Movies earn less $$ in theaters than they cost to make-how do they get it back?

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Thanks for all the responses guys! Yeah, besides completely forgetting about the foreign market, which almost always surpasses the domestic box office gross for hit movies, I pretty much knew all of this. I see some of you have confirmed that actors and others involved earn bonuses after reaching certain box office plateaus. Also that through merchandising and DVD sales and television premieres, even a theatrical flop will likely turn a profit in the long run.

I guess what I really mean to be asking is what goes into the budget in the first place besides things like studio lot rentals, special effects, location shooting, etc...? If a movie costs $80 million and an actor requests upfront payment instead of a cut of the profits, is his salary included in that $80 million. I assume all production costs I listed above already are, but are the actors and director included? Because they account for a huge chunk of the final costs. Or are their salaries not represented in that $80 million figure, but instead taken out of the movie's gross?

Same with advertising. Once production ends, is all the $80 million used up and then an extra $40 or so necessary for promotion and advertising? Or is this money also included in the $80 million? Lots of you guys have given contradictory responses.

Also, I've often heard that loans are taken out and LLC's are established for each individual picture so they don't have to pay virtually anything until the box office receipts come in. Except for the distributors- I have read that they always require upfront payments. Is this true? Is the entire production in essence made on money that doesn't even exist yet? And if so, how does anyone even know the final budget of a film? How can people say things like, "Man Avatar cost nearly $500 million to make, will it be successful enough to earn it back?" How can they know before receipts come in and people get their bonuses, advertising increases, and companies earn money?



Maybe I'm lacking a fundamental understanding of the business here. Or maybe my thread should have been what's in the budget, not how do they earn it back.
Still thanks to all of you guys who contributed, especially Holden Pike and Yoda.
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Bright light. Bright light. Uh oh.
Sure, all the salaries are included in the budget. The budget includes everything up until the actual film is completed. The costs to make prints of films, distribute them and advertise the film are an entirely different money amount separate from the film's "budget". I don't really know how the studios finance their big-budget flicks, but theoretically somebody has to keep track of the film's costs because of a little thing called taxes, but you know how creative accounting works, don't you?
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Great, thank you for the clearest answer yet! I was kind of thinking that the budget is strictly the cost of production, that is, making the movie itself. So that only includes special effects, paying staff, cast,and crew, renting spots for location shooting, and using studio equipment and props, right?

It does not include advertising at all or price for finding a distributor?! I wasn't sure about the advertising, but distribution? So let's say Prince of Persia did have its purported budget of $200 million. That's all just production costs, and not advertising or distribution costs.

That movie was sub-par, what the hell did they spend all that money on, Ben Kingsley?!

Well, anyway thanks, I think that's about as much info as we're going to get from people who aren't Hollywood players or industry insiders.



WE ARE MARSHALL!!!!!
Like though where in the hell do they get the money on the back end to pay these stars if they are already in the red? Do these producers go deeper and deeper in debt just to please these stars who are already making an upfront chuck of cash? It all seems ass backwards to me. Sorry for saying ass.



will.15's Avatar
Semper Fooey
The standard formula for breaking even is a movie has to gross two and a half times it's production costs. But as Alan Jay Lerner pointed out advertising costs shouldn't be much different for a medium budget and high budget movie. They might spend a little more to promote an extravaganza, but exactly proportionate to its budget?



Like though where in the hell do they get the money on the back end to pay these stars if they are already in the red? Do these producers go deeper and deeper in debt just to please these stars who are already making an upfront chuck of cash? It all seems ass backwards to me. Sorry for saying ass.
Because that money comes from the gross, not the net. For every dollar reported after a certain threshold or however it is defined in the specific contract, that's where the money comes from. The moviemaking business is a notorious accounting black hole, showbiz all around, actually. As they say, NEVER invest your own money in a film. There are exceptions to this rule, of course, but don't risk your cash trying to be the anomaly.

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WE ARE MARSHALL!!!!!
Because that money comes from the gross, not the net. For every dollar reported after a certain threshold or however it is defined in the specific contract, that's where the money comes from. The moviemaking business is a notorious accounting black hole, showbiz all around, actually. As they say, NEVER invest you're own money in a film. There are exceptions to this rule, of course, but don't risk your cash trying to be the anomaly.

Thanks , I think I sorta get it now.



