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Making It with Jon Davids
227 - "This Is How We Make Money Selling Movies" | Jordan Harmon, Angel Studio
00:12:25
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- [00:00]
John David
This clip of Making it with Jon.
- [00:02]
Jordan Harmon
David features John talking to Jordan Harmon, president and co founder of Angel Studios.
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Interviewer
So talking about your numbers. So the numbers that I saw, 2022 revenues of 77 million. 2023 revenues of over 200 million. Can you talk a little bit? I know you're very transparent about this stuff. Can you talk a little bit about like who gets paid, how you guys get paid?
- [00:27]
Jordan Harmon
And.
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Interviewer
And maybe also just a bit about the model. Like you said, you're going for base hit. So what is the unit economics of like just a good project for you?
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Jordan Harmon
Yeah, I think I'll. I. It's good to just break it down from a waterfall perspective. So the waterfall is only. There's only really two segments of the waterfall for revenues with Angel. And we kept it really simple because we didn't want people to be like, oh well, you make way more money in XYZ things and that's why you push those particular channels. And we make money less money here. And so we try to keep it as standardized as possible. So for the. The revenue waterfall, we literally just take 25% of. Of revenue for marketing. So if we go do a theatrical release, we'll take 25% of our projected box office. And that can scale up and down based on the projections that we're seeing with pre sales and different metrics. And that allows us to spend into marketing the theatrical release. And for a TV show, we'll take 25% of their revenues and we spend it on marketing that TV show to get that TV show into the world. And then after that you just take out your actual distribution expenses, your credit card fees, you know, actual costs to distributing the project versus having margin there. And then two thirds from theatrical goes to the producers and their investors, if it's independently financed or their producers and anybody who invested it, whether it's angel or somebody else, and one third goes to angel for distribution. That comes out of the bottom of the waterfall. So if there's no bottom of the waterfall and we misspend on marketing, we're both out. We cover our general overhead out of our one third. We don't cover it off the top. And so it creates this beautiful incentive for us to be super efficient. And then on. On the other revenue stream is, which is the guild revenue, there's a lot more overhead required because we have a massive engineering team of almost 100 engineers who are developing this, this technology, what we're doing. And so that one is 50, 50 with us having 50% and the producers pool having 50% as well. And so it creates this environment where you have all the traditional windows. In Hollywood a window is basically like a revenue stream that they call a window. A time period that for those who don't know. So for example, after you leave theaters you may go license to your PayOne window to Amazon where they want to go and get the post theatrical subscription video on demand. It's called the SVOD license exclusively on Amazon. We still have all those direct relationships where we're going extracting all that value for the IP in the pay1 window, pay2 window. We have direct relationship with Amazon, Netflix, Peacock, you name it. And so we'll still go extract all the value in traditional windows that they've experienced. The difference is we have additional revenue opportunities that we're building internally that are completely different. Like our pay it forward model, that's never existed before. People can actually pay it forward so that other people are able to go watch a movie for free in theaters. After they watch the movie they can say I love this, I want to pay it for it so someone else can go watch this. Our guild model, completely unique. A lot of people would go, well it's just like Netflix subscription except for the difference is, is it's more like a YouTube where we're sharing 50% of all the profits with the actual producers. Netflix doesn't share any of those profits with producers. And so between all those different revenue streams, that waterfall is clean, clear and concise as to what the costs are and what the splits are so that people aren't ever wondering well why did you go sell merchant more merchandise than xyz? And so it's, it's been a fun journey but we've now got over a hundred plus partners around the globe. We've got worldwide distribution and it's been, it's been a crazy 10 years. People are like, you're like an overnight success. It's like yeah, 11 year overnight success. So it's, it's been fun.
- [04:00]
Interviewer
Yeah, those are some pretty long nights. So who are the investors you talked about? I want to break out a bit of what you talked about like actually funding these movies. 10, 15, 20 million dollar price tags. Is this private equity? Is this high net worth individuals?
- [04:15]
Jordan Harmon
Yeah, so it's a combination of either private equity individuals. We have a film fund called the Angel Acceleration Group that helps finance some of them as well. And so it's going to be a combination of all that creative financing. But the core principle is that don't producers do not pad their pockets with their Production budgets. They pad their pockets with their profits. And so the beauty of that is I've had producers come in and pitch me a TV show. And they're like, man, this TV show is amazing. Here's the plot. I'm like, that sounds great. How much is it going to cost? Like, well, I probably could do it for like 35, $40 million. I'm like, okay. And then we walk through our entire business model and we get to the end, and if they really understand, I've had people in the exact same meeting go, you know what? I think I could shoot this for $11 million. And I'm like, wow, that's amazing. You just went from 30 something million dollars to 11 million dollars. That's the beauty of incentive alignment, is it changes to where you now have a business. That again, I always tell people, Hollywood does not. The entertainment industry does not have a revenue problem. They generate hundreds of billions of dollars. They have a spending problem.
- [05:25]
John David
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- [05:59]
Interviewer
Yeah. If you see the free cash flow of like a discovery or any of these businesses, I mean, there's a lot of money, there's a lot of debt in some cases, and there's a lot, as you said, of frivolous spending, but there's plenty of money coming in. Can you talk a bit more also about the Guild? So the Angel Guild, I think I understand it, but like, where did it come from and what exactly is it a revenue generator? Is it really a community engagement tool? Like what, what is it exactly? Yes, all the above.
