Budgeting and Pricing
If you have been reading the chapters of the book in order, by now you should be familiar with the process, equipment, and techniques of producing a video project on location. You should know the differences between the processes for projects in electronic news gathering (ENG) and electronic field production (EFP), the personnel involved, and the methods of telling video stories in each of the styles. What you probably don’t know about is the business of portable video. This chapter will provide a lot of what you need to know in case you actually want to make money from your video skills.
Whether you are in broadcasting, in-house corporate video, or independent entertainment production, one of the first and most basic principles of video is that it is a business. Your work can be aesthetically superb, but if you do not know how much it cost to produce, or if you cannot price it to make a profit, you may soon be out of a job or out of business.
Budgets are statements of business goals in financial terms. One of the goals of a video project is to complete it for a designated amount of money, based on the best estimate of costs by the people making the budget. Budgets help keep video producers on target—they provide a disciplined approach to communication problem solving. They also help measure performance. In the business world, a corporate video that truly gets the job done for $1,000 is better than a video that does it for $2,000. In the entertainment world, a program that can be shown on a variety of channels and is not “time sensitive” can be worth tens of thousands of dollars or more to the producer.
Most business or corporate managers see the use of industrial video as an added cost, while most videographers and producers see it as a good investment. This difference of perspective is common throughout the industry. The best argument for using video is that it tells the necessary story and generates the desired effect more convincingly than other methods. In news operations, video can tell the story quickly and in a more compelling way than print or audio. In the corporate world, video can deliver a message about a new benefit, procedure, or product more quickly and effectively than other methods. For example, a corporation with a new health benefit option that cuts health costs to employees may want the president of the corporation to deliver the message to encourage employees to choose the new option and to enhance the image of a compassionate and concerned chief executive. The options available for delivery of the message include (1) a brochure with a picture and a message from the president, (2) a visit from the president to all branches of the corporation to personally deliver the message, or (3) a Web site with a video of the president’s message delivered to all branches of the corporation.
A simple cost analysis may reveal that the brochure is the least expensive of the options. But a good video manager may easily make the case that brochures are often read once, if at all, and then thrown away by most employees. A face-to-face video from the president may be viewed several times, especially when the specific details of the new health plan are explained. The video can be used for other public relations purposes, and the costs are relatively low. The president only has to do a good job delivering the message once—and it doesn’t even have to be in one take. Editing can help make the president’s message perfect, and then the entire corporation sees an excellent delivery of the message every time the video is shown. Obviously, the expenses incurred by the travel of the president and any assistants would probably exceed the cost of the video. Also, travel for this purpose would take the president away from other important tasks.
The size of the budget may not necessarily be the best indicator of the quality of the resulting video project. Creativity and skill can often substitute for dollars in a budget. This is especially true in corporate video, where entertainment value is secondary to effectiveness.
Constructing an elegant set would enhance the aesthetics of a scene, but may not help the audience remember the purpose of the video. The same is true of elaborate computer graphics and digital effects. These may be both beautiful and exciting, but may not contribute directly to the effectiveness of the video project. This logic may apply to many aspects of the production. Big-name talent may be recognizable, but are they credible to the particular audience? A big star like Charlie Sheen might get lots of views for your video, but is he credible when demonstrating and discussing a new high-powered multimedia computer? How about Lindsay Lohan or a high-profile professional football player—would they do a good job? A well-known tech blogger or corporate CEO may be more convincing, and certainly less expensive, for getting the audience to focus on the goals of the video.
Big budgets can give you more flexibility because you have the option of high-priced talent, fancy postproduction work, or a large crew. But solving a problem with video is similar to other problem-solving situations: throwing money at the problem may help, but can be expensive and does not guarantee anything. For example, large-area lighting that requires numerous lights and people to set them may not be much better than a lighting strategy that relies on close-up lighting with a standard portable light kit. Creativity and skill can often compensate for a low budget or help achieve budget reductions in one aspect of production because of budget overruns in other aspects of the production.