28 days...6 hours...42 minutes...12 seconds
The words you are using are a bit tricky. The cost of the production of the film is the cost of the production. There are three stages of making a film. Pre-Production, Production, Post-Production. In my experiences, which I'm sure would be different than that of those Hollywood big boys Marketing/Distribution would go under post-production.

When a Producer and Production Manager break down the costs of certain things, they split it all up into those categories and come up with a budgeted amount for each department based on their requests. Art Department receives 15 million, Camera department 25 million, Craft Services 2 million, etc. Production portion of the film costs 42 million. This is of course the basic form of it all. It's more detailed and whatnot.

Now you see people claiming this film cost 150 million to make, then they say they have spent another 65 million on advertising/marketing. In all my experiences marketing has been part of the budgeted film and not really separate. So I can't really tell you how they do things precisely in Hollywood. If those numbers they tell us are even remotely accurate. Please remember I'm a Canadian filmmaker so it could be and most likely is vastly different. Just giving me side of things.

You need to take into account investments from other parties. So if a film makes 300 million in the box office, the theatre themselves take a percentage from the opening weekend. If the actor got a percentage deal, he gets his cut, the investors are given back their money plus some. People getting their money back and theatres taking a percentage is a small part of the original budget. Actors getting a percentage is not.

A film could flop here in North America, but make 4 times it's budget overseas.

In the end, as stated before. The film's real deal in making it's money back is in DVD sales, rentals, television, Pay Per View, Online (new format), exclusive deals with other parties like McDonald's, etc. This is one reason why people only really care about how much it makes in the first weekend, because that's the most juice you will squeeze from theatres. This is not always the case though, just look at this years How To Train Your Dragon to see that it had theatre legs, when most films don't.

Did any of that make sense, or was it all gibberish?
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Bright light. Bright light. Uh oh.
This and the next page are supposed to be the basic breakdown of the budget of Shyamalan's The Village, here called by its original title, The Woods. You can go through every page if you want to see where all the numbers on the last two pages come from. You will note that there is a cost for "publicity", but it's nothing involving advertising, but apparenty paying for publicity junkets to the set during filming. You will notice that there is no mention of costs for prints, distribution or advertising.



Whoa, thanks mark f that's awesome! I've never seen any sheet like that before, detailing literally all expenses before, and during a film production.

So basically, it goes like this:

The official budget of a film includes above-the-line costs (or costs before production begins) and below-the-line costs (expenses during the production period). The above-the-line includes salaries for the story rights, the director, the producer, the cast (including stunt department), and travel and living expenses for the duration of the shoot.

The below-the-line includes both the shooting period and post-production. But post-production does not include advertising/marketing. The shooting period expenses include cameras, production staff wages, set design and decoration, sound, make-up, props, wardrobe, ...everything you'd need to make a movie. The post-production is essentially all the stuff that happens in the film lab after initial filming; I assume most of the crew and cast have completed their work. Here expenses are editing, sound mixing/editing, special effects, and music.

And, at least for Shyamalan's movie, the above-the-line and below-the-line costs were equal, totaling about $70 million.

That was a reasonably 'small' major studio production, with only one marquee star worth maybe $10 million (and probably less than that), a set confined to basically one house and sparse Philadelphia location shooting, and pretty simple effects. In this sense, the budget of a major studio release like Prince of Persia could conceivably reach $200 million. It likely wasn't that high, but close; and the advertising and marketing certainly put it over the top. I wouldn't be surprised if studios hyped the cost to increase excitement over the film; many studios are guilty of this.

The film had at least three stars worth millions, an accomplished director who also probably pulled in millions, dozens of other major players and hundreds of extras, location shooting in Morocco, massive special effects throughout, and logistically more difficult scenes than The Village had. They probably used multiple, more sophisticated cameras, which are thousands of dollars a piece, required teams of people for set construction of the elaborate environment the movie had, a more expensive period wardrobe, another two teams for editing all the footage and mixing the sound, and probably needed the expertise of an outside special effects company.

Again, thanks for posting that link, I've always wondered exactly what went into a budget, and that's about as clear an answer as possible.



Registered User
Hey guys,

Just wanted to add some points, especially about Hollywood’s creative accounting. Financing deals are also made in moviemaking, usually to hedge bets against a movies massive budget. For example New Line sold international distribution rights off to finance the Lord of the Rings. So they didn’t receive much of that movie’s international take but got to make the movie with much less risk. Financing deals happen relatively often, so again knowing how much money a producer made from a movie, is just plain hard. I would guess following success is the best indication.

