Part II: Selling a Film
By Walid Habboub
May 26, 2004
Having understood the costs associated with making and selling a film, we can now move onto better understanding the true revenue that a film makes. Much like true cost, few people will know exactly how much money a movie brings in seeing as how revenue streams can differ so greatly from film to film and studio to studio. Our first step in the breakdown is analyzing the domestic box office take, as it is the number we use to gauge a film’s relative success.
The box office number that is reported for a film is the total amount of money people have paid to see a film. This, however, is not how much money the studio accrues for a film. The reason this is the case is that studios have agreements with exhibitors - AKA your local cinema - when it comes to showing films. These agreements outline how the revenue generated by the film will be split between the studio and the exhibitor. Generally, the opening weekend revenue is split at an 80/20 ratio with the studio receiving 80% of the total gates. For their participation, the exhibitors receive their 20%, as well as all the revenue generated from concession sales. As the film’s run continues, the split changes in favor of the exhibitor until it reaches 50/50. This is only a general agreement and is not a standard for all releases. Each release can have its own agreement, with the 80/20 split being the most common. One of the exceptions to this rule was Star Wars Episode 1: The Phantom Menace; the agreement there had the studio receiving 100% of the gates for the first two weeks of release. So while every film is different, considerable variances can be considered the exceptions.
Foreign box office can be a bit more complicated. In places when a studio has a presence in the geography of release, the studio will release the film through its in-house international unit. When the studio is not capable of releasing the film, it will sell the distribution rights to the film to a local entity that pays a lump sum as an advance and a cut of the revenues. In the former situation, the revenue split would be consistent with the domestic gates, while the latter can see the studio get only an advance as well as a cut of the revenues, which in turn are a percentage of the actual gates.
The next step in a film’s life is home video. With DVD sales booming, some films have been known to match their first weekend box office take with their first week of DVD release. The sale of DVDs has become so significant that the tracking of DVD sales has actually become newsworthy, whereas the sale of VHS tapes, DVD’s home-video predecessor, was never of interest to anyone not involved in the industry. A studio will receive a large portion of the price that a consumer pays for a DVD, as retailer markup on the digital discs is small.
Chronologically, the third revenue-generating aspect of a film’s release is pay-per view. PPV is an extremely gray area with regards to how much a studio receives of revenues generated. Dependant on buy-rates, a term meaning how many times a film has been bought through PPV, and the terms the studio negotiates with the different service providers, revenues can fluctuate from being negligible to moderate.
Next, a studio will generate money from a film by selling its rights for cable broadcast. Since feature-length films have long been the backbone of premium cable channels such as HBO and Showtime, networks pay significant amounts for the rights to air major films. The next step for a film on television is network broadcasting, where companies such as NBC, CBS and ABC all vie for the rights to show a major motion picture on their airwaves. The purchases of these films can vary depending on the success of the film, the studio that owns the film, and the film’s potential audience.
Network rights to a feature-length film are generally sold in bundles of three or four films. A studio will often package the sale of one or two mildly successful films with a blockbuster in order to maximize its revenue intake. Depending on the film’s attractiveness to the networks, a studio can decide to sell the film on its own, but that is not common. What makes a film attractive to networks is how network-friendly it is and how well it can sell on TV. Family-friendly films are the biggest draws, while action films, the ones rated PG-13, are a distant second. A television broadcast, after all, has to draw ratings and the safer a film is, the more likely it is that people will tune in.
One other key source of revenue for a studio is product-related merchandising such as toys, clothes and video games. With films such as Spider-Man, Lord of the Rings and the Disney children’s films, this revenue can be extremely lucrative. Video games are one of the fastest expanding media-entertainment industries over the past five years, and the amount of revenue these games generate is second only to theatrical release. So when a studio has a hot property on their hands, it is guaranteed that these ancillary streams of revenue will affect the overall bottom line.
The argument for a film being much more successful than its domestic take goes beyond looking at a film’s international box office. A film clearly generates more revenue than what it brings in from movie theatres across the world, revenue that goes to the film’s ultimate bottom line. Now that we have an understanding of where money is spent to make a movie and from where it brings in money, we can move on to comparing the two and getting an idea of when a film is successful.
--Jerry Simpson, Reagen Sulewski, David Mumpower and Matt Kinney contributed to this piece.
Read Movieball Part I: The Mystery of Feature Film Financing
Read Movieball Part III: Costs and Benefits - Is the Film a Winner?