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Business Plan: Executive Summary

General: A business is being formed to create a blockchain-based, universal tracking, auditing, and payments system for the entertainment industry, so as to reduce fraud, control budgets, speed-up cash flow, and ensure contracts are enforced.

The Problem: The entertainment industry suffers from what’s called “Hollywood Accounting.” From Wikipedia: “Hollywood accounting refers to the opaque or creative accounting methods used by the film, video, and television industry to budget and record profits for film projects. Expenditures can be inflated to reduce or eliminate the reported profit of the project, thereby reducing the amount which the corporation must pay in taxes and royalties or other profit-sharing agreements, as these are based on the net profit. …Those affected can include writers and actors.”  The problem is serious, involves many tens of millions of dollars allocated each year, and—not surprisingly—has been responsible for countless lawsuits between the parties. 

The Proposed Solution: An opportunity exists to use blockchain technology to build a fraud-proof ledger system for the industry. This would be vastly disruptive, and could eliminate most if not all the fraud presently occurring with Hollywood Accounting practices. 

How It Will Work: An interactive, limited-access, Web-based platform will be created. It will be a database system based on blockchain technology for transaction verification and transparency, and will probably use self-executing Ethereum “smart contracts” for distribution of funds. Via API it will connect to the credit card processing servers such that as soon as payments are made at retail (tickets sold) the proper division of funds can immediately begin to occur. 

Example: If “Party A” (such as an actress or IP owner) is to receive 1% -3% of gross box-office receipts, then the 1% -3% can essentially be paid every time a ticket is sold—although batch processing every 24 hours might be easier. Other cash is similarly tracked through the system, and as expenses (which obviously bear on net profits) are submitted, reimbursement will occur only up to the level of previously-approved budgets, as per contracts. 

Benefits: (1) cash flow will become virtually instant, as opposed to status quo where often months go buy before payments occur, (2) budgets can be enforced, whereas today they are often nearly ignored, with no accountability, (3) stakeholders who are to be paid as percent of revenue or profits, will be paid correctly, and will not need to file expensive lawsuits to recover what is properly owed (if it can even be determined accurately in today’s world).

Specific Parties Who Will Benefit: Investors in content (executive producers), unions and their members (actors, etc.), Indy films and theaters who show them (easier to attract investors), and anyone being paid as a percent of gross receipts or profits, or in other ways that require accurate and verified accounting.

Parties Who Will Be Disrupted: The “losers” under this kind of guaranteed payment system will be the Distribution Companies, among others, who deliberately hold up cash flow in today’s world, and can be expected to resist the adoption of an efficient and transparent system. Also suffering losses will be lawyers and law firms which today are benefiting from the frequent need for parties in the entertainment industry to sue each other—a highly inefficient way for business to be conducted. 

Revenue Model: The proposed business could generate revenue in a number of ways, but the simplest is likely to be taking tiny percentages out of processed payments. For example, if an actress is to receive 1% of gross revenue, then as the system makes that payment, one (or perhaps several) percent of that number could be charged. The one receiving the funds would probably be very willing to part with a small percent, given the gain in contract enforcement, speed of payment, and confidence in the accounting itself 

Verification of Model: The answer to whether something like this could actually work is provided by the streaming-content industry. Spotify, for example, uses a blockchain-based system to control payments and provide transparency to stakeholders. National Academy of Recording Arts and Sciences is using blockchain technology to track royalty payments. There can be no doubt that this kind of technology will eventually disrupt “Hollywood Accounting” as well. It’s only a matter of who can get their first with the right solution. 

Significant Cost Factors: To create a commercially-viable, blockchain-based, general ledger system as envisioned will likely cost between $500,000 and $1,000,000 to build. Initial and ongoing Sales, General, and Administrative costs have not been determined, but it is believed the business could easily generate several million dollars per year of profits, and possibly far more as it would be a recurring-revenue, transaction-based business.

Marketing/Adoption-Curve: It’s possible that the easiest way to force the industry to adopt a blockchain-based, transparent ledger system, is for the Executive Producers (who fund new films) to simply insist on it as a condition of funding. In other words, no money flows, except under the blockchain-based ledger system. 

Potential Revenue/Profitability (TBD)

Status of Project: The initiative is being spearheaded by James Walchle, an Executive Producer from the film industry. Jacques Voorhees, a businessman with deep connections to the blockchain industry, is serving as a consultant. At this point the business is conceptual in nature, but funding, from Mr. Walchle and others, can be made available as needed.  At the appropriate point, a business structure will be created (probably a multi-party LLC), a name chosen, and the business plan will be executed upon. 

Capitalization and Next Steps:  Additional research (now being completed) will lead to the preparation of a full business plan, with identified timelines, costs, capitalization requirements and other factors.

Note: This document was prepared by Jacques Voorhees, using concepts and background information from James Walchle — 6/21/19.