lotus

previous page: 18  Is FARGO a true story? Was the "Victim in the Field" really played by the Artist Formerly Known as Prince?
  
page up: rec.arts.movies.current-films FAQ
  
next page: 20  Why aren't there more G-rated movies released?

19 When does a movie break even?




Description

This article is from the rec.arts.movies.current-films FAQ, by Evelyn C. Leeper evelynleeper@geocities.com with numerous contributions by others.

19 When does a movie break even?

There are multiple answers to that question, and it differs for every
movie, not just because they had different production costs. Assuming
we're talking about genuine profits (as would be recognized by most of
us), and not the contractual definitions that keep net profit
participants from collecting a cent on even the biggest grossing films,
here are some rules of thumb, and a few important exceptions.

First off, we're talking about major Hollywood films that are
distributed by the studio that made them. That's important, because
the distributor takes a big cut off the gross. If the distributor is
the same studio as produced the film, then, from an outsider's point of
view, it all ends up in the same pockets in the end. If the film was
produced by someone else, then you have to lop off the distribution fee
before determining if the film was profitable. Also, let's ignore for
the moment co-productions, and certainly ignore low budget independent
films.

The capsule answer, as a rough rule of thumb - if a film's domestic
gross equals its negative cost, it will be profitable. Thus, for
example, if we accept a negative cost for "Titanic" of $200 million, a
US/Canada gross of $200 million would probably lead to a profit.

Now let's talk about why this is a reasonable rule of thumb, then why
it sometimes isn't.

Films make their money from three basic sources - domestic gross
(counting only the US and Canada), foreign gross (box office receipts
from everywhere else), and other sources. The largest component of the
latter is video, but cable, pay-per-view, and broadcast sales are also
often significant, and lesser revenue streams like in-flight movies,
rentals to colleges and art houses, and others also chip in. For
certain films, merchandising adds hugely to this figure. For others,
it adds nothing.

Still speaking roughly, the current breakdown is that these three
revenue sources are approximately equal. Not quite. In the last
couple of years, foreign box office has slightly exceeded domestic, for
example. And there are many exceptions, which I'll get to later. But
for rough calculations, equality is around right.

There are other important considerations. First, the costs usually
bandied about for making films are the negative costs. The negative
cost of a film is the price paid from the moment the project was
thought of to the instant that the studio owns one complete, finished
negative of the movie. There are still big bucks to pay for a major
Hollywood release, however. The biggest bucks are for advertising and
distribution, with a significant cost to make all the prints. (If you
put out 2000 prints, a not-uncommon run for a big film nowadays, at,
say, $10,000 a print, you can see it adds up.) Advertising and
distribution varies quite a lot. People used to assume that the total
print and advertising costs for a big film were approximately equal to
its negative cost, but $100 million plus negative costs blew that
estimate out of the water. I doubt if anyone ever spent $100 million
advertising a single film. For a large scale film, $50 million for
prints, adevertising, and other distribution costs (like shipping 2000
really heavy sets of boxes containing the prints all over the country)
is not an unreasonable estimate.

A second consideration is that theaters take a share of the gross.
Again, things are complex. The short rule of thumb is that the
theaters take half. But the way the contracts actually work, the
theaters' cut is on a sliding scale, with the studio taking a much
larger percentage in early weeks, and the theaters gradually getting
more and more as the run continues. Thus, the attendance pattern of a
film makes a big difference. So far, "The Lost World" and "Men in
Black" have grossed in the same general ballpark, something like $250
million. However, "The Lost World" made a vast amount of money in its
first week, and dropped off quickly, while "Men in Black" did very well
its first week, but has held audiences longer. The distributor thus
ended up with more of the gross from "The Lost World" than from "Men in
Black." Assuming you're not a professional or obsessive, live with the
50% estimate.

A third factor. For many big films, there are gross profit
participants. These folks, typically the really heavy hitters like
Steven Spielberg, Harrison Ford, and Michael Crichton, get a percentage
of all money collected by the distributor. In some cases, the
contracts allow the distributors to deduct certain costs off the top,
in others they don't. The dollars that go to gross profit participants
cannot fairly be considered as contributing towards the studio's
recoupment or eventual profit, since they don't get those dollars. In
some cases, like "The Lost World," we're talking serious chunks of
revenue, perhaps 20% total or more. Let's not worry about that, for
the moment, but don't forget it completely.

