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The third place finisher yesterday, Edge of Tomorrow, is today’s primary topic for discussion. The Tom Cruise movie behaved as expected, increasing 9% from $3.2 million on Monday to $3.5 million yesterday. Its running total inched up to $35.4 million domestically in addition to the $82 million it has garnered overseas thus far. As everybody knows by now, the movie has a massive budget estimated at $178 million. Its negative cost is presumed to be in excess of $225 million. Warner Bros., like most studios, is dodgy about the precise financials of their productions.

What does the above mean in the here and now? A lot depends upon how a person evaluates box office performance. The sloppy rule that most people use is that a film needs a global box office total of double its budget in order to turn a profit. The rule is sloppy for several reasons. The primary one is that the domestic/international revenue split is crucial. As has been repeated ad nauseam here at BOP, studios recoup much less of their overseas box office revenue. The explanation is simple. Foreign countries fight to keep their money inside their borders, just as America does.

Anyone who lives in the United States should be familiar with interstate commerce, the philosophy of which is generally that states love to rob other states of money yet fight like cats and dogs to prevent the opposite from transpiring. International commerce is like that to the nth degree. Plus, there is a perception that America is wealthy enough that it does not need the money anyway. I am not discussing any politics here, simply stating basic human behavior. Keeping it in the family has always been the primary rule of money acquisition, after all.

The box office numbers back this up. In North America, Hollywood studios have sweetheart deals with exhibitors. The body of the opening weekend gross, oftentimes as much as 90%, goes to the studio. The split gradually grows fairer until such a time as it is almost 50/50 (usually 52% for the studio, 48% for the exhibitor). That process takes a month. It is problematic for exhibitors because releases are regularly available for digital purchase/home viewing within 90 days of theatrical release now. So, the studio gets the best part of the deal in every conceivable way.

That business behavior also explains why so many titles are pushed heavily to open well. That early phase of release is when the studio is incentivized to acquire as many early adopting customers as possible. Simply stated, North American revenue provides the best case scenario in terms of box office acquisition. That is strike number one for Edge of Tomorrow, a movie whose best chance of success now is for the extremely positive word-of-mouth to carry it after a truly disappointing opening weekend.

With regards to overseas box office revenue, the percentage of the theoretical ticket sale that is returned to the distributor is much smaller. The starting point is generally 40% and the actual take home was only 15% as recently as seven years ago. Take a moment to consider that. When you hear that a movie has earned $500 million overseas, we are discussing “only” $75 million of actual revenue going to the studio. Even worse is the fact that China starts at 25%, meaning that the second largest movie marketplace in the world also provides the worst percentage return for ticket sales. A distributor is lucky to recoup 10% of a ticket in China, and that presumes they get paid at all. On multiple occasions, the Chinese government has interrupted payments directed toward Hollywood. This feels like the perfect opportunity to point out that $25.7 million (i.e. 31%) of the international revenue for Edge of Tomorrow last weekend was earned in China. Call it strike number two.

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