How Films Only Earn Half of What They Report and Cost Twice as Much

Most of the times, when film profitability is being discussed, they only mention the film's budget and the domestic box office take.  Which really tells you almost next to nothing about a film's ultimate profitability.

Here's two facts that aren't told very often:  

1. The cost of a film is nearly double its production costs and that's because the cost of international marketing and distribution is a massive expenditure.

 Think of it - for a big budget film like an Avengers - they have to buy television ads, billboards, and run social marketing campaigns in almost a hundred countries.  A film with a $200 million dollar budget can be expected to probably spend $100 million just on marketing in the United States and at least that much (if not more) to market the film around the globe.  Distribution costs are more set, but it's a minimum $25 million to make film copies, dub films into the proper language, and get them into theaters around the planet.

2.  The income a film earns is only about half of what's reported.  The popular wisdom is that cinemas make their income off of popcorn.  Not true.  Cinemas get about half of the ticket price.  Internationally, it's a pretty even 50/50 split.  Domestically, it used to be on a sliding scale, that the first weeks the studio would get the money and then cinemas would get an increasing percentage of the ticket sales in subsequent weeks.

 That was a model that worked well for cinemas when a film could play for a few months.  But these days, when a film is out of the cinema in four week's time, increasingly, you're seeing a 50/50 split in domestic cinemas too.  Cinemas are huge buildings, with expensive projectors and massive electric bills, that's a lot of overhead to try and cover just on popcorn.

 

(You can find all of our box office articles, here!)

This is why film's aren't nearly as profitable as they would seem.  A film like Avengers, which earns $1.5 billion, only gets to keep about half of that, and the film is actually a lot more expensive than the $250 production budget.

Most films are lucky if they break even.  I even recently predicted that the new Star Wars franchise, if its past films are any guide, will mean that Disney is not seeing profits until the last of the six new films they've advertised themselves as making.

It used to be that a film's theatrical run was really just an advertisement for its DVD release - that's where the real money was.  When sold for $15, and when they only cost a buck to produce and a few dollars for Wal-Mart, that was $10 into the studio's pocket for every DVD sold.  Add in a global market and DVDs were where films earned their real money.  

But DVDs are dying in place of Video on Demand.  The problem is that VOD is mostly rentals that go for $3, a good portion of which goes to iTunes or Amazon or Google or your cable television provider.

For many films, like super-hero movies or Pixar cartoons or Star Wars, the real money is in merchandising.

 The ability to license the image to toys, pillows, paper plates, kites, and just about everything else you can imagine.  We don't even make an attempt to put a dollar value on merchandising, it's entirely left out of our calculations.

Trying to guess at all these figures is difficult, because Hollywood doesn't release them - they're a closely guarded state secret.  Fortunately, About.com Action and War movies has managed to gain access to the profit sheet for a number of large past films, from which, we've been able to extrapolate averages.  (Though, in all fairness, as astute readers of our box office articles will recognize, we're always changing the formula on the attached spreadsheets that are linked into each article; the more we learn, the more we can adapt the formula.)

As an example, consider how we break down the box office results for a little seen big-budgeted film called Mars Needs Moms!

Revenues:  

Domestic Box Office:  $21.3 million - 45% for cinemas = $11.7 million

International Box Office:  $17.6 million - 60% for cinemas = $7.04 million

For a total Box Office haul, across the world of $18.74 million

Video on Demand = $13.6 million

DVD = $24.9 million

TV = $6.4 million

Total Revenues of $63.6 million.


Costs:

Production Budget:  $150 million (this was one expensive cartoon!)

International Marketing: $97.5 million

Domestic Marketing: $97.5 million

Distribution: $25 million

Total Costs of $370 million

 

For a total loss of $306.4 million (approximately).

 

And that's how it works!