Let me preface this by saying I don’t know much about film.
I realize there are a lot of factors to take in, paying actors, cameramen, crew, lights, sets, special effects, editing, but I can’t really conceptualize how that all adds up to millions of dollars. Even low-budget independent flicks cost thousands. Why is this? Can anyone break it down for me?
My best fiend’s first feature-length film was Cut Up. It was shot in 16mm, and IIRC it cost about $45,000. Film stock was about $3,000, and then it had to be processed and duplicated to 3/4" beta for editing. Actors needed to be paid, the camera and DP hired, the gaffer brought a whole bunch of lights and he needed to be paid. Catering, props, locations… It adds up.
When you get into studio productions you have unions to deal with. Union crews and actors cost more, and a “name” can cost you much more. Special effects (including special make-up effects, computer imaging, model making, and so forth) are expensive and take a lot of time. Time is money. And remember that such things as special costumes and props are “one-time” things. They’re not mass-produced. (Compare buying a suit off the rack, and having one made from scratch by an excellent experienced tailor.) You also start spending more on locations, permits, and everything else. Post-production is a lengthy process and costs a lot. Release prints cost a bundle. And then there are the marketing costs.
That said, IMO motion pictures are ludicrously expensive. But the free market being what it is, people will charge what the market will bear for their services. Angele Artiste may create creatures for your film just for the experience, materials, and a few bucks. Stan Winston will cost you a lot more.
Wow, deja vu! There just happens to be a thread in Cafe Society, How come movies are getting more and more expensive?. Check it out. We can discuss here, too, if you like.
Unions is the major cause of high costs!
Million dollar movies were not uncommon in the 1930’s. Taking into account inflation that puts movies into the ridiculously expensive category for pretty much their entire history. And this was before the unions (Screen Actors Guild, Screen Writers Guild, etc.) were formed. 1930’s All Quiet on the Western Front was made for $1.2 Million. There are a lot of labor costs, equipment costs, overhead, distribution, advertising, etc. There is also an apparent notion that the studio won’t accept something as good if it didn’t cost a fortune to make. That’s why low-budget hits always take people by surprise. “You mean we can make a big hit for 1/20th the price of a normal movie if we do something creative and original? Nah, it can’t happen. Lets make a $100 million remake of some old saturday morning cartoon!”
One of my art instructors used to work in the art effects department of a major studio. He once described how he and a bunch of other people spent 3 months building an elaborate set. The director didn’t like the shot, and it got edited down to a total of 4 seconds of the movie. Those 4 seconds probably cost half a million dollars each. 
Overpaid labour.
Aside from above the line costs, crew salaries get fairly high but we are not overpaid. We work six day weeks, 12 to 14 hour days for 3 or 4 months and sometimes longer. We are highly skilled at what we do and very efficeint.
The market certainly can bear the cost. 100 million dollar budgets don’t come from tax money or homeless children funds. They come from the movie goer who appreciates an escape from the stresses of everyday life.
I’m a film major, and I took a class on independent digital documentaries last semester. For even small movies without actors and a small crew, you have incredible equipment costs- it’s not feasible that you can afford to buy all the equipment, so it all has to be rented. If you’re on location, you have to pay the transportation, food, and accomodation for all of your crew. The editing is usually a long process, and hiring a regular editor and sound editor- which are usually good ideas- can get expensive. Also, any music or other info that might be copyrighted has to be researched, and sometimes you wind up paying for those rights. Then comes any sort of publicity, including festival fees, which must be paid-- all this before getting profits, if anything substantial EVER comes out of it.
Most indie filmmakers work for years to secure grants and other modest funds from non-profits and other organizations before even going through basic beginning stages on a work.
Major factors:
- The cost of special effects. Those explosions are expensive.
- Cost of talent. Actors are independent contractors and can ask whatever the market can bear; in the 30s, they were salaried employees.
- Publicity. TV ads are expense; so are putting ads in all the newspapers.
- Interest costs. A very big expense on the movie balance sheet – and a totally bogus one. Accountants take the amount of money it costs to make a film, assume it was invested at ridiculously high rates, and list that as an expense on the balance sheet.