How We Plan to Make Money
Entertainment is a complex and constantly evolving industry that employs a variety of business models for the production, distribution and monetization of content. While there are many ways a company can make money in entertainment (and plenty more ways to lose it!), our plan is to focus on areas in the value chain where having a built-in audience provides a competitive advantage.
Projects and Investments
Our goal is to develop a slate of projects diversified across genre, medium, and risk profile. As a startup attempting something that has never been done before, we see many of our early projects as experiments that allow us to better understand our business and prove — to ourselves, our investors, and the industry — the value that a fan-owned company can provide. As of this writing (July 2019) Legion M has experimented with many different business models, including the ones listed below:
FEATURE FILM P&A INVESTMENTS
“P&A” is an industry term for “print and advertising,” and generally refers to the money spent by a distributor to release and market a feature film. To date, Legion M has made two P&A investments: one with NEON for Colossal and one with Electric Entertainment for Bad Samaritan. While our deal with NEON was a cash investment, our investment with Electric Entertainment was made via an “in-kind contribution,” where the value of our services and money spent promoting the film was treated as a cash investment in the P&A fund. This is a very powerful model for Legion M in that the activities we typically undertake to promote movies (e.g. PR, social media marketing, presenting at comic cons, organizing meetups, etc.) also help us grow the Legion.
From a financial standpoint, P&A investments are attractive because they typically (but not always) have lower risk/reward profiles and quicker returns than other types of film investments. That’s because P&A investments are made with the distributor (rather than the film’s producers), and are typically paid back before equity investments.
We believe that Legion M can provide significant competitive advantages during the release cycle of a film. From encouraging viral sharing of content that raises awareness to organizing opening night meetups at theaters around the country, Legion M’s community has a demonstrated ability to create authentic, grassroots buzz. We can’t make a bad movie good, but we believe we can help make a good movie a hit.
FEATURE FILM EQUITY INVESTMENTS
Generally speaking, equity investments are made early in a feature film’s production cycle to provide the financing required to produce the film. As of this writing (July 2019), Legion M has made three such investments: Field Guide to Evil, Mandy, and Jay and Silent Bob Reboot. From a financial perspective, these investments are typically (but not always) higher risk and take longer to provide returns than P&A investments. However, if a film becomes a hit, equity investors typically have potential for greater returns than P&A investments.
Because equity investments are typically made before the film is completed, there are generally more opportunities to get the members and investors of the Legion involved in the production process. We believe that providing fans the opportunity to “come along for the ride” during production (e.g. raffling off set visits, livestreams with cast and crew) creates grassroots support and buzz that can help when it comes time to sell the film to a distributor, and can improve the odds of success once the film is released.
Development generally refers to the earliest stages of the content production cycle, when production companies invest time and money to develop, package, and sell movies, TV series and other entertainment projects. Examples of development activities include reading and evaluating scripts, brainstorming ideas, creating treatments, providing feedback to writers, licensing IP, packaging talent (e.g. showrunners, actors, directors), finding sponsors, creating budgets, and pitching projects to potential buyers/partners. The goal of development is to package a project and then sell it to a studio, network, distributor, sponsor, or other buyer so the project can be produced.
Legion M has dozens of projects in the development stage. This includes projects like “ICONS: Face to Face” where we invested cash to film a pilot episode, as well as projects like “Airship Cowboys” and “Stunt Team: Drive” where our investment is primarily the time we spend working with partners to develop the idea.
From an investment standpoint, development projects are generally very high risk/reward, meaning that the odds of any given project making it into production are very low, but if you can develop your project into a successful property, the rewards are potentially vast. We believe our Legion of fans can give us a competitive edge when it comes to building momentum for projects (e.g. releasing a comic book for Girl With No Name prior to developing the film), leveraging the “wisdom of the crowd” to make decisions (e.g. using the SCOUT platform to find Memory: The Origins of Alien at Sundance), and crowdsourcing ideas and content (e.g. our Pitch Elevator project).
In April of 2019, Legion M announced a marketing partnership with Fox Searchlight (a division of Disney) where Legion M earned revenue, co-marketing support, and exclusives for our members in exchange for promoting the film Tolkien.
From a financial standpoint, this is a powerful business model for Legion M – it’s like a P&A investment but with guaranteed revenue and zero capital at risk. The model only works for certain projects (i.e. we’re not “guns for hire”), but for the right film it can be a win/win for everyone involved. In the case of Tolkien, Legion M provided considerable value by leveraging our community to build awareness and buzz, while the film provided not just revenue, but also exclusive opportunities for our investors (e.g. Hollywood premier tickets, limited edition meetup pins) and a great way to introduce Legion M to the worldwide community of J.R.R. Tolkien enthusiasts.
Tolkien was our first experiment with a marketing partnership, but we’re eager to explore this model further, as it opens the door to many projects (including larger studio films) where other models may not be an option.
In April of 2019, Legion M announced a partnership with Screen Media to acquire the North American distribution rights for the documentary Memory: The Origins of Alien. This film was selected primarily by the Legion M community which cast over 40,000 votes on our SCOUT platform for Sundance Film Festival. Under this partnership, we’re sharing the costs and revenues from the North American distribution of the film across all outlets (e.g. theatrical, DVD, video on demand, streaming, etc.). Screen Media is providing the expertise required to distribute the film, while Legion M is providing marketing muscle that we believe will help make it successful.
This is our first foray into distribution, and we’re eager to see the results. We believe that Legion M can provide a competitive advantage with our community to build awareness of the film. In addition, we look forward to using the film to introduce Legion M to the worldwide community of sci-fi lovers and fans of the Alien franchise.