ENG AND EFP
The biggest differences between ENG and EFP emerge in the pricing and costs of portable video. Generally speaking, strict adherence to a budget is necessary in EFP work, but only marginally important in ENG work. A big-budget EFP project usually results in a high-quality video piece, while the quality of ENG stories may have no direct relationship to the amount of money spent shooting them. EFP work usually begins when a budget is approved, but ENG work begins whenever an event worth covering is imminent, or an issue worth showing and discussing surfaces.
Electronic News Gathering
A majority of ENG work is shot and edited by news department employees in broadcast TV stations and other media outlets. The footage is owned by the company and is almost always shown during its newscasts and posted on its web site(s). Usually these stories are not marketed to any other users.
A story or event coverage is sometimes sold to another broadcaster or news programmer (e.g., another TV station, or CNN). The sale may occur on a per-piece basis, or it may be part of a contractual agreement for numerous stories on one or more topics over a period of time. Video may also be traded for other services or video.
Prices for this type of ENG product may fluctuate wildly. The key determinants of price are the importance (news value) of the piece (which may depend on the importance of the event), the length of time it will be available, and how many other ENG photographers obtained similar footage. The price range may begin as low as $50 for a short piece of moderate interest, and increase to thousands of dollars for dramatic footage in high demand.
Many ENG stories sold by TV stations are sold to that station’s network, or, if the station has no network affiliation, to a news service or state or regional cooperative. These stories are sometimes made available to other members of the group or network via some type of closed-circuit, satellite-distribution system or broadband server feed.
The Cable News Network (CNN) and Fox News have become the leaders in acquiring and distributing video news from every corner of the world. Because of their arrangements with various TV stations and foreign networks, they are a 24-hour-per-day trading service for news pictures.
Freelance ENG photographers, sometimes called stringers, shoot news stories and cover events for a variety of buyers. These professionals, like their counterparts in EFP who do freelance work or have independent production companies, are often found in larger markets or locations, such as state capitals, that tend to generate many news stories.
Because most ENG stories are not shot to be sold, most pieces are not individually budgeted as in EFP work. Local news budgets are not broken down by story. A news director for a TV station looks at ENG costs by a time unit (such as a typical broadcast week or month) that includes the salaries of the photographer, editor, and reporter, knowing that maintenance and overhead expenses are met by other departments. Most often, the only factor that varies in the budget is the cost of overtime payments. News departments do create emergency funds in case of big, expensive stories to keep the station on a relatively stable and predictable budget.
Electronic Field Production
Whether you are the manager of an in-house video production unit in a corporation or a manager/owner of a small independent production house, knowing the value of your video product is the key to staying in business. Knowing what your product is worth helps you to charge your clients reasonable prices while allowing you to make a fair profit. The profit allows you to reinvest in your future through the purchase of new production or business equipment, or to provide special benefits such as bonuses to employees for high-quality work.
Costs in EFP production are different from those in studio TV. In EFP work, the setting does not come to you; you must go to the setting. This can generate large expenses for transportation of equipment and personnel. Because of the extensive handling that portable equipment receives, all equipment requires more frequent maintenance.
If videotape is still being used for the project, costs for storing the images are higher in EFP than in studio production. Film-style EFP shooting requires many takes of each scene, resulting in a minimum of two to three times more tape than studio work. In addition, most footage shot in the field, whether for ENG or EFP, is edited before being shown. Far less editing occurs in studio work, but studio costs are generally higher because of overhead expenses, such as rent or mortgage payments and regular utilities expenses. Also, the crew is usually bigger in studio television.
IN-HOUSE VERSUS INDEPENDENT PRODUCTION UNITS
When video services are needed, an “inside” person or employee can do the work or a professional can be hired. When a corporate entity has repeated need for video services, it may decide to start its own video production unit or contract with an outside production business, often referred to as an independent production house. Going outside the company, or outsourcing, has become increasingly common since the late 1980s, when the need for sophistication in the video product became more important than saving money by doing a lower-quality job “in-house.”