- [06:29]
Jordan Harmon
So the Guild, if you've ever read the book the Wisdom of Crowds, it speaks to the power of creating a proper sandbox and then allowing communities and crowds to actually make decisions and that the aggregate can oftentimes, if given the proper sandbox, can make better decisions than any expert. You know, one of the examples they give in the book is who Wants to be a Millionaire? You know, there's the three lifelines back in the day, and it was Phone a friend or an expert. 50 50. Or ask the audience. Well, if you phone a friend or an expert, they were right 61% of the time. If you ask the audience, they were right 91% of the time. And so the beauty of this is we are basically creating an environment where anybody can go join the Guild. You can go to angel.com guild and join anytime you want. And when you join the guild as a member, you're able to go watch the next Sound of Freedom before it ever is known. And you can go vote on whether you think it's a meaningful project on your phone, on your tv. And you're actually going to get to peek behind the curtain of something that's either in development or just finishing production or whatever it may be. You get this peek behind to actually influence what comes to Angel Studios. And the beauty of this is we can really pretty closely predict what our audience score is going to be. We actually did some data collection this last this week on our audience scores comparing with the A24s, Paramount, Disney, HBO, you name it. We have the highest audience score average on our titles by a wide margin. The NE Ours is 94% audience score on Rotten Tomatoes. The next best is paramount at 84. And so the reason for that is because we're not guessing. We know what the audience wants. We already have the data. We understand what they're going to resonate with, and we do that from the early stages of development. So, like, we'll have someone, instead of submitting a script, they create a torch, which is like a proof of concept, a short film, a prototype, and they submit that 5, 10 minutes of actual footage that they shot and produced to the guild. And the guild goes, yes, I want this made into a TV show or a film or no, this is not great. And we go from the early stages before investing millions of dollars in resources and time to actually go and make sure that the audience is resonating with the core idea. And then we do it again at the end to make sure that they honed in on the message that they got it right, that the story arcs are done right. So that's. The Guild is not only, you know, a membership that helps fund the future of angel content and films and TV shows. They get two free tickets to every angel theatrical release. They get discounts on on Merch, and they get early access to our content. But most importantly, they get a vote and decide what comes.
- [09:05]
Interviewer
That's so smart. You have this minimum viable product version of in. In. In this industry, like you're basically asking people if they would buy a ticket, if they would see it, if they would watch it before you ever spend a dollar or much money at all on the project. So you're never going to make something if people say no. You know that long before you filmed one scene.
- [09:26]
Jordan Harmon
And it makes us a very creator friendly, producer friendly studio in that. One of the things we pride ourselves on is we don't take any creative control over our producing partners. None. We tell them in our agreement the only person you're responsible to is the Angel Guild. If you win them over, angel will support you. And so we don't have to go in and try to take final cut or different type of creative control to manipulate how it's supposed to be. Now we collaborate with them and say, hey, this might score better if you do XYZ or do this or that. But the beauty of it is, is they know how they're scoring when they go to the guild and they're just iterating and trying to figure out how to get that product right. I remember having a director come in on their first cut and they submitted the film. They said, it's done. And I said, well, let's see what the guild says. And it didn't pass. And he was like, man, he's like, I didn't realize you'd be so off. And he had to go through over a dozen cuts to get the film right. But when he did, the audience loved it and it's been awesome.
- [10:18]
Interviewer
And how do you market movies these days? I mean, you do it for a lot cheaper. Are you buying billboards? Are you doing PR campaign? Like, how do you actually get the word out for a movie in 2024?
- [10:29]
Jordan Harmon
Yeah, I mean, obviously the, the real intricacies of our marketing I can't go over in a podcast. But the reality is, is it's just taking the principles of our background and direct consumer marketing. You know, if you look at, you know, I started a company called Cove, which was a DI. Is a DIY home security company that we built into $100 million company. And then my brother started a company called Harmon Brothers which did like the squatty potty commercial and poo pourri. And. And so we have this background in direct response marketing. And so it was, it's really taking those principles and just translating them over to the entertainment space. And so it's not crazy complicated. It's just discipline, hard work and trial and error through, you know, significant AB testing. But the traditional studios don't operate that way. You know, they got a $50 million budget. They're going to go spend $50 million and 70% of that's going to be on billboards and they'll see on opening day if it's stuck. That's just not a good model.
- [11:22]
Interviewer
Yeah, the minute you said D2C, you had me. When you come from that world of rigorous marketing where every dollar has to make a dollar or has to make a buck fifty, it's a whole different psychology from let's put up billboards on, you know, Ventura Boulevard and see if people, you know, that's right, show up at the movies.
- [11:39]
John David
Thanks for listening. Get my best stuff to your inbox@johndavid.com we'll talk to you next time. This episode is brought to you by my Playbook website selling machine, available right now@johndavids.com playbook. Most companies want websites that look nice. But a lot of nice looking websites don't sell. What you really want is a website that grabs attention, builds trust and turns visitors into buyers while you sleep. That's what this Playbook gives you. Based on 10 years of work we've done at Influicity, optimizing websites for 7, 8 and 9 figure brands. Download the Playbook now at johndavids.com playbook that's johndavids.com Playbook.