How does hollywood movie industry profitability work?


As an example – I read recently that Gemini man (Will Smith movie) was a box office bomb and paramount lost 111mn USD because of this movie. However the budget is 138mn USD and box office collection is 173.5mn USD. With box office collection this high and budget lower than box office, what were the reasons for paramount to lose 111mn? Baffling to me.


In: Economics

The production budget doesn’t include marketing. I believe the rule of thumb is that after marketing, a movie needs to make roughly twice its production budget to be profitable, but I could be wrong on that part

Theaters get a share of the box office gross, while each movie’s specific share differs, the general working assumption is usually around half the box office goes to the theaters and half goes to the studios.

Also marketing is often a very large non-production cost.

Finally all of the cost figures are usually estimates, and not all estimates are accurate, they’re simply the best guesses of people who may not know the true numbers but have some insights about the cost.

Hollywood accounting and numbers should never be trusted. And when they say a “bomb” usually they are referring to not meeting projected revenue… Not necessarily “making” money or not.

Hollywood accounting is a funny thing, so you can not always take value A and subtract value B and be done with it.

The Production Budget, which is what is reported as the budget for the film is only a portion of the money spent on the film. It represents the fixed costs in making the money, and nothing more. Actor salary is included, but residuals and percentage of the box office are not.

So, if Robert Downey Jr agrees to be in your movie for $10,000,000 plus 10% of the box office take, then you increase the Production Budget by $10M, let’s say to $50M total. The box office took in $100M, giving RDJ an extra $10M.

The theaters get to keep some of that $100M as well, leaving the studio to recoup about 75%, keeping about 65% or $65M after paying RDJ.

So far so good, that is $15M profit… Except for the fact that they have to spend money on promoting the film. Making commercials, movie posters, cutting a deal with McDonald’s for the Happy Meal inclusion, etc. These costs are considerable and the rule of thumb is to spend as much as you did on the Production for Promotion.

Even ignoring RDJ’s cut, that is a Promotional Budget of $40M, bringing the total cost to $90M, and a $25M loss for the studio.

The budget usually doesn’t include the advertising/merchandising/distribution cost, which can be HUGE. On the order of the budget (cost to actually create the movie).

So if they took $174M at the box office and the movie took $138M to make, they only had $36M left for marketing/distribution and that’s almost impossible…they probably spent $100M+ on on that. Hence the giant loss.