In-House Production Unit
The purpose of establishing an in-house corporate video production center is to provide the corporation with a much-needed service for less money and more control than contracting outside the firm. Almost always, the size of this unit grows or shrinks in a way that corresponds to the corporate need for the service and the health of the business environment. The corporate video production unit receives money in two general ways: (1) by charging the in-house customers for services rendered (sometimes referred to as a chargeback), or (2) by a direct flat-rate budget based on projected expenses.
Chargeback The first method simulates an independent production unit in the marketplace. In-house clients go to the video manager and agree on the services to be rendered by the video unit and the cost of those services. The payment is made through some type of interdepartmental transfer. Often when this type of system exists, the video manager competes with other media or even with outside production units.
This keeps the pricing structure of the in-house unit very realistic. A good production team can do well in this system by keeping busy and providing excellent services at good prices. This system forces the video unit to earn its salary; in other words, the only financial support it receives is obtained directly through the amount of work it does.
Flat Rate A second method for financing an in-house video production unit is through some type of annual or flat budget. The production unit is automatically funded on a year-to-year basis without actually charging the in-house client on a per-piece basis. Variations on these two basic funding systems are common. Video units may receive some type of annual budget and may charge certain in-house clients for some kinds of services. In-house units that usually work on a chargeback basis may perform some services or provide services to in-house clients without charge.
Regardless of what type of financial system the company uses, it is essential to know the costs of providing necessary services to your clients. Because managers of corporate video units that receive annual funding are expected to provide the production service on the given budget, the manager should know how much work can be done with a given finite budget to avoid operating at a deficit. Unrealistic prices by a video unit on a chargeback system either result in a noticeable deficit or a surplus that might anger the in-house clients.
Independent Production Unit
Independent production units produce a wide variety of video projects for corporate and entertainment purposes and generally have more freedom in their pricing. The only limitations are the goals set by the production company’s owners and managers and the need to make enough money to stay in business. Often the marketplace exerts a great deal of influence on the price. The general rule is that the price is set at what the market will bear. This is directly related to competition; numerous competitors lead to lower prices.
This is not to say that quality and reliability are not pricing factors. High-quality work and a high degree of reliability are certainly worth a higher price, but competition limits your pricing range and flexibility. Too much competition often leads to underpricing and cutting corners to get the job done. Too little competition might prevent your prices from having credibility. Without any competition, your client has no point of reference on prices. Keep in mind that few clients actually understand and appreciate the time, equipment, and labor required to produce a professional-quality EFP video project.
CREATING AN ACCURATE BUDGET
The secret to creating an accurate budget is understanding all the possible sources of costs for the production. Most production units have some type of guide or budget sheet that lists possible costs for productions based on those done in the past by that unit. As new sources of cost are incurred, these new sources are added to the list.
These costs can be broken down into categories to help the organization of the process. Various strategies and systems exist. For many, especially smaller operations and most in-house corporate video units, the categorization follows a more generic approach that would be typical of any business that sells a product. The categories typically found in this system include materials cost, services cost, labor cost, and overhead cost.
A tradition handed down from the movie industry regarding budgets consists of two very general categories: (1) creative and executive talent and production, and (2) postproduction and related expenses. This system uses the terms above-the-line and below-the-line costs.
Line Costs
Budgets for large-scale productions in both the film and broadcast industries have traditionally delineated costs in a specific way. The first classification consists of costs encountered in securing the story rights and script, the development costs, intellectual property costs, the producer and producer’s immediate staff, the talent, the director, and the costs for travel and fringes (fringe benefits) of these people. These costs are referred to as above-the-line costs.
