Box Office Math: Learn how movies make and lose money

by 5 years ago
avengers

Disney/Marvel


The Avengers raked in money. But a ton of money and a huge profit are two completely different things.

It’s hard to think Tony Stark, Hulk, and the rest of the S.H.I.E.L.D. gang could have stolen money faster than the film earned box office revenue, hitting $200 million in the first weekend, more than $640 million in a week and a half worldwide, and $1.5 billion to date. That’s a lot of dough.

While the Marvel superhero flick will make money for Disney, the figure won’t be anything close to what you’d expect after seeing the film cost only $220 million and grossed the nominal GDP of Belize. The final pull for the House of Mouse will be much lower than $1.3 billion. Why? As Robert Downey Jr.’s character might say, it’s economics, baby.

When $220 million is not $220 million

The first issue is the cost involved. The studio reportedly spent almost a quarter billion making The Avengers, but that figure only accounts for production costs. Hollywood is notoriously opaque in its willingness to parse out the exact amount of money hemorrhaged into movies, but it’s a fairly safe to assume the total budget for The Avengers was somewhere around $500 million.

avengers thor

Disney/Marvel


You might think actor salaries were a big part of the figure, but you’d be wrong. It’s unclear whether actor salaries are included in the $220 million production figure – usually they are not – but they were rather small for The Avengers, regardless. Downey Jr. took home $50 million, but that was based on the impressive revenue generated by the film. The other stars – Chris Hemsworth, Chris Evans, Jeremy Renner, Mark Ruffalo, Samuel L. Jackson, and Scarlett Johansson – will earn between $2 million and $6 million, which isn’t nothing, but it’s also not all that much all things considered.

The expensive part of a movie isn’t making it, it’s promoting the darn thing. Marketing budgets frequently top production costs. Just think of how many trailers, billboards, display ads, etc. you saw for The Avengers. The blockbuster was unavoidable, but that ubiquity costs cash. Hundreds of millions of dollars worth of it. Marketing is a loss leader for smaller releases as well. “Last year, studios spent an average of $39 million per film on advertising and prints in America, but only recovered $20.6 million per film from the theaters. So, on average, they paid more to get people to buy tickets than they got back from the theaters and this dismal calculation does not include the cost of making the film,” scholar Edward Jay Epstein wrote in 2005. So next time you see a movie “budget,” know that the actual dollar amount is likely much, much higher.

When $1.5 billion is not $1.5 billion

But even if The Avengers cost $500 million, it earned $1.5 billion and counting. That’s still a huge profit, right? Well, no. A studio only sees around 50 percent of the value of every ticket sold in the United States. That $13 ticket immediately becomes $6.50 as far as Disney is concerned. The theater takes the rest. (Contracts used to be front-loaded, so a studio would take 90 percent during opening weekend, but that practice no longer exists.)

Gone In 60 Seconds poster

Buena Vista


Immediately, $1.5 billion is $750 million. Except it’s not even that much. (You had to know that was coming.) Studios make significantly less than 50 percent on tickets sold abroad. They earn about 40 percent but that doesn’t include marketing expenses, distribution expenses (getting copies to theaters), tariffs, and a host of other issues that hurt the bottom line. Gone In 60 Seconds made $130 million overseas, but only profited $18 million, according to Epstein. The majority of The Avengers revenue came from abroad, so $1.5 billion is probably more like $600 million or less. And that’s big, successful picture. The economics are even less in favor of a small budget movie.

Movies do have a few advantages the average person might not think of, however. The most obvious one is DVD sales, which have a profit margin of around 67 percent. But DVD sales are slipping, so that market is eroding (and you have to sell a lot of $20 DVDs to make $1 million, much less $100 million). The biggest hidden revenue generator is television rights. The reason: movie studios don’t have to handle the promotion and marketing; that’s on HBO, CBS, or whatever channel shows the film. As a result, revenue earned from selling television rights is around 90 percent profit, and it can keep going for years. Just think of how many B movies from the 90s you’ve watched on lazy Sundays.

In the end, the film industry is a much tougher business than most people realize. The sums of money are huge, but so are the expenses, both the known ones and the unknown ones. It’s a steady profit center for established studios, but a small growth industry. (Adam Davidson offers a smart summary of the issues here.) Massive films like The Avengers and the Dark Knight trilogy will earn profits – especially long-term when one factors in TV deals – but many smaller, less successful flicks won’t. It’s hard out there for a film executive. I don’t want to suggest bank robbing, but it might be a better bet.


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