Ever since our community began, there has been demand for Legion M merchandise that allows our members and investors to show off their Legion M pride. As the community gets larger, that demand grows. Today we have dozens of Legion M items in our store ranging from socks and beanies to t-shirts and mugs.
In 2018, through our investment in the film Mandy, Legion M acquired a license to produce merchandise for the film, and has had great success selling items ranging from t-shirts to Halloween masks.
In early 2019, we used Kickstarter to launch presales of a comic book and merchandise line for Girl with No Name, a feature film on our development slate. In less than 6 weeks, the Kickstarter campaign closed with over $130,000 in sales (about 20X the average for a comic book on Kickstarter, which is remarkable for a new IP without an existing fanbase!)
In addition to generating revenue, we believe that marketing and selling high-quality merchandise is a fantastic way to nurture the fandom of our projects and introduce Legion M to potential new members and investors. As such, merchandise is an area we expect to further develop as a company.
LIVE EVENT PRODUCTION
Legion M has produced two major live events — the “Celebrating Stan Lee” handprint ceremony and after-party in 2017, and the “Excelsior!” tribute to Stan (benefiting the non-profit charity The Hero Initiative) that we hosted shortly after he passed away. In both cases, we incurred the effort, costs, and risks of hosting the event in exchange for the revenue generated from tickets, merchandise, food/drink, and sponsorship sales. In addition to these major events, Legion M has hosted smaller events including the “Legion M Lounge” at the Sundance Film Festival and at San Diego Comic Con, and the “Fan Oasis” at Los Angeles Comic Con.
As a fan-owned company, we have members and shareholders all over the world who are eager to connect at live events. We believe that fans looking for real-life engagement provide a strong nucleus and can help get the word out about Legion M. We also believe that live events are a fantastic way to introduce new people to Legion M and grow our community. Our events to date have not been designed to turn a profit, but to offset the costs of what would otherwise be considered marketing expenses. As we scale we believe there is potential to turn events into a profit center.
Key Performance Metrics
As a startup, our primary focus is growth. At this stage in our development, we have a relatively limited amount of money to invest in projects, necessitating highly strategic allocation. We consider three primary metrics when evaluating any given project.
REVENUE - Like any other company, the goal of Legion M is to make more money than we spend. Financial success is the key to the long-term viability and success of our company — the more money we make, the more great things we can do.
GROWTH - We believe that growth of our community is the single most important determinant of our success. A Legion of one is insignificant, but a Legion of one million could be invaluable. As such, a project’s ability to help us grow the Legion is one of our most important considerations.
STRATEGIC BENEFIT - Each project Legion M completes becomes a stepping stone to the next. We actively seek projects that allow us to “level up” by forming strategic relationships and developing new capabilities that create long-term value for our company and our partners.
Effects of Scale on Legion M Projects
In calculating the expenses of our projects, we account for both the money (i.e. cash investments and money spent on marketing, travel, etc.) and time (e.g. the proportional cost of staff salaries who are working on the project) spent on them. It’s important to note that at this stage in our development, the financial investments we make in projects are often relatively small compared to the amount of time we spend on them. However, it’s also important to note that these two expense categories scale very differently. The best way to illustrate this is to use a simplified hypothetical example:
Legion M makes a P&A (“print and advertising”) investment of $100,000 in a feature film, with a return based on the success of the film. As part of the deal, we agree to host opening weekend meetups around the country, which cost us $5,000 worth of man hours to support and $5,000 worth of travel expenses. We also have $5,000 worth of legal, business development and management expenses associated with the project. In the end, we’ve invested another $15,000 in the project in addition to our initial P&A investment.
The film is released and provides Legion M a 15% ROI on our 100,000 investment. When the final numbers are tallied, we invested $15,000 (in labor and expenses) and received $15,000 as ROI in return, making the project break-even for us.
While the example above is both fictional and simplified, it is representative of one type of deal that Legion M has engaged in. We provide it to illustrate two points that we believe are important to keep in mind when evaluating our company at this stage:
As we grow, we expect the amount of money we invest in projects to get larger, whereas we expect the time we spend supporting them to stay relatively fixed (or in some cases go down due to the development of processes and infrastructure). In the example above, if we’d invested $1 million in the film instead of $100,000 and spent the same amount of money on time, travel, legal, etc., instead of breaking even we’d have ended up with $135,000 in net profit ($150,000 ROI minus $15,000 in expenses). As we grow our investor base and have more access to capital, we expect to be able to take larger positions in projects, reducing the financial significance of the costs we spend supporting them, and improving our chances of profitability when a project is successful.
Legion M’s strength is proportional to (a) the amount of money we’ve got to invest, (b) the size of our community, and (c) the length of our track record. We’ve seen over the past three years that as these factors have grown, our access to projects has increased, and the terms we’ve been able to negotiate have become more favorable. We expect this trend to continue.
Just as you wouldn’t assess an automotive company on the profitability of its prototypes, we believe the best way to evaluate Legion M is with an eye to the future. The projects we have now are prototypes that allow us to better understand our business and demonstrate what a fan-owned company is capable of. We expect some of these projects will be financially successful and others will not but, in either case, the work we do helps us grow the Legion and “level up” to larger opportunities. In the short time we’ve been operating, we have already seen dramatic improvement in both our access to opportunities and our ability to execute on them. As we grow, we expect these trends to continue. If we achieve our goal of one million shareholders, there could come a day when NO project is out of reach, and it will simply be a matter of choosing which ones we want to get involved in.