TYPICAL ABOVE-THE-LINE COSTS
• Story and writers
• Producer and staff
• Director and staff
• Cast (talent)
Costs associated with above-the-line people are listed and tallied on a budget sheet. Then a thick black line is inserted, and the costs associated with below-the-line people are listed and tallied under it. That line is sometimes facetiously referred to as “the demarcation line between power and no power.” (See Figure 11.1.)
All other costs directly incurred by the production are categorized together (though listed separately) and referred to as below-the-line costs. These are for materials, services, labor, and so forth—costs not included in the above-the-line category. The below-the-line costs are sometimes categorized by the stage in the production process (e.g., preproduction or postproduction) in which they are incurred. Commonly included in these costs are equipment rental, wardrobe, props, insurance, location fees, and editing costs.
TYPICAL BELOW-THE-LINE COSTS
• Camera
• Sound
• Script supervision
• Electrical
• Set construction
• Set dressing
• Props
• Wardrobe
• Makeup and hair special effects
• Transportation
• Stock footage
• Licenses
• Insurance
• Legal fees
• Editing
• Postproduction sound
• Graphics
• Music visual effects dubbing
• Publicity
The above-the-line costs and below-the-line costs are combined with the indirect or overhead costs to give a grand total. Although this budgeting procedure works for major studios, it is not as functional for smaller operations that have less complicated projects.
Budgeting for Smaller Projects
Most video projects do not even approach the size, scope, or costs of a feature film; therefore, the above-/below-the-line method is not appropriate for most video project budgets. The following method is more appropriate for most video projects, from student projects up to large-scale corporate or independent program video (e.g., a low-budget reality show). This method combines areas of major costs—materials, services, labor, and overhead—to give an accurate picture of the costs of producing video projects of small to moderate size.
FIGURE 11.1
This is a budget summary form for a television show or feature film that has general costs broken down into above-the-line, production, and postproduction categories. (Courtesy of Steve Paskay)
MATERIALS
Some materials for video projects, such as lamps, set or scenery construction, and materials used for graphics preparation (slides, graphic cards, cue cards), are expected to provide only one usage. For every project that requires a script, a certain amount of paper and office forms are used. Other materials may have some leftovers or reusables, but it is not safe to expect this to occur. Include the full cost of these materials in your budget.
Typical materials costs include the following:
• Video storage medium (videotape, SD or CF flash drive cards, external hard drives)
• Audio storage medium (flash drive cards, etc.)
• Other memory and software
• Images (video clips, stills, etc.)
• Set construction (lumber, paint, nails)
• Graphics materials (markers, paper, paint, photocopies)
• Tools (purchased for a specific project)
• Props (furniture, set pieces for a specific project)
• Equipment (special lights or accessories for shooting or gathering audio)
• Miscellaneous (gaffer’s tape, special adapters)
The video or audio storage media used in the project may or may not have later use. Some of it will not be recycled; for example, the edited master will remain in use only for the project for which it was purchased, or at least until the client is thoroughly satisfied with the finished program. However, some of the raw footage shot on location may come in very handy for future productions that require a specific shot or cutaway from that location or type of location. It is sometimes amazing how creative and resourceful video people can be if reusing video or audio can save a return trip to a location. If you keep these things in mind, you can be more accurate when assessing your materials cost for storage media.
SERVICES
This cost category includes the services purchased specifically for the project that are not provided by in-house personnel or equipment. When you must rent a vehicle, do a special effect at another facility, or cater meals at a location, categorize these as services costs. A slightly different type of cost that falls under this general category is the cost incurred when you must use copyrighted materials and pay a fee for that privilege.
Typical services costs include the following:
• Rental of equipment/vehicles
• Rental of locations
• Rental of facilities (e.g., postproduction)
• License fees (music, stock photo/slides, or video clips)
• Catering of meals
• Security
• Parking fees
• Permits
• Outside contracts (security, construction)
• Production of graphics materials or special effects
• Duplication, storage, or server costs
LABOR
The general definition of labor costs is the total cost of all hours (or days) spent by all employees involved in a project. Assigning exact costs for this category is most accurately done after the project is completed. However, you must try to predict exactly how many hours or days a key crew member like a director will or can spend on a given project. The price for the project is often needed well ahead of the project’s completion—usually before the project is even begun. (See Figure 11.2.)
