The Mystery of "Making a Profit"

[ChipDerby]

https://www.yahoo.com/entertainment/men-in-black-profits-ed-solomon-104552239.html?guce_referrer=aHR0cDovL20uZmFjZWJvb2suY29tLw&guce_referrer_sig=AQAAAAY_fS7FHG721mGq90QvfiRyoOcftYHo66-6OyC-AGDV0-FCJvzKeeWZVt1ARjDoAABIEyCqyK-UwcCI3NHhuc_SDiZe9JFQh8BGjH4vvfOL4_Yjg6EF4WTm_S76RVv4sg0hPhfVTyJcqsXKMc2DGQFw71g3kr_BfKTPsGJsXZ1z

 

This article goes into a little detail, but I really wish we would stop using "making a profit' as a metric for film success. Unless you're in an accounting office of a movie studio, or you're a movie executive, you're not going to know the "break even" point.

 

In the article, filmmakers state that according to their OWN earning statements Men in Black, Spider-Man: Homecoming, Order of the Phoenix, The Last Jedi, and Source Code all "lost money".

 

Studios are going to do EVERYTHING in their power to keep all profits hidden. PLEASE stop guessing how much a film needs to gross to "make money". Because whatever you're guessing, the actual number is either much lower, because studios lie, or much higher, because studios steal.

[Walt Disney]

Shawn MR used to say that the general rule is that a film is profitable if it grosses between 2- 2.5 times its budget. That’s the best rule of thumb that we have.

[ChipDerby]

4 minutes ago, Walt Disney said:

Shawn MR used to say that the general rule is that a film is profitable if it grosses between 2- 2.5 times its budget. That’s the best rule of thumb that we have.

 

It's pointless. Because that's wrong. Because you're not going to know the actual budget. You may get a general filming budget, which may or may not include tax credits. Is the 2-2.5 times including marketing? Which we don't know.

 

And again, Source Code had a $32 mil budget, so by our "rule" that would mean a profit at $80 mil. It made $147 mil WW. And the director says the movie is in the red. Because the studio played games and doesn't want to pay out the proceeds to the director.

 

So, again, just stop doing it. It's an impossible task. 

[MrGlass2]

3 hours ago, ChipMunky said:

 

And again, Source Code had a $32 mil budget, so by our "rule" that would mean a profit at $80 mil. It made $147 mil WW. And the director says the movie is in the red. Because the studio played games and doesn't want to pay out the proceeds to the director.

 

So, again, just stop doing it. It's an impossible task. 

Well the studios lying doesn't mean that we can't continue using the x2.5 as a rule of thumb. For many blockbusters, it is easy to know if the studio is happy with the financial returns: a sequel or spin-off happens. And it seems more or less consistent with the x2.5 rule (as long as the domestic share isn't too low). But it is true that we will never know how much of a profit any individual movie will make in the long run, unless there is a leak like Sony or a trial.

Edited January 6, 2020 by MrGlass2

[excel1]

"Hollywood accounting" is a pretty common term.

[Noctis]

To this day I will never understand how some claim that Order of the Phoenix lost money ($167m worth!) when it did $940m WW and its budget was around $150m.

[Macleod]

2 minutes ago, Noctis said:

To this day I will never understand how some claim that Order of the Phoenix lost money ($167m worth!) when it did $940m WW and its budget was around $150m.

Warner Bros. claimed it, themselves!!

[vafrow]

I agree that the concept of profit is far too fluid and subjective to really be a useful phrase. Personally though, I try and look at it from the lens of whether it seems likely the studio would happily makes the same investment again if given the chance. 

 

When a film like MIB gets multiple sequels, the claim that by the studio that it was a money loser is clearly some bookkeeping nonsense. 

 

But, you'll never eliminate that mentality, even if people are using inaccurate methods to assess this stuff. People like to break it down into winners and losers, and profit, eventually just a guess at it, becomes the easiest way to do so. 

[Macleod]

Edward Jay Epstein's written a lot on this stuff over the years...

 

https://www.edwardjayepstein.com/Grossslate.htm

 

https://www.edwardjayepstein.com/Reverseslate.htm

 

https://www.amazon.com/Hollywood-Economist-2-0-Financial-Reality/dp/1612190502

 

He wrote the great piece on Schwarzenegger's contract for T3, and how Jolie's first Tomb Raider was basically in profit before it was even filmed through international distribution arrangements!

 

Essentially, weekend box office is almost an afterthought for many studios, and the last item of profit at all guaranteed during the production process. 

Edited January 6, 2020 by Macleod

[DAJK]

Basically, Hollywood accounting is dirty, and the bottom line is if you ever make a contract with them, don't ever let your cut come out of "Net Profits".

