When does a production company break even on a film?

Factual Questions
1

It seems that it’s common in entertainment news to hear about a movie making back its budget, or failing to do so. Most people seem to believe that’s the point a movie becomes profitable.

But on the expense side, there are marketing costs which I assume are not part of the published production budget. On the revenue side, there are DVD sales and royalties that come long after the movie has left theaters. There’s also the fact that gross box office take is reduced by the theaters’ cut.

So, as a general rule, what’s the point that separates success from flop in the eyes of the movie company? Is a movie with a $100 budget a winner if it grosses $105 million, and a failure if it only makes $95M? Somehow, I doubt it’s that simple.

2

You’re right, marketing costs aren’t included in the production budget. They’re generally as sizeable as any part of the budget (cast, special effects) if this Guardian article can be seen as a reliable indicator.

Usually we’re shown domestic box office results. I’m no expert, but films can make as much or more in the foreign market, though it depends a lot on the film. Like DVD sales and rentals, this also requires more marketing costs.

This site: http://www.boxofficemojo.com is a good place to look at numbers.

3

I remember reading somewhere (but can’t now find a cite) that the production company for the James Bond film “Die Another Day” broke even on the production costs even before the movie was released, based on the $120 million in product placement and merchandising fees.

And I’ve also read somewhere that the US domestic box office represents something like only twenty percent of the total revenues for a movie. Other sources are the foreign box office, DVD sales, television pay-per-view, cable and broadcast rights both US and international and the product placement and merchandising revenues. So even if a movie does poorly in the opening weekend, it can still make a profit for the studio.

4

Ideally, never. Hollywood accounting is infamous for it’s ability to hide profits. See monkey points.

5

Another point to remember is that the studios only get roughly 50% of the gross box office. The theaters keep the other half. Add in $40-60 million for P&A (prints and advertising, i.e. marketing) and an average film needs to gross at least 2.5 times its production budget before it breaks even. Not surprisingly, less than half of all Hollywood films do this in their theatrical runs. But as Dewey Finn says, the ancillary revenues ultimately bring a much larger percentage of films into the black.

What percentage? I don’t know.

6

When the last person who would get net points dies.

7

A winner either way. I think in any business venture you can find, if your revenue is one million times your expenses, it is a winner.

I know what you meant.

8

Indeed. If I am not mistaken, although Waterworld was a box-office flop domestically, it was a success overseas.

9

I believe the rule of thumb is if you make back three times your budget it’s considered a hit. If you make back only double, it’s “breaking even,” considering creative accounting and additional expenses like marketing. If you only make back approximately the same as the budget or less, it’s a “failure”.

But some companies consider a film a failure if it doesn’t reach a projected box office take, even if what they do reach is far and away a huge number. Disney projected Pixar’s Cars to be a certain amount for its opening weekend, and it didn’t hit that projection, even though it got back almost its entire budget that single weekend, and by the second weekend had hit what any other film would be considered success heights. But because they had been relying on what magic Pixar usually weaves in the Box Office, and it wasn’t going to reach those specific heights, the Execs branded it a failure.

Madness. I think they have to abandon this concept, and instead take a wider view, especially since DVD gives any movie “legs”, no matter how “bad” the opening weekend box office is.

10

If a movie is the third best movie released that week, it is a failure. If it comes in second, it breaks even.

The money is just how you measure.

Tris

11

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” - Charles Dickens

12

Actually , this thread gave me an excuse to delve into this.

Here are the 17 2005 films IMDB lists “Universal” as being their production company (I removed the ones that were from Universal Food Productions, an Argentine outfit, and others with similar names), along with the budgets listed:

Production Budgets
40 year old virgin $26,000,000
Cinderella Man $88,000,000
Jarhead $70,000,000
Kicking and Screaming $45,000,000
King Kong $207,000,000
Land of the Dead $15,000,000
Munich $75,000,000
Nanny McPhee $34,000,000
Perfect Man $10,000,000
Pride and Prejudice $28,000,000
Prime $22,000,000
Producers $45,000,000
Serenity $40,000,000
Skeleton Key $43,000,000
Two for the Money $20,000,000
White Noise $10,000,000

The linked Guardian article suggests that today’s $200million films have a marketing budget of $39million. So, keeping in mind that not all films are marketed equally, I tacked on 15% to each movie, just for illustrative purposes:

Estimated Budgets with Marketing
40 year old virgin $29,900,000
Cinderella Man $101,200,000
Jarhead $80,500,000
Kicking and Screaming $51,750,000
King Kong $238,050,000
Land of the Dead $17,250,000
Munich $86,250,000
Nanny McPhee $39,100,000
Perfect Man $11,500,000
Pride and Prejudice $32,200,000
Prime $25,300,000
Producers $51,750,000
Serenity $46,000,000
Skeleton Key $49,450,000
Two for the Money $23,000,000
White Noise $11,500,000

Next, I took the last listed US Box Office gross figure from IMDB (This may not be 100% accurate as to the final take. Box Office Mojo may have more accurate numbers, but I’m mostly doing this for illustrative purposes.) Here they are in increasing order:

US Box Office Gross
Perfect Man $16,247,775
Producers $19,377,727
Land of the Dead $20,700,082
Prime $22,728,025
Two for the Money $22,862,049
Serenity $25,335,935
Pride and Prejudice $38,405,088
Nanny McPhee $47,124,400
Munich $47,379,090
Skeleton Key $47,806,295
Kicking and Screaming $52,580,895
White Noise $55,865,715
Cinderella Man $61,644,321
Jarhead $62,647,540
40 year old virgin $109,243,478
King Kong $218,051,260

And also, US Box Office Gross as a percentage of Production Budget:
Producers 43.1%
Munich 63.2%
Serenity 63.3%
Cinderella Man 70.1%
Jarhead 89.5%
Prime 103.3%
King Kong 105.3%
Skeleton Key 111.2%
Two for the Money 114.3%
Kicking and Screaming 116.8%
Pride and Prejudice 137.2%
Land of the Dead 138.0%
Nanny McPhee 138.6%
Perfect Man 162.5%
40 year old virgin 420.2%
White Noise 558.7%
we’ll come back to this.

