Wednesday, March 16, 2011

Predicting Revenue Streams & Participation

I've always enjoyed math and puzzles and loved learning about how to predict a film's revenue streams and calculate participation. I thought I'd share a sample problem and go over how to work it out.

Setup: Your Aunt Alice has produced an action-adventure movie just released through a major studio. The film had a direct cost of 72,500,000, and features the internationally renowned star, Larry Auerbach, who received $12,500,000 against 15% of first dollar gross. The picture had an encouraging theatrical opening; initial estimates are that the picture is likely to generate $225,000,000 in domestic box office grosses based on a domestic distribution expense budget of some $60,000,000. Scenario: As a graduation present, Aunt Alice would like to give you 20% of Net Proceeds, but she wants you to predict what that would be before handing it to you.

Okay! So just from the Domestic Gross ($225,000,000) we can determine several things.

As you know, exhibitors (theatres) take a cut of the domestic gross....this usually breaks down as 50% to exhibitors and 50% to studio. So if domestic gross is 225,000,000, we can determine the studio's cut (gross receipts) to be $112,500,000 (50% of 225,000,000).

Domestic Box Office Gross Receipts: $112,500,000

Generally how it works is that REVENUE is made up by 42% Home Video, 38% Theatrical, and 20% Television.

So if 38% is $112,500,000, with a simple proportion we can determine that 42% would be 124,342,105-->rounded to $125,000,000. And 20% would be 59,210,526-->rounded to $59,000,000.

Since Free TV usually accounts for twice as much Pay TV....I broke the total Television Revenue of 59 mil, down to 20 mil for Pay TV & 39 mil for Free TV. This is a bit arbitrary, so you have to just make a good estimate.

Domestic Box Office Gross Receipts: 112.5 mil
Domestic DVD Revenue: 125 mil
Domestic Free TV: 39 mil
Domestic Pay TV: 20 mil

Now let's look at predicting INTERNATIONAL BOX OFFICE. Because the movie is an action-adventure film, which usually do really well overseas, I'm going to estimate that the film will do a little bit better in the international box office. So let's say it does 120% of domestic gross.

120% of 225,000,000 (Domestic Gross) = 270 mil = International Box Office

50% of 270 = 135 mil = International Box Office Gross Receipts

So using our 38%/42%/20% breakdown with 135 mil (International Theatrical--38%), we can determine International Home Video to be 149,210,526-->rounded to 149 mil. And International TV to be 71,052,632-->rounded to 71 mil. We then break down that 71 mil to 25 mil to International Pay TV & 46 mil to International Free TV (Free TV does approx twice as much business as Pay TV).

So here is what we have determined thus far:

Domestic Box Office Gross Receipts: 112.5 mil
International Box Office Gross Receipts: 135 mil

(a) Domestic Box Office: 225 mil
(b) Domestic DVD Revenue: 125 mil
(c) Domestic Free TV: 39 mil
(d) Domestic Pay TV: 20 mil
(e) International Box Office: 270 mil
(f) International Home Video: 149 mil
(g) International Pay TV: 25 mil
(h) International Free TV: 46 mil

Other Given Information:

Direct Cost of Film: 72.5 mil
Gross Participation: Actor receives 12.5 mil against 15% of gross proceeds
Distribution Expenses:
Domestic: 60 mil
Estimate International: 75 (we can assume that international will be a little higher for
an action-adventure flick)

Now the first step is to 1) Determine Gross Receipts:

(a) Domestic Box Office Gross Receipts: 112.5 mil (50% of Domestic B.O.)
(b) Domestic DVD Gross Receipts: 25 mil (this is always 20% of Total Home Video...years ago
with VHS it was determined that 20% was the
intellectual property value, the other 80% stays with
the DVD manufacturers)
(c) Domestic Pay TV Gross Receipts: 20 mil (no computation, total revenue goes to studio)
(d) Domestic Free TV Gross Receipts: 39 mil (no computation, total revenue goes to studio)
(e) Intl Box Office Gross Receipts: 135 mil (50% total Intl Box Office)
(f) Intl DVD Gross Receipts: 29.8 (20% of Intl Home Video)
(g) Intl Pay TV Gross Receipts: 25 mil (no computation, total revenue goes to studio)
(h) Intl Free TV Gross Receipts: 46 mil (no computation, total revenue goes to studio)

Add that all up for...


2) Compute Distribution Fees

(typically 30% for Domestic Theatrical & TV, 35% Intl Theatrical, 40% Intl TV, NO distrib fee for Home Video Domestic or Intl)

(a) 33.75 mil (30% of the Domestic B.O. Gross Receipts)
(b) NA - no distribution fee for Home Video
(c) 6 mil (30% of Domestic Pay TV Gross Receipts)
(d) 11.7 mil (30% Domestic Free TV Gross Receipts)
(e) 47.25 mil (35% of Intl Box Office Gross Receipts)
(f) NA - no distribution fee for Home Video
(g) 10 mil (40% of Intl Pay TV Gross Receipts)
(h) 18.4 mil (40% of Intl Free TV Gross Receipts)

Add it all together....


3) Determine Distribution Expenses

We were already given the domestic distribution expenses (60 mil) and we estimated the international distribution expenses to be a little higher, reflecting the increase in international box office (75 mil).

Add those together for....


4) Compute Cost of Production

Direct Cost (Budget): 72.5 mil
Studio Overhead: 9 mil (this is always 12.5% of the direct cost)
Interest: 3.8 mil (this is always 5.25% of the direct cost)
Pre-Break Gross Participation: 49 mil (see below to compute)

--> Compute Pre-Break Participation:
Gross Proceeds: 410 mil --> determined by taking TOTAL GROSS RECEIPTS (432.3 mil) and subtracting 5% for "Off the Tops" (goes to MPAA dues, residuals, taxes & conversion costs, etc)

15% of Gross Proceeds (as determined in contract, see setup): 61.5 mil (15% of 410)

61.5 mil MINUS 12.5 mil already paid to Larry = 49 mil

Add it all together for....


5) Compute Net Proceeds:

Gross Receipts --------------------------------------> 432.3 mil
Distribution Fees -----------------------------------> 127.1 mil
Distribution Expenses -----------------------------> 135 mil
Cost of Production/Gross Participation ----> 134.3 mil

NET PROCEEDS = 35.9 mil

MY PARTICIPATION (20% Net Proceeds) = 7.18 million dollars


  1. Wow... That's a great calculation and very informative for a novice like me. Hi, I am Raj from India, planning to make an animation feature in English and Indian languages. Wandering the web for some serious revenue avenues and break ups for a movie in Hollywood. Your article is definitely one of the most informative. Jus wanted to know what would be the practical issues here. Where could this model be wrong in reality. Pls feel free to write to me at Thank you.

  2. I am doing similar calculations. It would be helpful to me to know your source for your percentage breakdown of 38/42/20.