I liked these two books on the topic if you want some more detail.

Entertainment Industry Economics: A Guide for Financial Analysis

A Concise Handbook of Movie Industry Economics.

Also, I wrote a long university paper on the movie industry that I expanded for fun. I did it on a new vertical integration. It might be interesting to some of you here. It’s called “In the Footsteps of GM: The Falling of the Movie Industry” and it’s available at:

sites.google.com/site/footstepsofgm/article

It’s pretty skeptical about the industry’s health, and I’m sure some points are debatable, but it’s essentially a book for free, so it’s still pretty good I think.

Cheers,



Thanks, Macca, for clearing up the whole financing question. I assumed films got financed by auctioning distribution rights or profits in foreign countries.

I read part (admittedly skimmed) your thesis and especially liked the part where you argue that increased budgets for big spectacle films do not lead to increased returns on the investment. I never knew that information about government tax credits (page 14), which leads to a race of outspending. So you're basically saying that higher and higher budgets are just becoming necessary to operate in the blockbuster system, but the profits are more or less unchanging.

It is interesting though, when you consider that virtually all of the top grossing movies of all time were made in the last decade. I know attendance is distorted because of ticket price inflation and 3-D with Avatar. But in the end, are you saying this doesn't necessarily mean huger profits? And which increases at a faster rate-the cost to make the average blockbuster or the profits made by the average blockbuster?

In any case, thanks for the free book! I bookmarked it so I'll probably return to it some time soon for a closer reading.



Registered User
Hey,

Thanks for reading and writing back. Yeah pretty much the argument for budget increases is to manufacture spectacle is inherently expensive as it requires exponential increases, whereas quality only needs better function, which is harder, but not inherently more expensive. So special effects action movies require more realism for the effects, because a movie based on effects, say Final Fantasy, is meant to awe the audience with the technology, but that never stops, so it gets more and more expensive; as the budget increases show. While in contrast who Kaiser Sosa is, only required good writing and execution, so could be made for far less.

Since knowing the financials of the industry is, at least to me, impossible to really know, I tried comparing movies with the auto industry to chart success or failure, based on how well the industry fulfills the function it is suppose to. And i'd think it fair to say movies are at suppose to be stories, and not spectacles, which movies are increasingly today. So based on that i argue the industry is in trouble. A SUV doesn't aid mobility, so it was always going to make for a poor auto-mobile, regardless of how much money it was making during it's popularity.

I would try and correct on saying most of the top grossers of all time have been in the past time years. If you adjust for inflation there's actually only been two made in the past ten years that even makes the top 30. The industry loves talking about how much money it makes, but that's only to sell themselves. But it's mostly BS salesmanship to build hype. But i'm getting that from boxofficemojo.com, maybe someone else has better numbers.

But if you go to boxofficemojo.com/alltime/adjusted.htm?adjust_yr=0&p=.htm for a listing, that can be adjusted to a bunch of different criteria to compare grosses. The Shreks and Spider-Man tend to be near the end of the list though.

And i'm not saying profits aren't high for successful movies, again it's hard to know that i'd argue, only that the movie industry is far far too based on moviegoers going to see a few movies a year. I make the case in my article, in Failure is Possible, that these few successful movies become successful not by standing above other movies, but by simply 'hogging' so much attention and moviegoers from any other movie, that no other movie could compete. Which hurts the industry as a whole because its suppose to tell stories to everyone, not just those who went to see Avatar or Spider-Man.

Anyway, I can talk about this stuff all day, so ill just stop for now.

Cheers,



take2la's Avatar
A two-year-old what?
Don't forget the ancillary markets of DVD sales and PPV. These are typically negotiated per global region or continent. As the film will typically do better and better world wide as it is released so to will the sales market contracts be more and more lucrative as the release widens. Then every few years a re-release will bolster those numbers for as long as the life of the film.
I know of relatively small films which might not have made their money back in initial release in one country ending up with 50-75 MILLION $$ in world wide sales by the end of their market life.



Registered User
I hear ya, that's why discovering profitability is so damn hard. Look at It's a Wonderful Life, was largely a bust, and then later became hugely popular, but only after its copyright expired. Now its shown every Christmas for free.

As for creative accounting, Disney just lost a case with how it paid the creator of Millionaire, who is now owed 270 million.

http://articles.latimes.com/2010/jul...isney-20100708