Understanding the revenue waterfall
By Roger Lindey
Film Revenue Waterfalls: Who Gets Paid and How the Cash Really Flows
Filmmakers and investors; if you want to crack the code on how films make money, you need to wrap your head around the "revenue waterfall." It’s not just a dry financial term, it’s the playbook for who gets paid, from equity investors and lenders to distributors, sales agents, exhibitors, and above-the-line talent like writers, actors, and directors. But here’s the twist: in today’s stingy industry, minimum guarantees (MGs) are getting much harder to come by, and presales are a pipe dream without bankable stars. Below, we’ll walk through this cash cascade with basic theatrical and digital examples—keep in mind, these are just starting points to keep this as short as possible. Waterfalls can be negotiated, so don’t take this as gospel etched in stone.
This is a system that originated with the studios and spilled over into independent filmmaking. Unless someone comes up with a better solution, this is basically how the system rolls.
The Revenue Waterfall: The Basics
Picture the waterfall as the lineup for your film’s earnings. Cash from tickets, streaming, or downloads flows like this in a standard setup:
Exhibitors (theaters): They nab ~50% of the box office off the bat, unless you’re Lionsgate, and then the percentage can be lower.
Distributors: 25-35% or more, plus expenses. And IF they threw you an MG, they’ll want it back at the top of the waterfall with interest.
Lenders: Cash lenders for tax credits or P&A get repaid, with interest.
Sales Agents: They’re typically in for 15%.
Expenses: Marketing and P&A costs plus interest.
Equity Investors: The brave souls who funded it wait for their cut.
Filmmakers: Producers and backend talent hope for scraps.
Distributors and theaters eat first since they deliver the goods. Investors and filmmakers? They’re at the bottom, praying the bucket’s not empty. These are basic examples, though, and smart negotiators can shuffle this deck.
What’s Messing with the Flow?
The industry’s playing hardball in 2025:
Minimum Guarantees (MGs): Distributors used to toss these advances around. Now? They’re stingy at best but usually a hard no unless you’ve got a star who moves the needle. Pretty much no fame, no MG.
Presales: Selling overseas upfront is tougher than ever without bankable talent. Indie casts get the cold shoulder.
Bankable Talent: A $2M flick with unknowns gets nothing upfront; add a hotshot, and maybe you’ll snag $500K.
Expenses: Theatrical P&A still eats cash like candy, leaving little for the bottom rung.
Example 1: Theatrical Release—Big Gross, Big Bust (A Basic Case)
Take a $2M film hitting $100M at the box office. No MG or presale—our cast’s great but not famous.
Budget: $2M
$500K Sr. Debt loan from tax credits
$1.5M from equity investors
Box Office: $100M
Here’s a sample waterfall (It can be negotiated several ways, this is just an example):
Exhibitors: Theaters swipe $50M off the top like a magic trick.
Distributor Fee: 35% of $50M is $17.5M.
Distribution Expenses: ~$250k (studios usually take much more)
Sales Agent Fee: 15% of $50M means $7.5M.
P&A Lender: $2M loan plus interest repaid.
Tax Credit Loan: $500K plus $100K interest—$600K gone.
P&A Rollover: $22.15M more for ads.
The tally:
Left: $0
Hard Reality: Equity investor is still out $1.5 and filmmaker gets a big goose egg.
$100M looks shiny, but this basic waterfall’s a buzzkill, and it happens often enough to say it’s common.
Example 2: Digital Release—Smaller Pie, Bigger Bites (Another Basic Case)
Same $2M film releases digital only, no theatrical, self-distributed with a service deal, earning $10M. No MG or presale, $500K for marketing.
Budget: $2M
$500K from tax credits
$1.5M from equity investors
Marketing: $500K
Revenue: $5M
A straightforward waterfall:
Distributor Fee: Service deal caps it at 15% of $10M—$1.5M.
Marketing Costs: $500K recouped.
Tax Credit Loan: $500K plus $100K interest—$600K.
Equity Investors: $1.5M repaid.
What’s left:
The tally: $5M - ($1.5M + $500K + $600K + $1.5M) = $900k
Filmmaker: $900k
No theater cut, lower fees—digital’s kinder here.
Films make money through a mix of revenue streams. Here’s where the cash flows from:
Theatrical Box Office: Still a heavy hitter for big-budget films, but it’s a tougher sell for indies. Theaters take 50% off the top, give or take, and high marketing costs (prints and advertising, or P&A) can eat up the rest fast.
Digital Platforms: Streaming (SVOD like Netflix, AVOD like YouTube, TVOD like Amazon outside of Prime) is king for smaller films and blockbusters alike. Revenue here comes from licensing deals, per-transaction sales, or ad shares.
Home Entertainment: DVDs are mostly dead, but digital downloads and Blu-rays still trickle in for die-hard fans or collector’s editions.
Television and Cable: Licensing to networks or cable channels (think HBO or TNT) brings in steady cash, especially for films with long-term appeal.
Ancillary Revenue: Airlines, merchandise, soundtrack sales, and even video game tie-ins can pad the bottom line, though this is mostly for franchise films.
International Sales: Selling distribution rights to foreign territories used to be a goldmine, but presales are drying up without bankable talent.
The catch? How much of this money actually reaches the filmmaker or investor depends on the revenue waterfall—the order in which everyone gets paid—and that’s where things get tricky.
Self-Distribution vs. Traditional: Pick Your Path
Traditional Distribution: Bigger risks. No MGs or presales without stars, and theatrical costs can sink you—unless you negotiate a sweeter deal.
Self-Distribution: More control, especially digitally. A service deal keeps fees low (20% vs. 35%), but you need a minimum of 25% of your budget—like $500K on a $2M film—for marketing, because you’re paying for that. And don’t forget deliverables. Which is an article unto itself. (coming soon)
Marketing (strategy) vs. advertising (rollout)—both are key. Waterfalls flex with negotiation, so haggle wisely.
Above-the-Line Talent: Backend Hopes
Writers, actors, and directors snag upfront pay, but they can also demand backend points from gross revenue, or as far up the waterfall as they can get. Bankable stars might cash out, but theatrical can leave slim pickings. Digital’s lower stakes boost the odds. Negotiate those points creatively!
Wrap-Up: Master the Waterfall, Master the Money
Filmmakers and investors, here’s the bottom line: The revenue waterfall is important for understanding how films really make money. In 2025, distributors hold back MGs and presales without bankable talent, so you’re either chasing stars or betting on self-distribution. Our theatrical and digital examples are basic, waterfalls can twist and turn with negotiation, from fee caps to expense tweaks and multiple hands in the pot. Theatrical’s a high-stakes ride where $100M can still leave you dry, while digital’s leaner flow might pay off, if you market smartly. Study the waterfall, bargain hard, and budget right. Whether it’s theatrical dreams or streaming wins, knowing the flow—and how to bend it—keeps your film (and your wallet) afloat. Happy movie making!
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