Typical labor costs include the following:
• Executive producer
• Producer
• Director
• Writer(s)
• Researcher(s)
• Assistants
• Camera operators
• Video recorder operators
• Engineer(s)
• Lighting director
• Art director
• Grip(s)
• Production assistants
• Editor
• Office staff
For your production to be successful, accurate prediction of labor costs is necessary. To budget for the cost of a director on a project, you must try to get an accurate picture of how much effort will be required. Predictions are most accurate when two types of information are available: (1) the number of hours spent by your director on a similar project, and (2) the number of hours generally spent by other directors on similar projects or similar amounts of work. Once you have predicted the amount of time, multiply this figure by the director’s unit rate. The unit rate is determined for any convenient length of time (e.g., hour, day, or week) by dividing the director’s total pay for a known period by the appropriate number of units.
For example, your director earns $6,000 per month. What are the unit rates for each day or hour worked by the director? The following equation will give the daily unit rate (we assume here that each month has 20 workdays):
Daily unit rate = total monthly salary divided by the number of workdays per month: $6,000 per month@20 workdays per month = $300 per day
To find the hourly unit rate use this equation:
Hourly unit rate = daily unit rate divided by the number of work hours per day: $300 per day divided by 8 work hours per day = $37.50 per hour
Note: On larger productions, or when freelance help is hired, the number of work hours is usually 10 hours, but longer days are not uncommon.
The hourly rate should be multiplied by the projected number of hours that will be spent by the director on this particular project. This procedure needs to be repeated for all persons involved in the production.
For most union or personal service contracts, there is a base-pay unit, usually set at one full day. Along with this rate for union and nonunion people are overtime and other compensations agreed to by employee and employer. In some cases, flat rates can be negotiated.
Once the labor costs for all production personnel are added, you then have a general idea of what the actual costs will be. This first sum is merely the dollar amount that will be going directly to the employees. What must be added to this direct payment is the amount that your company pays for employee benefits, such as life insurance, hospitalization, retirement, or bonuses.
These fringe benefits can add anywhere from 30 to more than 100 percent of the cost of the work to your direct labor costs. These added costs are almost always associated with full-time employees. Failure to include these costs will cause you to underestimate your overall costs, which may result in underpricing your product and may lead to some red ink. When using contract or freelance help, fringe benefits are not involved.
FIGURE 11.2
This budget for an in-house industrial video project shows per-day and project costs for personnel in Section C. (Courtesy of VAS Communications)
OVERHEAD EXPENSES
Overhead expenses are those expenses generally associated with being in business. Typical overhead expenses include the following:
• Salaries (nonproduction)
• Benefits (for full-time employees)
• Office/studio space rental
• Utilities (heat, light, water, telephone, Internet service)
• Dues (professional organizations)
• Subscriptions (magazines)
• Licenses (software, stock footage, music)
• Reference/library materials (books, sound library, graphics clip art)
• Equipment depreciation (office/production equipment)
• Maintenance (janitorial, groundskeeping)
• Miscellaneous (donations, gifts)
Certain kinds of labor costs may also be associated with overhead. Salaries of others not directly involved in the project (e.g., a secretary) can be included in labor costs if the employee spends an easily definable amount of time on the particular project being priced. Often, this is not the case, and the project is merely assigned a portion of this type of office salary in the overhead cost. Equipment depreciation costs may also be included in a general category of overhead expenses. Without going into great detail or accounting theory, depreciation can be thought of as the value that your equipment loses as a result of use and aging. For example, if a high-quality camcorder with a digital recorder costs $30,000 and is expected to last five years, the cost of owning and using the camcorder can be calculated as $30,000 divided by 5, or $6,000 per year.
