For Hollywood, not all box office Dollars are equal. Summer sees TF4 trading dollars for cents in China

[grim22]

Really good article in the WSJ (subscription required). I will quote the relevant portions.

 

http://online.wsj.com/articles/for-hollywood-not-all-box-office-dollars-are-equal-1409241925

 

 

"Transformers: Age of Extinction," released last month, made just over $1 billion in movie theaters around the world, about the same as its predecessor, 2011's "Transformers: Dark of the Moon."
 

But not all box office dollars are created equal. The recent film will likely generate tens of millions of dollars less in revenue for Viacom Inc. VIAB +0.21% 's Paramount Pictures than the previous installment in the hit series. The reason: "Age of Extinction" took in far less than its predecessor in the U.S. and Canada—and far more in China.

The cut of each box office dollar that studios take varies from as little as 25 cents in China to about 50 cents in the U.S. On top of that, more-developed nations have robust DVD, digital and television markets that generate additional revenue following a movie's run in theaters. Developing countries, as well as ones with high piracy rates, have small or virtually nonexistent post-theatrical businesses.

"A dollar of box office is not a dollar of revenue," said Bill Block, chief executive of film finance and production company QED International.

A U.S. movie that sold $100 million of tickets domestically would allow a studio to collect about $50 million during its theatrical run, but over the next decade could bring in another $125 million ifrom sources including DVD sales, video-on-demand, and airings on HBO, basic cable and Netflix.

Russia and South Korea generate about 55 cents per box office dollar, according to the studio analyses, while Japan brings in 83 cents and the U.K. $1.30 over about a decade.

Box office is a strong, though imperfect, predictor of DVD sales. In addition, higher ticket sales typically trigger higher payments, up to a cap, for future TV airings.
 

This summer's "Transformers" took in $244 million in the U.S. and Canada—a low for the series and a full $108 million less than the previous installment in 2011. In China, meanwhile, where Paramount signed several partnerships in a major push for the movie, "Age of Extinction" made $301 million, compared with $165 million for "Dark of the Moon."

Combined, that's a $28 million gain in ticket sales for "Age of Extinction." In terms of ultimate revenue to Paramount, however, it is expected to lead to significantly less.

Despite the apparent drop in revenue, "Transformers: Age of Extinction" is the highest grossing movie world-wide so far this year and almost certainly profitable.

"The Amazing Spider-Man 2," from Sony Corp.'s 6758.TO +0.49% Sony Pictures Entertainment and "Edge of Tomorrow," from Time Warner Inc. TWX +0.26% 's Warner Bros., also underperformed in the U.S. and made more in foreign countries with less-favorable box office splits and smaller home entertainment and television businesses.

"Trading U.S. dollars for dollars from other countries typically means your profitability is not as strong," said a senior executive at a major studio.

Sony's "22 Jump Street" took in less than "Edge of Tomorrow" world-wide—$304 million versus $364 million—but will likely bring in significantly more revenue. That's because the comedy sequel collected $190 million domestically, while the science-fiction film starring Tom Cruise made just $100 million in the U.S. and Canada.

Despite the smaller revenue opportunities, studios are expending more effort to reach moviegoers in fast-growing foreign markets. Their goal is to find new audiences in China, Russia and Brazil without losing viewers in the U.S., where theatrical attendance has been roughly flat for the past decade.

Marketing costs also tend to be lower overseas, particularly in China, where government restrictions forbid most studio-sponsored advertising.

Although physical DVDs are unlikely to make a comeback, film producers are betting that as moviegoing increases in foreign countries, other post-theatrical businesses such as digital distribution and television will grow significantly in coming years, increasing the ultimate value of a box office dollar.

 

[Jandrew]

But yet Hollywood is feeling its a necessity to kiss Chinas feet.

[CloneWars]

I feel the author is probably overly speculating and ill-informed. I mean, he states that TF earns about a 50% DOM take, but that is BS. It should be closer to 80% like it is for most big blockbusters.

 

I remember reading somewhere that Paramount was able to work out a good deal where they made a decent sum of money from China. I think around 33% or $100M which is pretty good when all is considered.

[lab276]

But yet Hollywood is feeling its a necessity to kiss Chinas feet.

Anything is better than nothing right?

[lab276]

I feel the author is probably overly speculating and ill-informed. I mean, he states that TF earns about a 50% DOM take, but that is BS. It should be closer to 80% like it is for most big blockbusters. I remember reading somewhere that Paramount was able to work out a good deal where they made a decent sum of money from China. I think around 33% or $100M which is pretty good when all is considered.

About 50% would be correct.

[CloneWars]

About 50% would be correct.

Source?

 

Last I heard most big profile Blockbusters earn 80% and in some cases 90% of the DOM haul and theaters make money from concessions.

[grim22]

Source?

 

Last I heard most big profile Blockbusters earn 80% and in some cases 90% of the DOM haul and theaters make money from concessions.

 

That used to be the case but then theater chains started going bankrupt due to that. Now it is a 50-60% split uniformly across all weeks (contracts may be different/negotiated by studio and movie). Here is a breakdown, will see if I can find the actual source I had read a couple of weeks ago.

