Week 24: What Happens in Hollywood?

It’s ironic that What Happens in Vegas features a pair of characters who assert that they can put up with anything for six months as long as they have a huge reward in the end. I am starting to know how they feel, only without the reward.

Given that this tepid, underachieving movie has now been at my local Cineplex for 5 weeks (it opened on one of the larger screens and then moved to Cinema 3), this seems like a good time to talk about the economics of movie exhibition. In other words, why do movies stay around as long as they do, and why do they cost so much to see?

Don’t get me wrong, this is not a complaint for my own sake. I am not sorry that I started this project, I don’t resent the fact that I have been stuck with a “re-run” for the past few weeks. I always figured that something like this would happen, which is why I was prepared to fill time with some essays like this one. I’m just glad the holdover was not 10,000 BC.

No, what interests me here is the raw numbers, insofar as I can estimate them based on available data. Some quick online searching seems to confirm what I have previously heard: that the exhibitor of a movie (ie., the theatre) tends to earn about 10% of the ticket revenue averaged over time. The movie business is in a catch-22 position where the beginning of the value chain (the studios) need to keep introducing new movies while the end of the chain needs to hold them over in order to realize much of a profit. If it wasn’t for concession prices, many movie theatres would probably be unable to cover their overhead costs, let alone profit.

The movies themselves apparently follow the 80/20 rule; 80% of the studio’s profits are made by 20% of the movies. Sure, the summer blockbusters make lots of money; but they also cost lots of money to make and promote around the world.

Consider, then, What Happens in Vegas: according to Box Office Mojo, it cost $35 million to make and so far has earned $185 million worldwide- over 400% profit. So far it is the 12th top grossing American film this year; not bad considering that 2008 has also featured the Iron Man movie, Sex and the City, Indiana Jones, and so on- none of which are even close to a 400% profit.

So, holding over What Happens in Vegas is a win for the studio and a win for the theatre. The only people who lose are the audience, who might like to see more than one or two new movies open each week.

“But sales are slumping, and no one will say why..
Could it be they put out one too many lousy records?”
– Dead Kennedys, “MTV Get Off The Air”

About Scott M

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3 Responses to Week 24: What Happens in Hollywood?

  1. Scott says:

    Because SERENITY reminds me of the kind of movie that could be made more often (and followed up on) if the economic model in Hollywood was more sensible.

  2. John says:

    I recently discovered the same thing: that a very low percentage of the ticket price actually is realized by the theater showing the movie. According to the same acquaintance, who works for a theater, about 85% of the theater’s working revenue is from concessions– hence the reason why you pay an arm and a leg for the food at a theater.

    The other thing that really affects the overall costs, but is the dirty little secret that the studios don’t really talk about, is the marketing. Most of the big summer films spend upwards of $75 million to market that same film. “Smaller” films, like WHIV, may spend between $20-40 million. So, when you look at something like Indiana Jones, you are looking at a movie that has to gross over $250 million just to break even! That sure cuts into the profit making. The majority of films profits these days comes from the foreign markets, as the entire north American dollars go toward breaking even.

    However, the real profit is generally realized once the movie hits DVD, rentals, and other secondary sources. They often recirculate the same ads, so the marketing for it is less costly. The DVDs themselves, including the case and the extra features, generally cost about $4-6 dollars– so everything above that (and most sell for around $20-25) is profit.

    Anyway, that is what the acquaintance who works “in the biz” was telling me.

    Sad but true.

  3. Colin says:

    John has it right. The mondo cost for film is the marketing domestically and sometimes internationally (depending on whom you partner with). The big coin is in selling the rights to some linear tv or cable channel and DVD sales. Gets scarier when you do movies with a lot of CGI that pushes price tags to $100-150 million just to make, throw in another 50-80 million for advertising. Generally those movies make money in the end.

    Have not been to your website in a while. Like what you are doing with the place!

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