Saturday, April 24, 2010

Financial Break-Down

So explaining stuff like this helps reinforce what I know and someone might find it helpful, so here goes.....

In determining the financial breakdown of money received for a movie, it's essential to understand the basic terms.

Box Office: This is synonymous with ticket sales, or the amount of money a movie earns in movie theatres based on sales of tickets. The movie theatres collect this money and share it with the movie studio. Total Box Office gets divided approximately fifty-fifty by the theatre and the studio.

Film Rentals: The movie studios and theatre owners have agreements which vary from movie to movie and can get quite complex. HOwever, anyone can get a rough estimate of film rentals by dividing the box office in half. This doesn't work for the first week or two of a release, but proves accurate only in considering the long run of the movie in theatres. A movie may open to $70 million and wind up at $200 million after a three month run. The studio probably receives around $100 million in film rentals.

Distribution Fee: For theatrical release of movies in North America, the movie studio deducts a fee of 30-33 1/3% on most movies. They deduct this from the film rentals to cover the studio's expenses distributing the movie. Essentially, the studio charges the movie revenues for its management and overhead (money it takes to run studio). A producer who finances movies in a long-term deal with the studio can negotiate a lower distribution fee, perhaps 15-20% if they are lucky! Or, George Lucas might negotiate a distribution fee of 10% for writing, directing, producing, and financing "Episode One: THe Phantom Menace" and having 20th Fox distribute it (people like that can pretty much get whatever they want because studios know they are still going to get a huge chunk of money!)

Gross: This must always be defined. Generally, gross definitions are based on film rentals and not on box office or ticket sales. While people often say, "Titanic" grossed a billion dollars, they mean ticket sales, or box office, not film rentals, which probably came closer to five hundred million dollars.

Gross From Dollar One: Key players on a film can often negotiate to get a percentage of the first dollar gross, meaning they get a cut of the film's film rental before the studio recoups the production costs.

Marketing Costs: Sometimes called "P&A", for Prints and Ads, this money goes towards advertising for the movie as well as purchasing prints for the theatres which will screen it. The budget for P&A will rise and fall depending on the studio's expectations for the movie's success.

Saving Private Ryan cost 65 million dollars to make and the studio spend 35 million dollars in marketing. Both Steven Spielberg and Tom Hanks receive 25% of the gross at dollar one. The movie makes 400 million dollars worldwide.

So the film rental on this baby would be 200 million (approx half of box office). Both Spielberg and Hanks receive 50 million (25 percent of $200). That leaves a 100 million. Then the studio deducts a 30% distribution fee. So 70 million remain to cover the negative costs (production & marketing)....but alas! Those add up to 100 million, and they only have 70!

In conclusion, even a blockbuster like Saving Private Ryan can leave a studio in the negative!

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