Sunday, May 15, 2011

Loss Leaders

Do you know how much money clothing designer make on Paris, Milan and New York "Fashion Week" shows?

It's hard to quantify, but the simple answer is "negative a lot".

The high end designs that walk celebrity runway shows cost more to produce than they recoup.  I don't fully understand the details of the fashion industry, basically the top lines and the haute couture (which is a very specific subset of Parisian houses) are the avant garde for the low end labels which stock department store shelves nationwide.  Barneys might buy a few dozen $5000 dresses which march through Bryant Park.  The profits are made from the mass produced cheaper models which sell for $49.99.  That and fragrances, apparently.

So why spend so much promoting clothes which will never make back the production costs?

The fashion industry sees these as "loss leaders".  The money invested on the high end of the line is necessary for greater profit on the mass market lines.  In this particular case aspirational buying in the consumer plays a major role.  Isn't there an aspirational angle to all purchases?

In animation and other forms of film production the loss leader can be an important part of the business.

These can take the form of cut rate work, like music videos.

They can also take the form of short films -Pixar's shorts are a great example.  The studio loses plenty of money producing them but the technology and talent they develop repay the company's investments many fold.

When someone offers a low to no budget project, the question to ask is -"If I can't make money on this particular on this job, will it help me profit in the long term?"  It's a tricky question because the answer is conjecture.


Heidi said...
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Michael Sporn said...

The problem is that this is all the work that seems to be available - low to no budget work.

David B. Levy said...

My loss leaders are personal films I make, or pitches I spend time to create. But, I think the answer on the budget problems we face is to work in new models. The virtual studio is but one answer. No additional rent, insurance, electric bills, and higher profit and better wages paid to the workers. The way we make our living in animation has to change with the times.

roconnor said...

Self-produced films are a great example. I made reference to Pixar because they're an obvious example (along with Blue Sky) that has strong parallels to other businesses.

Pitches I see as development. You're investing time and money with the hopes of making more money from the sale. There's a clear path to financial benefit there.

With short films, the financial benefits are less clear (unless you get lucky and can get monetary returns).

roconnor said...

Oh, and Michael, I don't even want to get into the nothing but low budgets...