how would you value a movie?
How would you value a movie for a streaming service? Let's say you work on the acquisition team of HBO, how would you decide how much to pay for a new movie to put on your platform? Anyone have any useful guides addressing this specific topic?
Cash flows + precedents
a movie on a streaming platform doesn't produce direct cash flows tho
An interesting question. Honestly just do a discounted cash flow or comps. Ex: thriller movie with 200 million dollar budget non franchise movie. Hard to account for variables like notoriety of directors, actors, and other factors, but shedding the movie down to distinct categories could help if you had access to pricing on different films. cash flow basis probably easiest. I will say though all this is the art not the science. I imagine companies like Netflix and Hulu don't look at a dollar for dollar basis and look at metrics relevant to diversification of content titles. Ex: Netflix just added La La Land. that's an enormous classic to have in their aresnal that fills in both a romance/musical genre that is probably very weak in comparison to titles Netflix itself has not produced . Of which nearly all of their in house projects could swap names and actors and plots and be the same.
a movie doesn't produce cash flows tho?? At least not on a streaming platform.
up until recently films would hav had box office numbers. If it was exclusive to digital platform release, then it's just a guess on fit into content library and how well it will be received.
yeah in my question, I said to assume you are working for HBO on the acquisition team. It seems like valuation has to revolve around subscribers, and how many new subs a movie can bring in, how many it can help retain, etc.
can we assume we have every data point required since we are working internally?
I would think that we can value movie based on the precedent transaction
Let's assume that we have a heist film with relatively known actors, that we want to purchase.
We would look in the past how much similar movies made in cinemas and do a dcf maybe?
Based on that we would have to set metrics to relate with our target.
For the metrics, I would think that we have to rank and weight the factors that make up a movie.
Directors, Lead actors, side characters, producers, BGM (for someone like Hans Zimmer), what is it based on (tv series, book etc.), sequel or a prequel and most importantly the REVIEWS.
Based on these factors I think we can give weight to our target by comparing the abovementioned factors and give it a multiple (maybe).
I am relatively new to valuation, let me know if my assumptions are wrong and what I can improve upon.
delete
I'd imagine there's a target value established by comps - who's involved in the project, the genre, and overall nominal cost. If you've noticed, Netflix puts out a lot of garbage reality TV show-type stuff and it's cause the cost to make those shows are very low, the talent is cheap (all nobodies), and the genre has a number of hits so these shows are higher ROI. Some genres have more appeal than others. Some anchor actors / actresses will draw an audience even if the product is not that good (see the recent Jonah Hill movie for example, star-studded cast but a mediocre movie for what I expected).
Separately, I'd be surprised if a sophisticated streaming operation doesn't have some relative value unit type measure for show productivity which can probably be estimated based on the inputs above. For example, there's probably some value associated with someone spending an incremental hour on your platform (has some impact of the user's likelihood to churn, etc.). While you can't get the DCF value of a project, you can get a relative value to other content in your catalogue to decide whether it's worth paying to do. I don't know if this is exactly how they do it but given the BD team at Netflix is not only very sweaty but also hires a lot of ex-finance types (or used to pre-COVID) I'd imagine this type of statistical-esque modeling was a part of that job.
how do you know netflix BD is sweaty?
Since it’s not cash flowing, the only thing you can do is value it based on precedent acquisitions in line, probably, with its production costs with possible premiums for director/stars behind it.
Assuming it’s older material, filns have already been 80%-100% amortized within 1-2 years after released, so it’s not like there is some kind of intangible you’re paying straight up for
Lot of these answers are ridiculous. Movies do produce cash flows- they can be licensed to these streaming providers. Ie rented to them, I think typically a few at a time. Alternatively the rights can be sold, again I think outright or in pieces. While the valuations I've seen do consist of DCFs, I think the points about actor, genre, etc. are much more realistic in terms of how industry personnel really think about value. Ie this is a Spielberg movie with an interesting plot about a noteworthy time period with Tom Hanks in it, etc. and then it is likely ballparked. Although nowadays there is a lot more data out there in terms of how these have performed, so I guess some of that is used.
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