There is a common misconception that the average Hollywood movie makes a profit if its box office number exceeds its total production budget. Unfortunately, this is a myth and very far from the truth. Another myth is that movie studios turn a profit from box office revenue. This is usually not true as theatrical releases are as a whole an unprofitable business. In this post, I will attempt to shed some light on the cost of making a Hollywood feature film. Below, you will find a breakdown of the total production cost for Spiderman 2.
TABLE 1: SPIDERMAN 2 PRODUCTION COST BREAKDOWN (SOURCE)
|SCRIPT RIGHTS||Marvel||$20 million|
|PRODUCERS||Stan Lee, Grant Curtis, Laura Ziskin, Avi Arad,|
Joseph M. Caracciolo, and Kevin Feige
|DIRECTOR||Sam Raimi||$10 million|
|Tobey Maguire||$17 million|
|Kirsten Dunst||$7 million|
|Alfred Molina||$3 million|
|Rest of Cast||$3 million|
|PRODUCTION SHOOTING COST||$45 million|
|SPECIAL EFFECTS||$65 million|
|COMPOSER||Danny Elfman||$2 million|
|TOTAL NEGATIVE COST||$200 million|
In this example, the budget was $200 million and most people think that if the total box office amount exceeds that number, the movie would make a profit. However, most people do not know that the studio ended up spending an additional $75 million on marketing and distribution. Simply put, the cost that goes with making a movie are much more than the total production budget than the average people hears or reads about. To understand why, one has to understand one simple formula:
Negative Cost = Development Cost + Pre-Production Cost + Production Cost + Post-Production Cost
The total production cost (aka negative cost) is the price tag that everyone hears about when they say Avatar cost $240 million to make for example. However, the average Hollywood feature film contains 6 stages and the cost of marketing and distribution are not included in the negative cost. Those additional cost can easily dwarf the budget of smaller movies but for your average Hollywood feature movie in the $40-100 million budget range, a good rule of thumb is that marketing and distribution will cost about as much as it took to make the movie:
- Development: Before filming a movie, you need a story. The producer will work on acquiring the script which can be a costly expense. He will also sign a screenwriter to adapt the script into a film and possibly look for a potential director and main cast members so he can get financing on the project (if he isn’t backed by a major studio)
- Pre-production: Once a project gets the green light, this is where the producer will start officially hiring all the cast members, director, cinematographer, set designer, extras and hundreds of technical people needed to actually shoot a movie. All the planning that needs to be done before shooting begins is done here.
- Production: The actual shooting of the film. Expenses includes everyone’s paycheck, the cost of fabricating sets, costumes, stunts and pyrotechnic, traveling, food catering, insurance, equipment, blocking streets off, renting facilities and all other cost related to filming the movie.
- Post-production: After shooting is finished, the movie still has to be put together. This is where the editor comes into play. If the movie needs CGI, the visual effect people might start working here. Another significant cost is scoring the movie with a composer and/or by buying rights to whatever songs the director wants in the movie. This can be quite costly as you may have to pay millions to acquire the rights to play one single song in your movie.
- Marketing (A): Think about a movie that you are looking forward to. Most likely, it was due to some type of marketing that made you aware of it. You might have seen a trailer during a prime-time TV commercial slot, a banner at the mall, advertisement in magazines and newspaper, a virtual ad banner on the internet etc… This is called media buying and is usually a very costly process for your average Hollywood feature because you have to buy ad space and slots in every single market (domestic and foreign) you are planning to release the movie in. All of this at a very specific and simultaneous point in time, further driving up the price. Additionally, think of all the thousands of movie posters and memorabilia that have to be created and then shipped all around the world as well as all the marketing related to selling DVDs and Blu Rays discs a few months later. Marketing a movie is an extremely costly enterprise.
- Distribution (P): A print is the physical copy of the movie that is locked in a metallic box and sent to the movie theater. A single print cost up to $2,000. Multiply that by the number of screens and you can see that it adds up pretty fast. Add the cost of the logistics to produce, store, maintain, send and recover those prints from all around the world and this gets very expensive very fast. Other cost here include things such as sending prints to foreign markets, printing DVDs, Blu Rays etc… Finally, one has to understand that the studio doesn’t recover all the money from the sale of tickets at the box office. The movie theaters get to keep a fraction of the revenue and various residual fees are docked off. In the case of foreign box office, the studios recovers even less money since they often have to find local distributors in those markets who will keep a significant portion of profits.
As you can see, shelling out $50 million or more on Prints and Advertising (P&A) is extremely common for your average very-wide release Hollywood feature. Huge blockbuster movies can easily reach $100 million+ in P&A cost. Ever wonder why some movies go directly to DVD? Because of the astronomical cost of marketing and distribution! If a studio realizes that one of their completed film doesn’t have a good chance of recouping its cost in theater, they will pull the plug on it and decide not to spend any more money on P&A trying to bring it into a theater near you! This is where having a big name movie star or director in the film is a big deal, as studios will usually not give the shaft to those guys even if the movie looks primed to be a bust.
This is a somewhat different case for indie movies. An independent production, by definition, is not backed by a major studio and hence has to look for a distributor after the completed product is finished. The problem is indies are often made with tiny budget ranging from a few thousand to $20 million. Hence the cost of advertising and distributing this kind of movies can completely dwarf its production cost. For that reason, completed indies are often “for sale” or looking for a distributor as you often hear every year around the Sundance independent film festival. For obvious reasons though, only a tiny fraction of those eventually find a distributor (almost always those that are lucky to have a recognizable face or two working at a huge paycut). Also, the distributor usually takes all the profits until a certain threshold (usually the cost of P&A) so you can see how independent movie-makers face an uphill battle to get their movie in theaters, let alone see a dime.
Are you sometime frustrated when a movie only gets a very limited release in a few large cities around the country and then goes to DVD months later? Now you know why! A very wide release (2000+ theaters) is extremely costly and just is not worth it for the very vast majority of independent movies. Unless the indie has a well known actor or actress, solid buzz and broad appeal, it will most likely be unable to secure distribution, let alone a wide release. A way of circumventing this is to secure enough money for both production and P&A cost but obviously, this requires a lot of money, is extremely difficult to do and is extremely risky financially.
So how does Hollywood end up turning a profit year after year? One of the best kept secret in Hollywood is that box office revenue is NOT the main income stream for the six major movie studios. Actually, theatrical releases overall are only a break even business in the best case scenario. DVD sales and TV licensing fees are much more profitable ventures since the marketing and distribution cost are significantly lower and they make for the major portion of studios’ profits. While some people know that DVD sales do make for a significant income stream to the Hollywood studios, few people realize that licensing movies for TV broadcast domestically and abroad is an even more profitable business.
Now, you have a better idea of when the average Hollywood release becomes profitable. Any comments or questions? Leave them below.