In his book, The Encylcopedia of Movie Awards, which lists Domestic Box Office as an “award” amongst all the others, Michael Gebert says that worldwide ticket sales usually double the total box office, unless it’s an action flick, in which case it triples or quadruples. I could go back and do this all on Box Office Mojo, but I am fairly confident that these numbers are reasonable enough for illustrative purposes. Anyone even more obsessive than me is welcome to refute my numbers with more accurate, ones, but this little exercise has already taken too much time away from playing with the Wii I got for my 40th birthday. So, since I started this nonsense with the incomplete IMDB numbers, I quadrupled Jarhead and King Kong, tripled Serenity, Munich, and Cinderella Man since I couldn’t decide if they qualified, and doubled the rest:

Estimated Worldwide Box Office Gross (including US)
Perfect Man $32,495,550
Producers $38,755,454
Land of the Dead $41,400,164
Prime $45,456,050
Two for the Money $45,724,098
Serenity $76,007,805
Pride and Prejudice $76,810,176
Nanny McPhee $94,248,800
Skeleton Key $95,612,590
Kicking and Screaming $105,161,790
White Noise $111,731,430
Munich $142,137,270
Cinderella Man $184,932,963
40 year old virgin $218,486,956
Jarhead $250,590,160
King Kong $872,205,040

We’ll cut through the mess of foreign distribution deals, overseas marketing costs, etc. etc., and blatantly gloss over DVD income, and just assume the studio gets to take half the box office:

Estimated studio share of box office gross
Perfect Man $16,247,775
Producers $19,377,727
Land of the Dead $20,700,082
Prime $22,728,025
Two for the Money $22,862,049
Serenity $38,003,903
Pride and Prejudice $38,405,088
Nanny McPhee $47,124,400
Skeleton Key $47,806,295
Kicking and Screaming $52,580,895
White Noise $55,865,715
Munich $71,068,635
Cinderella Man $92,466,482
40 year old virgin $109,243,478
Jarhead $125,295,080
King Kong $436,102,520

Now we’ll subtract the original production budget to estimate what sort of profit Universal might have seen from putting these films out. In increasing order:

Estimated Studio Profit
Producers -$32,372,273
Munich -$15,181,365
Cinderella Man -$8,733,518
Serenity -$7,996,098
Prime -$2,571,975
Skeleton Key -$1,643,705
Two for the Money -$137,951
Kicking and Screaming $830,895
Land of the Dead $3,450,082
Perfect Man $4,747,775
Pride and Prejudice $6,205,088
Nanny McPhee $8,024,400
White Noise $44,365,715
Jarhead $44,795,080
40 year old virgin $79,343,478
King Kong $198,052,520

So, assuming that my estimates are reasonable, and I think they are, under this scenario the films that lost money for the studio ended up being:

Money Losers
Cinderella Man
Kicking and Screaming (I include this one because of its very low ROI under this simulation, even though it did turn a profit. They could have gotten more out of putting the production budget in a savings account)
Munich
Prime
Producers
Serenity
Skeleton Key
Two for the Money

The question is, was the US Box Office percentage an Indication of this?

The lowest 10 US Box Office scorers, in terms of BO as a percentage of budget: were:
Cinderella Man
Jarhead
Kicking and Screaming
King Kong
Munich
Prime
Producers
Serenity
Skeleton Key
Two for the Money

(I include ten films because Jarhead and King Kong were in the low list, but as action films, could reasonably be expected to make money overseas.)

As far as the other 8 films, there is a certain resemblance between the two lists, and the name of the resemblance is “identity”. Even the five films on this last list that exceeded their budget in box office still wound up losing money for the studio in this simulation. I’m sure if you took more accurate numbers from Variety or The Hollywood Reporter or even Box Office Mojo (I don’t have access to the first two and didn’t think to use the third), you’d get two lists with more discrepancy, but I think the obvious conclusion would still be that, action films aside, domestic box office is still a pretty good indicator of eventual profitability.

An interesting thing to look at is the profit as a percentage of production budget:

Producers -71.9%
Munich -20.2%
Serenity -20.0%
Prime -11.7%
Cinderella Man -9.9%
Skeleton Key -3.8%
Two for the Money -0.7%
Kicking and Screaming 1.8%
Pride and Prejudice 22.2%
Land of the Dead 23.0%
Nanny McPhee 23.6%
Perfect Man 47.5%
Jarhead 64.0%
King Kong 95.7%
40 year old virgin 305.2%
White Noise 443.7%
Overall: 41.3%

This list reveals some of Hollywood business thinking, I think. First, movies are a good business to be in, if you’re good at it. a 40% ROI is nothing to sneeze at.

Jarhead and King Kong made a lot of money, but cost a lot to make. The biggest ROI film for 2005 was White Noise, about a man trying to hear the voice of his dead wife in broadcasting static. I barely remember the ads, and didn’t see it, but for Universal, it represents 400% return. White Noise 2: The Light was released in Britain earlier this year to resounding indifference.

The next biggest percentage is 40 Year Old Virgin, and the same director and much of the same cast are back this year for Knocked Up, and its star Steve Carrell is back with Evan Almighty .