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And Now for Some Real Science Fiction … Studio Math!

Today’s question, about last week’s unfortunately-not-big science fiction film:

I read that in order for John Carter to turn a profit, it would have to make something like $600 million at the box office. But the movie only cost $250 million to make. Why does it have to take in so much more to make money?

Leaving aside the amusing irony of the word “only” in regards to a
film with a $250 million production budget, this is a fair question. To
answer it, we need to follow the money. When you pay your $7.83 (on
average in the U.S.) for your movie ticket to see a science fiction (or
other type of) film, what happens to the money? Well:

Some of it stays with the theater — although how much depends on what
week it is. The first week a film comes out, a distributor will take up
to 95% of the box office gross, minus a small flat fee to help cover the
cost of running the theater. The second and additional weeks the
theater is usually allowed to keep more of the ticket cost, but of
course generally speaking each additional week a film is out, the less
money comes through the door. That said, some rare films bring
significant amounts of money week in and week out; it took Avatar nine weeks to take in less than $30 million a week at the box office.

Hollywood, the perfect film would run one week in the theaters and
makes $300 million; for theater owners, the perfect film would make the
same amount of money over the course of three months. This slicing of
first-weekend grosses explains a) why Hollywood spends so much to get you into the theater that very first week, and b)
why movie concessions are so damn expensive — because it’s the popcorn
and soda that keeps the theaters profitable, not the films.

After the theater takes its cut, you might think the rest of the money
goes back to the film studio — and sometimes it does, if the film
studio is also the distributor of the film, i.e., the company that makes
sure copies of the film get to the theater (and later, get out to
physical and digital stores for home video sales). If the studio is not
the distributor, however, the distributor gets a slice of the profits,
the amount varying according to the deal the studio cuts with the
distributor. For example, the studio behind the Star Wars
prequel trilogy was LucasFilm; 20th Century Fox merely handled the
distribution, for which it received a modest fee (relatively speaking).

avoid this cut, most major studios also have distribution arms,
particularly in the domestic market. They also often have international
distribution companies, but that arena is complicated both by local laws
(some countries require films to be distributed by local distributors)
and by business — studios might choose to sell distribution rights for
upcoming films upfront in exchange for cash, which then gets funneled
into the production cost. This lowers the studio’s financial exposure
but also means they’ll lose out if the film is a big hit

3. In addition to the theaters and the
distributors, studios also have to pay profit participants — producers,
directors, and actors whose payment is a percentage of the profit, not
just a flat fee. This is sometimes “gross participation” — in which
payment is based on box office receipts, not what comes back to the
studio — but those deals are more rare today than they used to be.
Nevertheless, these deals can scrape tens of millions off what the
studio can claim for its own at the end of the day, particularly if a
big star or director is involved. Steven Spielberg, for example, is
rumored to have made a quarter billion dollars off of Jurassic Park, mostly through gross and profit participation.

it all up and movie studios, which bear most of the cost of producing a
film, will see about half of the box office take come back to them,
from which they will need to recoup production costs as well as
marketing costs, which can run into the tens of millions of dollars.
Bear in mind that the specific calculus on each film is going to be
different — the math on The Avengers, with its big budget, cast
of stars, big-name director, and complicated back end (Marvel is owned
by Disney), is going to be different than the math on The Hunger Games,
which features no “A”-list stars or director, and a relatively modest
$75 million budget — but the studio getting half back is a decent rule
of thumb.

Another decent rule of thumb: For a film to eventually
be (financially) successful, it should probably make back its production
cost in the domestic market, which will hopefully allow for the
international markets (and then home video) to carry it into the black.
This works especially well with science fiction and fantasy films, which
now often make something like two-thirds of their box office overseas.

And now we see why $600 million is not actually an outrageous number for John Carter’s profitability — and won’t be a bad number for The Avengers either, which apparently cost between $220 and $260 million. Those are crazy numbers, but when they pay off, they pay off big.

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