A primer about movie economics

When Skyfall, the 23rd James Bond movie comes out this fall (October in the U.K., early November in the U.S.), some fans will check news accounts concerning ticket sales in movie theaters. Last year, the the i09 Web site provided a primer about movie economics that 007 fans may want to consult if they want to determine the financial bottom line for Skyfall.

A few of the pointers:

The final cost of a movie goes beyond its production budget: Michael G. Wilson and Barbara Broccoli, the Skyfall producers, have hinted that the film’s budget is about the same as the $230 million budget for 2008′s Quantum of Solace. They haven’t provided any figures, but they are presumably aware of the reported outlay for Quantum (if they’re not, that raises the question of how well they’re doing their jobs). By not denying Skyfall costs the same as Quantum, they are implying Skyfall’s outlay is about the same.

In April, Skyfall star Daniel Craig said movies generally cost as much to promote a movie as it takes to film it.

The io9 primer takes it a step further:

(T)he Print & Advertising (P&A) costs of a movie can be incredibly high — for a small $20 million film, the promotional budget can be higher than the production budget. That’s because those films are often romantic comedies or kids’ movies, which are cheap to make but still need a lot of promotion. For a film which cost between $35 and $75 million to make, the P&A budget will most likely be at least half the production budget. And the numbers only go up with bigger films.

Studios don’t get as much of a cut of opening weekend ticket sales as they used to: Again, from io9:

Nowadays, with many of the bigger Hollywood blockbusters, the theater chains just get a standard cut of the whole revenue, regardless of which weekend it comes in.

(snip)

So as a ballpark figure, studios generally take in around 50-55 percent of U.S. box office money.

For studios, international ticket sales aren’t as profitable as U.S. ticket sales:

So if a film does incredibly well overseas but flops in the U.S., does that make it a hit? As with everything else to do with box office, the answer is “it depends.” But generally, domestic revenue seems to be be better for studios than overseas revenue, because the studios take a bigger cut of domestic revenue.

According to the book The Hollywood Economist by Edward Jay Epstein, studios take in about 40 percent of the revenue from overseas release — and after expenses, they’re lucky if they take in 15 percent of that number.

So why is all of this significant? For 007 fans, there are a few reasons:

Quantum of Solace cost almost as much as a later Harry Potter movie. The later Potter films cost about $250 million to make, just $20 million more than Quantum’s reported production cost. Potter movies generated worldwide ticket sales of as much as $975 million each. The top-grossing 007 film was 2006′s Casino Royale at $596 million.

Fans often cite how Bond films get the majority of their ticket sales outside the U.S. That’s been truce for quite some time. But for Metro-Goldwyn-Mayer and Sony Corp., which actually pay the bills (not Eon Productions), that may not be as reassuring as it sounds. Put another way, despite whatever studio bosses say in public, they’d like to see a higher level of U.S. ticket sales for Bond movies.

007′s overseas box office power is still important: Other studios would like to follow the Bond model and have higher non-U.S. sales. Again from io9:

But still, overseas box office does matter, more and more. And stars who have a huge global following are more likely to open a movie than ones who are only famous in the U.S. — just look at the fact that the world-famous Tom Cruise is still starring in movies, despite his ongoing backlash in North America. Mumpower points out that Cruise’s Knight and Day only made about $76 million in the U.S., against a production budget of $117 million. But since Knight and Day made $262 million overseas, chances are it will end up being profitable once home-video revenues are factored in.

So what’s the bottom line? Skyfall’s ultimate financial success won’t be determined only from its U.S. opening, or even its final worldwide ticket sales.

For example, The Girl With the Dragon Tatoo, another movie starring Daniel Craig, had a reported budget of about $100 million and worldwide ticket sales of almost $300 million. Yet, MGM (which, like with Skyfall, co-financed the film) disclosed in March the movie was a money loser. Skyfall’s bottom line may also be more complicated. In any event, all of this is something to keep in mind when Skyfall hits theaters later this year.

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4 Responses

  1. One factor overlooked – talent can take away % points from the profits too. Not all of that ‘profit’ lands at the studio. Although their often criminal accounting practices tries to make sure it stays there as longs as possible. (Warner Bros still report Harry Potter making a loss….)

    The profits are in the tail: home video and television deals. If a movie breaks even before that point, studios would be very happy.

  2. Don’t forget that , being presented in Imax 3D , Skyfall’s tickets will probably be higher a price that one of a ‘ normal ‘ movie . Which may – or not – influence its success amongst the general audience too …

  3. They do have a rough formula for figuring if a movie is in the black, including points and such, 1.75 over total cost (Production Budget + Prints and Advertising)

    Example Avengers cost a total of $473.2M (including P&A), it will make over 2 billion (from all sources) giving it a 4.24 ratio.

    MIB 3 is probably in the same ballpark cost wise as Skyfall and needs $687.2M.
    And this is only for breaking even. Probably needs more because a big name is producing it (Spielberg) and Will Smith is probably getting more than another actor would.

    http://www.deadline.com/2012/06/the-avengers-soars-but-battleship-and-the-dictator-sink-in-profit-tally-kagan/

  4. Another point not mentioned in the article is how much $$ Bond pictures get in promotional tie ins. The production of TND (100 million) was completely finnicaed by product endorsements. When taking into account the cost of making a Bond film, you need to remember that sometimes up to a third or more of that cost is being paid for by endorsements thus bringing down the actual cost of the movie for MGM. This means a Bond picture can spend less on promotional cost AND has a smaller studio cost so they make more money for the studio and EON than a typical movie with the same production cost.

    Also, SkyFall will not be in 3D but it will be in IMAX

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