 

http://io9.com/5747305/how-much-money-does-a-movie-need-to-make-to-be-profitable

[Accursed Arachnid!™]

Don't studios make a bigger % in the first two weeks then give more to theaters after that?

[Mulder]

Don't studios make a bigger % in the first two weeks then give more to theaters after that?

That's what I thought as well.

[Accursed Arachnid!™]

Great article BTW. It shows that with sequels that drop in the US but increase OS and WW overall are basically making the same or less for studios.

 

The law of diminishing returns really hasn't changed, it's just a lot easier to cover up.

[dashrendar44]

That article made the boasting about TF4's ginormous gross in China kinda tamed since Paramount won't likely earn a massive chunk out of it compared to the same sum being earned in NA.

[Water Bottle]

Don't studios make a bigger % in the first two weeks then give more to theaters after that?

Yes. The studios also pay for the overhead of the screen.Anyways earning even 30 cents for a Chinese ticket might seem like nothing but when you add the tickets up, it's a huge gross.

[baumer]

He also doesn't site a source.  And I read that because there was so much Chinese participation in T4, that the take is much higher than 25%.  I think it was about 35-40%.  So unless he wants to tell us his source, I'll stick with what I've read elsewhere.  

 

To me, it's just another article that seems to have a beef with Bay and the Transformers brand in general.

[Jessie]

Source? Last I heard most big profile Blockbusters earn 80% and in some cases 90% of the DOM haul and theaters make money from concessions.

55% is the figure I usually see

[Jessie]

He also doesn't site a source.  And I read that because there was so much Chinese participation in T4, that the take is much higher than 25%.  I think it was about 35-40%.  So unless he wants to tell us his source, I'll stick with what I've read elsewhere. To me, it's just another article that seems to have a beef with Bay and the Transformers brand in general.

Any film this year would kill to have made 240m in US, 300M on China and a further 500m OS. When all said and done it's probably took on around 475m worth of profit. Take away the budget and advertising and they've got about 150 - 200m in their pocket with DVD sales still to come. Not bad for a years work.

[Walt Disney]

This article summed up nicely what I have learned elsewhere about the way that studios split the gross domestically and OS. It's good to have it all in one place. The only thing that the author failed to mention (but some other people already added) was that for some big blockbusters some studios get a larger percentage of the gross for the first 2 weeks.

 

This is why OS numbers really don't interest me as much. I really only care about domestic.

Edited August 28, 2014 by Walt Disney

[baumer]

This article summed up nicely what I have learned elsewhere about the way that studios split the gross domestically and OS. It's good to have it all in one place. The only thing that the author failed to mention (but some other people already added) was that for some big blockbusters some studios get a larger percentage of the gross for the first 2 weeks.

 

This is why OS numbers really don't interest me as much. I really only care about domestic.

 

Then you're missing the big picture.

[Walt Disney]

Then you're missing the big picture.

 

Not really. The big picture for me personally is to measure how films are performing in the big historical picture. Therefore, I compare domestic adjusted grosses and look at trends. That's my preference and what I care about.

 

The OS market has flaws that make it unsuitable for the type of analysis that I enjoy performing. I am not interested in OS numbers because the markets are always expanding and the studios receive various percentages of grosses from different countries. $300M in China is not the same as $300M in the UK. A person could go crazy trying to compare the studios percentage of each countries' gross, which is why this analysis is never done, and I have no desire to even attempt it.

 

With the way that the exchange rates keep fluctuating, it is impossible to adjust OS numbers for inflation. Thus, the newest movies are usually the highest. This makes new WW records easier to attain as well. Lots of people enjoy that because there are always records being broken. However, I don't find that it adds anything to the big picture. It's just not interesting to me. I'm not missing the big picture at all. I am just interested in a different aspect of the BO than you are.

Edited August 28, 2014 by Walt Disney

[DeeCee]

Rth has post about the studio/theatre revenue breakdown many times. The studios on average get roughly 50-55% in North America.

[DeeCee]

Not really. The big picture for me personally is to measure how films are performing in the big historical picture. Therefore, I compare domestic adjusted grosses and look at trends. That's my preference and what I care about. The OS market has flaws that make it unsuitable for the type of analysis that I enjoy performing. I am not interested in OS numbers because the markets are always expanding and the studios receive various percentages of grosses from different countries. $300M in China is not the same as $300M in the UK. A person could go crazy trying to compare the studios percentage of each countries' gross, which is why this analysis is never done, and I have no desire to even attempt it. With the way that the exchange rates keep fluctuating, it is impossible to adjust OS numbers for inflation. Thus, the newest movies are usually the highest. This makes new WW records easier to attain as well. Lots of people enjoy that because there are always records being broken. However, I don't find that it adds anything to the big picture. It's just not interesting to me. I'm not missing the big picture at all. I am just interested in a different aspect of the BO than you are.

If studios only looked at movies like that they would never have production budgets over $100m. It's a global market now.