There are numerous ways to deal with these costs, but for use in pricing your product, follow a simple procedure in which you ascertain a unit rate of overhead costs in the same way you obtain a unit rate for labor costs. Total the previous year’s overhead costs and then divide that total by the number of working or operating days:
The result is a daily overhead cost. This daily cost, or a fraction thereof, should be added to other costs.
Keep in mind that this cost may fluctuate from year to year. If you are aware of definite fluctuations in overhead that would change the overhead unit rate in your current year, you should adjust the figures accordingly. Salary raises or bonuses for office or executive employees, increases in utility use or rates, or changes in tax rates can influence current overhead expenses.
If you think that changes like those just mentioned have occurred, you can adjust the unit rate by adding the increase to last year’s total, then dividing by the number of operating days. Another method is to calculate your overhead cost more often than once per year. A quarterly assessment of overhead costs will sometimes help to keep your unit rate closer to reality.
When the four general cost categories (materials, services, labor, and overhead) are added together, the sum is a total cost for the project. This is also the price at which you (or your company) break even with no financial loss or gain. But if your price is set to break even, chances are that your department or company will lose money. Because unforeseen expenses often crop up, it is good business policy to add something to your total cost to provide for a rainy day.
If you include another factor—profit—in your pricing formula, you will help guarantee that you will be able to meet any cost overruns and perhaps save some money to buy more or better equipment in the future.
BUDGET TRACKING
The best way to give accurate prices for your video work is to have accurate information regarding the actual costs. You can do this by keeping accurate records of expenditures for the projects your company produces. This recordkeeping or bookkeeping process is called budget tracking.
This procedure allows you to compare the projected budget for a video service with the actual cost. By making this comparison, you not only can assess your ability to cover your incurred costs and attain your desired profit amount, you also can gain valuable data for pricing future projects. If you track your budgets after you make them, you can easily evaluate your ability to predict costs. This procedure is a relatively easy one to establish.
First, whenever you give a budget estimate for a project, make sure that it includes a dollar amount for all possible items within each of the cost categories (see Table 11.1). Set up this budget breakdown so that each cost item has a line with at least two columns: one for the budgeted or predicted cost, and a second for the actual cost.
A third column might also be included for cost overruns—when actual costs are more than the estimated costs. Or the third column may be used for budget surpluses—when the actual costs are less than the predicted costs. This third column is derived by subtracting the actual cost from the predicted cost. The sum of the positive and negative numbers in the third column will give you a report on your pricing accuracy: a positive number shows that you have safely assessed your costs and have some money left over to contribute to profit (as in the example shown in Table 11.1); a negative number means that you have underestimated costs and you may have to use money initially earmarked for profit to pay for the costs of just producing the project.
Computer Assistance
Just as computers and computer programs have become essential for business managers to organize, track, project, and plan in their areas of responsibility, these new technologies are helping EFP producers with the planning and business aspects of portable video production. (See Figure 11.3.) Computer programs created by video professionals allow producers and their staffs to generate budget figures in standardized categories in very short periods of time, whereas the tedious paper-and-pencil method formerly took days. This type of program also allows the individual producer to create special tailor-made budget categories.
This type of software can also perform budget tracking. After a final budget for a project is entered, expenses are entered as they are incurred, either at some regular interval or at the end of the production. This program allows you to quickly recall the amount budgeted for a particular category of expense, the number of expense entries in that category, and the remaining balance. The program also allows you to update the budget when hourly or unit rates change.
EFP Pricing Formula
Every production situation brings a unique problem to the person who must accurately assess costs and set prices. This section presents a general formula for the identification and categorization of costs associated with EFP video projects.
FIGURE 11.3
This sample production cost summary can be used for film or video production and shows both estimated and actual costs.
