Taking Back Tinseltown: How the Money Works — Part 3

Entertainment journalists judge movie success or failure on ticket sales. Avatar made billions in theaters, so it was a success. Leap Year made about $30 million so it was not.

Journalists then compare a film’s budget to its box office intake to determine whether or not a film commercially “made it.” Leap Year cost about $19 million to make, so it still “made” $9 million. Actually, at this point, Leap Year is in the hole.

Edward Jay Epstein clarifies in “The Hollywood Economist“:

“[Box office gross] numbers are misleading when used to describe what a film or studio earns. At best, they represent gross income from theater chains’ ticket sales. These chains eventually rebate about 50 percent of the sales to a distributor, which also deducts its outlay for prints and advertising (P&A). In 2007, the most recent year for which the studios have released their budget figures, P&A averages about $40 million per title – more than was typically received from American theaters for a film that year.”

Additionally, distributors take between 15 to 33 percent of box office sales as a distribution fee. Let’s use an easy 20 percent. Based on that, let’s look at Leap Year’s intake. $30 million suddenly becomes $15 million after the theater chains get their cut. Then let’s deduct $40 million from that and we are currently sitting at $25 million in the hole. Oh yeah, it also cost $19 million to make, so we’re sitting at $44 million in the hole. Minus another $6 million for the distributor, so we’re sitting at a cool $50 million lost. If you have seen Leap Year, you would agree that the final product wasn’t worth that financial loss.

Let’s look at a more successful film. Here’s an article about Kick-Ass. The article claims Kick-Ass will make money because it brought in $37 million on opening weekend. According to the article, Kick-Ass cost about $30 million to make, so it’s made $7 million already. But what have we learned so far? 37 divided by two equals 18.5, minus 40 equals -21.5, minus 30 equals -51.5, minus the distributor’s 8 equals -59.5 – even worse than Leap Year after week one, though it gained some box office momentum since then.

By now you should see that the box office is hardly a money maker, since movies cost so much to make, advertise and distribute. And if you’ve heard that theaters themselves don’t make their money from showing films then you are right again. They make it from popcorn and soda, and if you think popcorn is saltier in the theater than at home, it is because they planned it that way (the business of theater food is fascinating, but I only mention it here to wet your appetite for Epstein’s book).

Production companies make their money from movies, don’t get me wrong, but it’s from licensing the rights to their films, not from showing them on the big screen. Go to Wal-Mart’s toy and videogame sections are examples of movies exploited in other forms. Moreover, when a film appears on basic television, cable or pay-per-view, production companies make a fortune. According to Epstein, in 2007 studios made about four billion dollars from American theaters, but over $35 billion from things like DVDs, foreign distributors and TV. Intakes from these avenues only become available through a financial record known as a “distribution report” several years after the film is released, making it irrelevant for journalists who have by then moved on to new films.

In the future, distribution costs should go down, since digital media is much cheaper than reel, and because digital platforms are replacing reels. With lower distribution costs, independent producers and filmmakers can distribute their films to a wider audience, and production companies should make money from theaters again.

A final note that I’ll address further later: TV rights are purchased in advance of a film’s release, often in a block with other films, meaning that often, the content matters less than the connections (just like in politics).

For conservative filmmakers, this means that a lower budget can go a longer way. A note on TV rights – if your film airs on TV that doesn’t necessarily mean it was a successful film, but probably that your film was picked up with a number of others. Content is important, but as a conservative from Hollywood said at C-PAC this year, don’t make a conservative film, make a good film and your conservative ideals will shine through. Just because a film is liberal doesn’t mean it will be produced, and just because a film is conservative doesn’t mean it won’t. If it’s a good script and has an attached set of players, then it could make the cut. In Hollywood, as in D.C., a filmmaker and producer’s contacts and business savvy matter more than the message of the script. And in both messaging and business, I believe capitalist conservatives ultimately hold the winning hand.