Understanding Above-the-Line and Below-the-Line Costs in Filmmaking

Above-the-line costs also vary from movie to movie based on who’s involved, while below-the-line costs are more stable — a lighting rig is going to cost about the same on every set. These costs are likely to cover pre-production, while below-the-line costs typically cover expenses incurred once filming actually begins. A Line Producer may also hire key members of the crew, negotiate deals with vendors, and is considered the head of production.

ATL expenses tend to be more stable and predictable compared to BTL expenses. Because ATL expenses are directly related to ongoing operations, they follow a regular pattern and are easier to budget for. In some circumstances, the term above-the-line refers to all income and expenses related to the normal course of business. In this case, any expense above net income would be considered to be above-the-line.

For each type of company—manufacturer or service provider—they will involve different expenses. The term “line” refers to the line in the income statement that is designated by gross profit (for manufacturers) or operating income (for service providers). For service businesses, above-the-line costs are any costs incurred before arriving at operating income. Expenses incurred thereafter, such as interest and taxes are considered below the line. On the income statement, operating expenses as well as other expenses such as interest and taxes appear after gross profit.

They always need to plan for the worst, while simultaneously being able to inspire others to excel in their work. They must therefore know how to identify the hazards in the production environment, to assess the level of risk, to recommend action, and to carry out a review of their assessment. The right finance tools and support can help you organize and analyze your expenses properly. As a result, founders and finance controllers can identify areas for cost reductions or heavy investment.

Understanding Above the Line vs Below the Line Costs in a Film Budget

Without a clear understanding of how to properly categorize expenses, you can face tax penalties, fines, distorted financial calculations, and barriers to profitability. Analysts use above-the-line costs to scrutinize gross profit margins and margin of safety when analyzing a business’s quality of income. Those businesses with low above-the-line costs but high gross profit are considered to have good profit margins.

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• Cast salaries, for starters, including those $20 million paychecks earned by the most sought after A-listers, but also the cost of hiring less recognized actors to fill major roles.
• However, current assets/liabilities arise from core operations, while non-current assets/liabilities stem from secondary activities.
• The legal document templates have already paid off by getting the option contract done without having to pay for an attorney review.
• As a result, the final product will be of higher quality, completed on time, and within the established budget.
• The cash flow statement classifies above the line items as core operating expenses.
• Analysts use above-the-line costs to scrutinize gross profit margins and margin of safety when analyzing a business’s quality of income.

Above-the-line costs are those above the gross profit line, while below-the-line costs include costs below gross profit, namely operating expenses. Operating income–also called income from operations–takes a company’s gross income, which is equivalent to total revenue minus COGS, and subtracts all operating expenses. A business’s operating expenses are costs incurred from normal operating activities and include items such as office supplies and utilities.

What Are ATL and BTL Costs in Filmmaking? Filmproposals Answer

You can use above-the-line accounting to track the direct costs of producing your goods or services. The importance of budgeting in filmmaking cannot be overstated, as carefully calculating film costs ensures that money works efficiently. Line production budgeting also helps identify potential savings while securing optimal resources, making film financing more manageable. Below-the-line costs represent the engine room of film production, typically consuming 60-80% of a project’s total budget.

What Are Above-The-Line Costs? What’s Included vs. Below-The-Line

The status of movie stars can require personal makeup artists and costume designers, adding thousands of dollars to BTL staffing costs. This is just one example of how film production costs break down into ATL and BTL categories, each influencing the other. Above-the-line cost is designed to reach a wide audience and build brand recognition. By investing in traditional media advertising (like television ads or billboards), you can create a message that resonates with a large group of people. This, in turn, can help build awareness of your brand and attract new customers.

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Conceptually this makes sense, as the term “above-the-line” refers to all costs that must be incurred in order to produce a product or service. Because above-the-line costs have a direct connection to production and production needs can change, these costs tend to vary more over the short-term compared to below-the-line costs. Key below-the-line costs, such as rent, tend to remain constant regardless of sales and production numbers. That’s all activity on the income statement that relates to profits and not the transactions that only impact the cash flow statement or balance sheet. Advertising rates refer to the amount of money you’ll need to spend on traditional media advertising (like television ads or print ads).

• BTL expenses, on the other hand, are often related to financial decisions and external factors.
• In this post, we will cover what above-the-line costs are, why they are used in profitability analysis, and some considerations to make when determining which cost to include above-the-line.
• It’s important to note that operating income is different than net income as well as gross profit.
• A Line Producer may also hire key members of the crew, negotiate deals with vendors, and is considered the head of production.
• By optimizing ATL and BTL costs, you may be able to increase your business’s profitability, alter your return on investment from operations, and improve long-term financial stability.
• Read on to learn more about how Hollywood accounts for above- and below-the-line expenses.

Line producers are also in charge of coordinating all post-production efforts such as editing and special effects. Expenses considered to be above-the-line typically include those which above the line costs are directly related to production of a good or service. This varies slightly depending on whether the business is involved with manufacturing or is a service business. Above-the-line costs are generally considered the costs that are connected to creating the company’s product. These costs would cover worker salaries, equipment, raw materials, and maintenance.

How Expenses Stack Up

At first glance, the terms “above the line” and “below the line” may not seem hugely important. But these categories offer invaluable insights into the true drivers of profitability and cost efficiency for businesses. It reveals the baseline production costs that must be covered to earn a gross profit. In contrast, below the line refers to peripheral expenses that aren’t directly related to a company’s main operations. They are in charge of overseeing the production budget and the day-to-day operations. They work closely with the executive producer of a television show or the director of a film to make sure they are properly executing on the creative vision.

One helpful rule of thumb is to remember that above-the-line costs are almost always considered to be those that are unavoidable when producing a good or service. This in contrast to operating costs which usually include costs like office supplies, management, and departments considered to be cost centers like HR and accounting. Like all lingo, above-the-line can have different meanings depending on the type of business. Filmmakers, for example, refer to expenses as being above-the-line if they are related to budgets for directors, actors, writers, and below-the-line if they are related to production staff. Above-the-line costs are the costs and expenses that directly relate to the production of a product or the provision of a service. Above-the-line costs are the costs regularly incurred by a business to make the product it sells or to provide its service.