How Movies Make Money
From afar, the movie industry appears to be quite attractive. Celebrities and producers walk down red carpets, clutch their Oscars, and take vacations to St. Barts simply because they can. About ACFA nowadays there offer an easy loans for filmmakers that can be use to make there next movie project.
While there is a lot of money to be made in the film industry, the economics of filmmaking are far from straightforward.
“Nobody knows anything,” you’ll probably hear if you go through the halls of any movie studio.
That is correct. The general public is fickle, and the sector is in transition. Even a film starring big-name actors and actresses is a high-risk venture. Theatrical box office in the United States and Canada was $2.2 billion in 2020, according to the Motion Picture Association of America’s (MPAA) Theatrical Market Statistics Report, down 80% from the previous year. Due to the COVID-19 epidemic, the global box office for films fell to $12 billion in 2020, down 72 percent from 2019.
It’s not as simple as it was in the early days of cinema when a film would be released in cinemas, make the bulk of its money from ticket sales, and then vanish. Because ticket sales are no longer the be-all and end-all for films, major studios and indie filmmakers alike now spend most of their time hunting for new streams of cash. Unfortunately, with most theaters set to close in early 2020, alternative sources of revenue are more crucial than ever.
Costs and Budgets for Films
Large studios do not reveal their films’ complete expenditures (production, development, marketing, and advertising). This confusion partly occurs because making and marketing a film costs significantly more than most people expect. The budget skyrockets after marketing and advertising charges are factored in.
Indeed, the price of print and advertising (P&A) alone can be prohibitively expensive for many films. A $15 million picture, which is considered a low-budget film in Hollywood, could have a more enormous promotional expenditure than its production budget. Many films that don’t have a built-in audience (such as those based on bestselling books like “The Hunger Games” or even “50 Shades of Grey”) require a method of attracting people to the cinema.
TV and media advertisements are required for romantic comedies and some children’s films, and these costs mount up quickly. The P&A expense for a film with a budget of $40 to $75 million might be more than $20 million.
Tax benefits and cash from product placements can help pay the bills for any film style, whether it’s a blockbuster or an independent effort. Producers will frequently rush to shoot a film in Canada or Louisiana if provided a financial incentive to do so.
Returning to the adage that “nobody knows anything,” some unexpected successes have been, such as the indie film “Little Miss Sunshine.” When it comes to film financing, that film is a Cinderella story. It was made on a budget of roughly $8 million and sold for $10.5 million to distributor Fox Searchlight at the Sundance Film Festival. In the United States, the picture grossed $59.89 million, which is nearly unheard of for an independent film.
On the other hand, you have the Walt Disney (DIS) film “John Carter”. It had a budget of nearly $250 million but only generated $73 million at the box office in the United States. Because elements such as brand awareness, P&A costs, and the preferences of a fickle public come into play, there is no definite road for a film to make a profit. There are a few tried-and-true methods for making money from movies.
VOD, Streaming, and Television Rights
Once upon a time, DVD sales were all that mattered. Television rights, video-on-demand (VOD), and streaming are now significantly more important.
Because the producer does not have to spend for marketing and P&A, selling TV and overseas rights can be a significant source of profit for some producers. Films must depart the theater at some point, but they can go on in perpetuity on television. How many times have you turned on the television and seen “The Notebook” or “The Shawshank Redemption”?
In terms of VOD, these arrangements should bring in hundreds of millions of dollars to a studio’s bottom line.
There are three VOD release tactics for indie films:
- Day-and-date (pictures released in theaters and on VOD at the same time)
- Day-before-date (VOD before theatrical)
- VOD-only
Many films that don’t have the special effects or big-name stars to attract audiences benefit from this technique.
For Hollywood films, streaming video represents a new source of cash. Although VOD profits tend to dwindle after a few years, movie companies can still make money by licensing older films to Netflix or Amazon Prime. The success of original material on streaming services, on the other hand, is driving people away from traditional cinema.
Sales in other countries
Selling the distribution rights in overseas areas is critical when a producer scrambles to put together a budget for an independent picture. It contributes to the film’s budget and, hopefully, generates money. Independent filmmakers with a great foreign sales agent who can sell their films in major overseas markets can make money.
When casting a film, producers frequently make a “wish list,” which is usually comprised of well-known names who “travel” internationally. You’re considerably more likely to find a partner ready to buy the rights in China and France if your celebrity is Tom Cruise or Jennifer Lawrence.
That doesn’t mean the movie will make millions (or billions), but it’s about as safe a bet as you can make in this business. Some American films earn more money outside of the United States than domestically.
Merchandising Dollars
It all began with the release of Star Wars. Since 1977, when George Lucas’ sci-fi adventure began, the franchise has raked in billions of dollars in toy sales alone, not to mention earnings from third-party licensing. “Star Wars: The Force Awakens” made $700 million in retail sales in 2015.
Obviously, this method does not work for every film. There aren’t many action figures in romantic comedies. On the other hand, Merchandising is a cash cow for big-budget films that appeal to both youngsters and Comic-Con lovers. For example, Disney’s “Toy Story” franchise has grossed billions of dollars in retail sales.
On the other hand, some analysts recommend keeping an eye out for movie fatigue.
Newer forms of entertainment, such as video games and YouTube, are more appealing to children.
Revenue from Ticket Prices
In recent years, theater attendance has been low, making it even more difficult for studios and distributors to profit from films. Typically, a percentage of theatrical ticket sales goes to theater owners, with the remainder going to the studio and distributor.
Traditionally, more money was sent to the studio during a film’s opening weekend. The share of the theater operator increased as the weeks passed. A studio might make roughly 60% of a film’s ticket sales in the United States, with the remaining 20% to 40% coming from overseas ticket sales.
The amount of revenue that an exhibitor receives is determined by the contract for each picture.
Many contracts are designed to assist a theater protect itself from box office failures. This is accomplished by providing cinemas a larger cut of ticket sales for such films, so the studio may receive a smaller percentage of a poorly performing film’s take and a higher percentage of a hit film’s take as part of an agreement. You can see how much of a theater chain’s ticket money goes back to the studios by looking at their securities filings.
Because they receive a higher share of domestic earnings, studios and distributors often make more money from domestic sales than from overseas sales. Despite this arrangement, overseas ticket sales grew more crucial in the early twenty-first century.
Part of the reason you see more sci-fi, adventure, fantasy, and superhero movies is because of this. No translations are required for action or special effects. Whether you’re in Malaysia or Montana, they’re simple to comprehend. Building a worldwide audience for an indie comedy is significantly more difficult.
Final Thoughts
Nobody knows anything in Hollywood, as the adage goes. The film industry is changing, and ticket sales alone aren’t enough to generate cash. Filmmakers, producers, and studios can benefit from merchandising, VOD, streaming video, overseas sales, and a variety of additional distribution methods. Maybe the next “Little Miss Sunshine” is the little indie you invest in! Or maybe not. There are no guarantees in Hollywood.
