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...
TOTAL GROSS RECEIPTS: 432.3 mil
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....
TOTAL DISTRIBUTION FEES: $127.1 mil
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....
TOTAL DISTRIBUTION EXPENSES: 135 mil
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....
TOTAL COST OF PRODUCTION: 134.3 mil
5) Compute Net Proceeds:
Gross Receipts --------------------------------------> 432.3 mil
minus
Distribution Fees -----------------------------------> 127.1 mil
minus
Distribution Expenses -----------------------------> 135 mil
minus
Cost of Production/Gross Participation ----> 134.3 mil
NET PROCEEDS = 35.9 mil
MY PARTICIPATION (20% Net Proceeds) = 7.18 million dollars