A combination of five factors is necessary to set the price for an EFP video project. The first four factors are materials, services, labor, and overhead costs. These can be combined into one major category of cost:
These four, when combined and added to the fifth factor, profit, yield the formula for price:
or
The fifth factor, profit, is considered separately because the amount of profit is often under the control of the price setter. Profit is the amount of money you want to make over and above all of your costs for the project. Profit may be used for reinvestment in equipment, facilities, real estate, bonuses, or simply to build the company’s cash reserves. A closer look at these factors gives a better understanding of the role each plays in price setting.
The profit factor in the pricing formula is often the most difficult to quantify. How much money do you want to make on a project? Enough to buy dinner? Enough to buy new editing software? Enough for a new video camera? Enough to pay off your mortgage? Obviously, the amount of profit is related to the total cost of the project. It would be great to make $800 profit on a project that involves only $200 of real cost, but this percentage of profit is rare in everyday business.
A good manager would not settle for a $50 profit on an $8,000 job unless there were some unusual circumstances. A $50 profit for that much expense is too much work and too much risk for such a small profit. The base profit percentage in the production business is about 20 percent. In other words, you can usually add 20 percent of the total cost as the profit factor in your pricing formula (or multiply total costs by 1.2).
Some projects may justify a higher profit figure. Low-priced jobs usually have a minimum dollar amount included for profit. Some projects may be risky, require crucial deadlines, or present difficult or unpleasant conditions. If any of these conditions are present, a 25 to 50 percent profit margin may be quite reasonable.
You may feel you should do certain projects for reasons other than direct economic gain. These are the jobs that may enhance your credibility, give you desired publicity, give your creative desires a boost, or simply give you a shot at working for a highly desired clientele. Foregoing profit even in these cases may not be necessary, but it may ensure that you get the job because you are the lowest bidder.
In some instances, you may want to take on a video project at a loss, even if the client is not a highly desired one. For example, the price structure in a voluntary loss situation may look like this:
These figures are the costs for a small video project (e.g., a public service announcement or commercial). If the client pays only $275, you are left with a negative profit of $25. Why would you undertake this project?
A quick look at the cost of being in business can shed some light. Some costs, such as labor and overhead, are incurred whether you are producing a project or not. Your overhead costs are fixed, and your labor costs might come from full-time employees who get paid whether they are producing or whether they are using Facebook on their cell phones. If you do not have a project, you still have some costs:
If you do not take on this project, you still have to pay $150 in costs. By taking on the project, you cover most of your costs and lose only $25 instead of $150. Besides, it is better to have your employees gaining experience in video production instead of Twittering on company time.
This policy of accepting negative-profit jobs is risky. If client X finds out that client Y paid less for a similar job, the integrity of your rate structure may suffer and you may have to continually justify your prices to clients. Except for highly unusual circumstances, it is best to take on jobs at your normal profit rate.
ENTRY INTO THE VIDEO MARKETPLACE
The previous discussion makes the assumption that you are already in business and have the equipment or procedures to obtain the equipment you need to produce portable video projects. Many new entrants in the field of portable video decide to be in business for themselves and try to acquire the equipment and related materials and people necessary for them to conduct business. This can be a daunting and dangerous endeavor. The cost of obtaining the equipment is quite high. A full traveling kit for high-quality professional EFP work, which includes a professional camcorder, light kits, wireless mics, audio accessories, cables, cases, and a two-wheel hand truck to carry the cases, can easily cost $100,000. This estimate does not include a vehicle to transport the equipment or personnel, nor does it include any studio facilities or editing facilities. Although editing systems are not expensive, video DTE devices, light kits, and other pieces of equipment can bring your total to $150,000 or more. Obviously, this kind of capital outlay prevents many new video professionals from casually entering the field of high-quality production.
