Making Sense of B.O.

We hear all the time about the economics of filmmaking--that this movie cost this much, that it made that much. But a lot of the talk strikes me as far, far removed from even the best known realities of the business.

Movies cost far more than their production budgets--and their backers make less than their grosses at the box office. On the one hand, marketing and promotion budgets are much less often announced than production budgets, but are often as large. The result is that the producers of a $150 million movie may be thought to have spent twice that much when the distribution costs are taken into account.

Meanwhile, studios get maybe forty to fifty percent of the gross of a film.

This means that instead of a $150 million movie earning $200 million making a solid $50 million profit, it may have actually left the backers $200 million in the red--because they spent $300 million, and only got back $100 million, or even less.

Yet, it is worth remembering that film production and other costs are often offset from other sources--like product placement, and even government subsidy. (The makers of Thor 2 got a tax rebate worth some $30 million from the British government.) It is worth remembering, too, that domestic and foreign box office are not always clearly distinguished by commentators, and the foreign markets ever more important, particularly as key large markets (e.g. China) have become more affluent. (Warcraft made $47 million in the U.S., almost ten times as much globally--with about half the total gross earned in China alone.) At the same time, the box office is not the only source of revenue--there being video and TV rights, and merchandising, which can add mightily to the total, and so turn a flop into a moneymaker much more often than might be imagined, especially if one thinks in longer than "this-quarter, next-quarter" terms. (Hudson Hawk, the most notorious flop of the summer of '91, managed a profit five years after its release--but the point is that it did manage it.)

And all that is without getting into the creative bookkeeping in which studios have been known to engage regarding the costs, which remind all involved to take their cut of the gross, not the net, if they can. (Paramount's claims about the profitability of Forrest Gump were quite the story at the time.)

All this is a reminder that like many another industry, for all that we hear about, filmmaking is less transparent than it appears. It is also a reminder not to expect a streak of underperforming films--of sequels nobody asked for and which it turned out the public really didn't want--like 2016's rather long streak of them after the hit-packed spring (X-Men, Alice, the Turtles, Independence Day, etc.)--to have too much effect on how Hollywood does things. The sheer variety of ways of fraying costs, and of revenue streams to tap, as well as the lack of any other business model Hollywood might find remotely attractive given its bottom-line priorities and the reality of a film business that makes the high-concept blockbuster more than just an exercise in business cynicism, are likely to keep it at the present game for a long time to come.