are in the theater for at least two months on an escalating number of screens in the platform release pattern, the overall distribution cost can still run between $1 million and $2 million.

Distributors plan their release schedules not only with certain target audiences in mind but also with awareness of which theaters – specialty or multiplex – will draw that audience. Many specialty theaters remain print-oriented, while multiplexes rapidly converted to all digital. How much is spent by the distributor in total will depend on which system, and which release pattern, best serves each film.

CHAPTER 6

RISK FACTORS Truth in Lending Investment in the film industry is speculative and risky. There can be no assurance of the economic success of any motion picture since the revenues derived from the production and distribution of the motion picture primarily depend on its acceptance by the public, which cannot be predicted with certainty. The commercial success of a motion picture also depends on the quality and acceptance of other competing films released into the marketplace at or near the same time, general economic factors, and other tangible and intangible factors, all of which can change.

The entertainment industry in general, and the motion picture industry in particular, is continuing to undergo significant changes, primarily due to technological developments. Although these developments have resulted in the availability of alternative and competing forms of leisure time entertainment, such technological developments have also resulted in the creation of additional revenue sources, through the licensing of rights to new media and, potentially, could lead to future reductions in the cost of producing and distributing motion pictures. In addition, the theatrical success of a motion picture remains a crucial factor in generating revenue in other media such as DVD and Blu-ray discs and television. Due to the rapid growth of technology, shifting consumer

tastes, and the popularity and availability of other forms of entertainment, it is impossible to predict the overall effect these factors will have on the potential revenue from and profitability of feature-length motion pictures and documentaries.

The Company itself is in the organizational stage and is subject to all the risks inherent in the creation and development of a new business, including the absence of a history of operations and minimal net worth. In order to prosper, the success of the company‘s films will depend partly upon the ability of management to produce a movie of exceptional quality at a lower cost than that of the big studios, yet still able to compete in appeal with high-budget films of the same genre. In order to minimize this risk, management plans to participate at optimal efficiencies throughout the process and will aim to mitigate financial risks wherever possible. Fulfilling this goal depends on the timing of investor financing, the ability to obtain distribution contracts with satisfactory terms, and the continued participation of current management.

CHAPTER 7

FINANCIAL PLAN Our Approach The Company proposes to secure development and production film financing from equity investor(s), allowing it to maintain consistent control of the quality and production costs. As an independent studio, Firefly Film Factory can strike the best financial arrangements with various channels of distribution. This strategy allows for maximum flexibility in a rapidly changing market place.

Financial Assumptions Financial projections for the Company assume a conservative level of success for each project. Many factors affect the success of any film, including:

• Innate commercial appeal • Casting • Direction • Timing of release • Distribution patterns

A film’s commercial appeal is undoubtedly the single most significant factor in determining its financial success. This is closely followed in importance by the agreement that the production company has with its film distributors. However, all of these factors affect the eventual bottom line. Thus, for the purposes of this business plan, current industry results for independent films of comparable size and budget are

used. Any film that is a “breakout”; atypical in critical and box office success will not be part of this financial outlook since it causes unrealistic expectations.

Additionally, several assumptions have been included in the financial scenarios and are noted accordingly. This discussion contains forward-looking statements that involve risks and uncertainties as detailed in the Risk Factors section.

The Numbers This section contains the Company’s sales projections and income statements for five years. The projections are based on the history of comparable films as well as current trends in the industry. The following are significant elements of the forecast:

1)  The Company seeks capitalization of $15 million to cover both film budgets and overhead expenses. All development and production data start from the date of capitalization, with funds in the bank.

2)  Box Office reflects gross dollars of ticket sales before the exhibitor splits the total with the distributor. Domestic Rentals reflect the distributor’s share of the box office split with the exhibitor. Domestic Ancillary includes home video, DVD, cable, network television, and television syndication. Foreign Revenue includes all monies returned to distributors from all venues outside the U.S. and Canada. 3)  Funds flow from each revenue source to the distributor, who deducts prints and ads expense, and generally pays

back costs before any money goes to the independent production company. The gross profit, therefore, is shown as the Distributor’s Gross Profit.

4)  The Company assumes one year from start of principal photography to finished film, for each project.

5)  The Budget (negative cost) covers only the expenses that are needed to create a master print for each film. Marketing costs are included under P&A (prints and advertising), often referred to as releasing costs or distribution expenses. These expenses include the cost of making prints from the master, advertising, video duplication, and other marketing routines.

6)  The three profit scenarios shown in Table 1.2 are based on moderate results. While revenues are projected on a conservative basis, production costs are considered to be on the high side to avoid the possibility of financial shortfall.

7)  Distribution Fees (the distributor’s share of the revenues as compared to expenses, which represent out-of-pocket costs) are based on 35% of all distributor gross revenue, both domestic and foreign. This is a generally accepted estimate by industry analysts and trade papers (the exhibitor’s portion had been removed before this calculation). Distribution deals are based on negotiation and vary greatly. There is no typical deal. This estimate takes into account the fact that new production companies have less leverage with distributors. Nevertheless, the Company

will seek to negotiate the most advantageous deal possible.

8)  Advances from pre-sales and foreign territories, video, cable, and free and syndicated television will be accepted when it is in the best interest of the Company and its investor(s).

9)  Because of the timing of cash requirements needed to develop, produce, and distribute the Company’s films, substantial amounts of the initial capital will be deposited in an interest-bearing account to be drawn as needed.

10) Firefly Net (Table 1.2) represents the projected profit after the distributor’s expenses and fees have been deducted.

11) The cash flow assumptions (Table 1.3) are: a) Film production will take a year from pre-production through post-production, ending with the creation of a master print. The actual release date depends on finalization of distribution arrangements, which may occur either before or after the film has been completed and is an unknown variable at this time. For purposes of cash flow, distribution is assumed to start six months after completion of the film. b)  The majority of revenues will come back to the Company within two years after release of a film, although a smaller amount of ancillary revenues will take longer to occur. c)  The cumulative totals should be considered book entries, as the distributor will usually issue statements and

payments every six months, or once a year.

12) Completion bonds, which provide an insurance policy for the film, are not always available for low-budget films. Every attempt to secure one will be made.

13) Risk Factors: The business of producing and exploiting low-cost, theatrical release movies is speculative, with many risks uncommon to other businesses. Revenues derived from production and distribution of motion pictures depend primarily upon their acceptance by the public, which is difficult to ascertain with any precision. In addition, commercial success also depends on general economic factors and other tangible and intangible factors, all of which may alter forecasts and cannot be predicted with certainty.