A fourth factor. Foreign theaters keep a larger percentage of the
profits than US theaters. So, while the foreign gross is slightly
larger than the domestic gross (averaged over all films), the domestic
box office still returns more dollars to the studios. Also, the
distribution costs mentioned above only covered US distribution.
You'll need to advertise it in other countries, too, and perhaps even
come up with ad campaigns customized to each country. More costs.
Overall, let's just factor everything here together and say that
studios end up with 50% of the foreign gross. Not too accurate,
perhaps, but we'll balance it against an inaccuracy in the opposite
direction from other sources.

A fifth factor. There are distribution costs associated with the
other, non-box-office revenue streams. It costs something to stamp out
a videocassette, and to ship it to the store, and to advertise it.
Some of the other revenue streams have lesser costs (like selling to
cable), some have significant ones. For airline screenings, you
typically have to recut the film, for example. Let's again assign a
50% return of gross here. It's probably a bit higher, but we'll
balance that against our earlier overestimation of foreign returns.

Finally, as a general rule the domestic box office is the engine that
drives the other revenues. There are many exceptions, but foreign
gross and video sales (and other revenue streams) are largely
predictable given domestic gross.

OK, let's review the bidding. The studio spent the negative cost plus
maybe $50 million on prints and advertising. Speaking roughly, they'll
get 50% of each of the three reveune streams. Roughly, again, that
means that for a $200 million negative cost film, they need to have
around $250 million roll in various doors before they've really shown a
profit. Thus, if the film makes $500 million domestic, it's shown a
profit before any other revenues are considered.

For a bare profit, that $200 million film then has to return $85
million or so in domestic box office. (Since that would translate to
another $170 million in money from other sources.) $85 million + $170
million = $255 million, slightly above the $250 million negative plus
advertising plus distribution cost we'd estimated. But, remember,
we're only getting half the money, so for an $85 million domestic
return, we need a $170 million gross. That's not quite its negative
cost, but it's in the ballpark. If you assume they'd have to spend
more on advertising such a big film, or you're going to strike a whole
lot more prints, the revenue requirement goes up a bit.

This is already an obscenely long posting, so I won't go into the
exceptions in detail. But action films will do better overseas, dramas
not so well, films with local tie-ins to major foreign markets (Japan,
UK, Germany, France) may do significantly better there, children's
films (especially animated ones) will kick butt on video, and comedies
based on dialog will bomb outside English-speaking countries. There
are many other exceptions - Disney would be ill-advised to predict any
revenues on "Kundun" from China, for example. Sometimes, for completely
unpredictable reasons, a film does a whole lot better in some foreign
market than in the US or anywhere else.

Actually applying this all to "Titanic" gets complicated, unless you
are willing to accept all the rules of thumb and ignore all the
exceptions. For example, "Titanic" was a co-production of two studios,
one of which had a cap on its share of production costs, and owns only
the US gross. The other had no cap, and has all other rights. So the
right thing to do, really, is to figure the two studios' profits
separately.

Also, Cameron is one of those heavy hitters I mentioned earlier. He
undoubtedly started the exercise with large gross profit
participation. However, due to his severe budget overruns, it's
possible (but not certain) that he traded back or lost some of his
gross points.

And what about merchandising? Will every parent in America buy his kid
a Titanic toy that sinks in the bathtub while an internal waterproof
music box plays "Nearer My God To Thee," leading to a merchandising
bonanza? Who knows?

Bottom line, if "Titanic" grosses less than $100 million in the US,
folks lose a lot of money. If it grosses more than $200 million, folks
get a lot of money. In between, it's variable, highly dependent on
whether "Titanic" proves to be one of the exceptions, and generally too
close for outsiders like us to call.

[Thanks to Peter Reiher (reiher@cs.ucla.edu) for providing this.]

 

Continue to:













TOP
previous page: 18  Is FARGO a true story? Was the "Victim in the Field" really played by the Artist Formerly Known as Prince?
  
page up: rec.arts.movies.current-films FAQ
  
next page: 20  Why aren't there more G-rated movies released?