Leasing
Some of this initial cost outlay can be reduced by leasing or renting some of the equipment. You may find that it is much more realistic to lease a camcorder for $400 or more per day than to purchase a new one for $30,000. A weekly or monthly lease may reduce your per day cost. Like all leases, you don’t really own the equipment; the leasing company does. Like leasing a car, at the end of the lease period you must return the equipment or buy it from the leasing company. This can be problematic when unexpected business comes your way and you can’t find equipment to lease.
Using the Web for Video
The World Wide Web offers some great opportunities for video producers to improve their business. The first opportunity is that a video producer can market his or her services using a typical web site home page to display a resume both in text and audio/video formats. The site can also be used to store drafts of work for clients. After these rough-edit drafts are posted on the Web, clients can have easy access to them. By showing the client a draft copy, the producer can gain valuable insight into what the client expects in the finished product. This procedure saves the video producer time. By posting the video on the Web, the producer need not travel to the client or have the client come to the producer. The client views the video on the Internet when convenient for them and they can give immediate feedback via e-mail.
Examples of scripts, storyboards, and actual projects can be seen or played when prospective clients go the web site. Obviously, the web site is a 24-hour-per-day marketing tool that can reach many people from all parts of the world.
Video Producers as Hosts The use of the Web for video production business is still relatively new because of quality issues and the fact that HD video demands huge amounts of data storage space. One business that has emerged is the video professional using the production company web site as a host for all work done for all clients. By providing this service, the clients need not be Web “savvy” because the work is exhibited from and stored at the production company’s web site.
Being Realistic
It may be best for you to start your business at a smaller level and build up to a more professional or high-end level after you have gained experience and a strong track record or reputation. Instead of a state-of-the-art camcorder, you may opt for a low-end professional or industrial camcorder. Instead of an extensive light kit, you may choose to start with a much smaller kit that is very flexible and can adapt to many lighting situations. An extra video recording deck or DTE device may be nice, but when it is absolutely necessary, you can rent one. Top-of-the-line wireless microphones are the best for most situations involving soundbites from subjects, but you can also get less expensive wireless mics and supplement them with some good-quality cabled mics.
The point here is that you must avoid overextending yourself financially. Portable video may be your life’s desire—your ambition is to shoot terrific video and produce video projects that are both aesthetically pleasing and entertaining to your audience. Unfortunately, if you decide to go into portable video as an independent businessperson, your work must produce enough money to pay the bills and your salary. This reality has resulted in many individual and small business failures. The rule of thumb is to make sure that your equipment is the best that your business can justify economically.
SUMMARY
After reading this chapter you should know about the budgeting differences between ENG and EFP. Generally, ENG stories are not budgeted by story, and decisions about which news stories to cover and how to cover them are dictated not by the budget, but by the importance of the story. EFP projects, however, are almost always controlled by a budget. Whether you are producing a webisode for a web site, a pilot program for a cable channel, or an informational video project for a corporation, the budget dictates the scope of the project. Individual decisions, such as what kind of sets can be built, who can be hired as talent, or where to go on location to shoot the project, are guided closely by how much money is available in the budget.
There are two general kinds of EFP production units: in-house and independent. In-house units are found within a company or corporation. These units are there to further the goals of the company and usually produce projects for the parent company only. Independent production units can have a variety of different clients and produce many different kinds of projects: entertainment, instructional, motivational, documentary, and more.
Large-scale video project budgets are often broken down into above-the-line and below-the-line costs. Above-the-line costs are those associated with the producer, director, writer, and talent. Below-the-line costs are those costs associated with shooting, gathering sound, lighting, editing, wardrobe, sets, props, among others.
Creating a budget for smaller video projects requires identifying all sources of cost for the project. One way of categorizing the costs is to separate the costs into the categories of materials, services, labor, and overhead. If you are pricing a project for a client, you should also add a percentage of the cost for profit. Many people who attempt to go into the video production business often do so without really understanding the large outlay of money that accompanies this type of business. Often, it is best to lease or rent equipment that will be used only occasionally. Knowing the real costs of video production is the single best step that you can take to help you price your projects appropriately to help you stay in business.