[ChipDerby]

55 minutes ago, MrGlass2 said:

Well the studios lying doesn't mean that we can't stop using the x2.5 as a rule of thumb. For many blockbusters, it is easy to know if the studio is happy with the financial returns: a sequel or spin-off happens. And it seems more or less consistent with the x2.5 rule (as long as the domestic share isn't too low). But it is true that we will never know how much of a profit any individual movie will make in the long run, unless there is a leak like Sony or a trial.

 

Whatever bud, keep doing what you want. But it's wrong.

[ChipDerby]

I get the need to want to quantify your expectations, etc.

 

But we'll never know what numbers a studio will be happy with. We can make our own judgments, but I just think it's kind of pointless to claim a film will "make a profit" at some magic number that we're making up.

[DAJK]

I don't know why ChipMunky seems to be so heated over this, like it seems like he's arguing for something rather than just pointing out a flaw in box office calculating

Were you burned by Hollywood accounting or something? Maybe one of those workers who lost out on a share of LOTR's profits

 

Spoiler

I kid of course, no animosity here :))

 

[excel1]

"After we paid ourselves our $250m fee, there film was actually a loss of $20m. Sorry"

[ChipDerby]

53 minutes ago, DAJK said:

I don't know why ChipMunky seems to be so heated over this, like it seems like he's arguing for something rather than just pointing out a flaw in box office calculating

Were you burned by Hollywood accounting or something? Maybe one of those workers who lost out on a share of LOTR's profits

 

  Hide contents

I kid of course, no animosity here :))

 

 

It just drives me nuts that people will discuss a films success by how much "profit" WE estimate it made.

[AniNate]

If a movie makes 2x its budget, usually the narrative is that it's a success. We'll never know the nuances of it, but that is the general threshold for franchise continuation and/or added filmmaker clout, independent of more intangible factors like awards and critic/audience reception

Edited January 6, 2020 by tribefan695

[CloneWars]

A metric to look at that is hardly ever discussed on this site is merchandising. Star Wars is a merchandising monster and certain Disney properties are merchandising monsters. So, effectively, those films are $200M+ commercials and the money they make at the BO is the cherry on top

[AniNate]

12 minutes ago, CloneWars said:

A metric to look at that is hardly ever discussed on this site is merchandising. Star Wars is a merchandising monster and certain Disney properties are merchandising monsters. So, effectively, those films are $200M+ commercials and the money they make at the BO is the cherry on top

Yes, but even merchandising monster franchise movies can affect business strategy if they flop. The studio would certainly still prefer to have a net positive ROI.

 

Edited January 6, 2020 by tribefan695

[Walt Disney]

2 hours ago, CloneWars said:

A metric to look at that is hardly ever discussed on this site is merchandising. Star Wars is a merchandising monster and certain Disney properties are merchandising monsters. So, effectively, those films are $200M+ commercials and the money they make at the BO is the cherry on top

Cars franchisee, I’m looking at you.

[krla]

Usually people aren't talking about 'profit' as in revenues exceeding expenses. They are simply talking about the 'studios' portion of the theatrical box office exceeding the production budget, nothing more. That's "break even". Many films have a P&A budget that far exceeds its production budget. 

 

And the 2.5 rule isn't very accurate anymore. Overseas cuts can vary a lot. Many of the big studios used to use foreign distributors which cut into their cut. Nowadays, the big studios handle most of their foreign distribution, so they are taking bigger and bigger cuts (but they also have more expenses).

 

Domestically, the cut a studio gets can vary dramatically. Star Wars and other Disney releases can be as high as 67% going to Disney for the first week or two, and then that slides down. Some smaller films/studios will offer to only take like 40% (or less) to get theaters to take their movie. Theaters usually have a 'built-in' amount that they will take to cover their basic expenses, before doing the cut. For a blockbuster like Star Wars or Endgame, that amount is a rounding error. For a small film, that can cut into the studios take quite significantly.

 

 Theaters typically have to pay for copies of the film, which can be a couple grand or more per copy. If they are showing something on 4 screens, the theater could be paying $10k+ just for the film. I wouldn't be surprised if movies like Playmobil made more money from that than they did in total box office. Hell, they may not have gotten anything but that from theaters, lol.
 

As for 'ancillaries' like DVD/home video, streaming, TV rights, etc, that can usually be much more valuable to the studios. And as mentioned, merchandise is a big driver, as well. Toy Story 3 had some $10 BILLION in merchandise sales in its first couple years, and that's why Bob Iger tossed mountains of cash at everybody to do a 4th one. Cars is similar. Same with Frozen.