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Article on just how much $$$ Disney has invested in 'Pirates'

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Article on just how much $$$ Disney has invested in 'Pirates'

Old 08-13-06, 09:22 PM
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Article on just how much $$$ Disney has invested in 'Pirates'

Thought it was a good read - passing it on...

http://jimhillmedia.com/blogs/jim_hi...8/08/4797.aspx
Old 08-13-06, 09:28 PM
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Even if the highest estimate in that article (and I'm not sure of the purpose of it, except to bash Disney) is true, and the total production+marketing budget for the 2 sequels is $700 million, they've already made that back, and more... POTC2 is nearing $800 million for its total international take, and still has a few major countries to debut in.
Old 08-13-06, 09:45 PM
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Originally Posted by WildcatLH
Even if the highest estimate in that article (and I'm not sure of the purpose of it, except to bash Disney) is true, and the total production+marketing budget for the 2 sequels is $700 million, they've already made that back, and more... POTC2 is nearing $800 million for its total international take, and still has a few major countries to debut in.
Incorrect. To make money, the studio needs to DOUBLE the movie's costs. So, they would need 1.4 billion from the 2 movies to be in the black. It will happen, and I doubt $700 MM is accurate, but doubling the cost is what most go by.
Old 08-13-06, 10:00 PM
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Originally Posted by Quake1028
Incorrect. To make money, the studio needs to DOUBLE the movie's costs. So, they would need 1.4 billion from the 2 movies to be in the black. It will happen, and I doubt $700 MM is accurate, but doubling the cost is what most go by.


Can you explain this a little further?
Old 08-13-06, 10:03 PM
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I don't see how each of the sequels cost $300 million before marketing. If anything, shooting back to back should save money. Besides, given the total box office, forthcoming DVD, and other sales, Dead Men's Chest already is profitable.
Old 08-13-06, 10:43 PM
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Originally Posted by Quake1028
Incorrect. To make money, the studio needs to DOUBLE the movie's costs.
I think that is when they just list the movies production costs (and not marketing etc.).

It sounds like from the article, the $700 million was marketing and everything else, not just production costs.
Old 08-13-06, 11:39 PM
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I was told in film class a rule of thumb to go by is to TRIPLE the film's budget. Say a film costs 100m, studios typically (and this was eight yrs ago btw) spent 50% more on marketing - so you're at 150m. Movie grosses 300m, split in half and boom you've split even.

POTC 2 should gross 900m worldwide, I'm guessing part 3 is good for 700. (you watch - it'll gross less)
Old 08-13-06, 11:48 PM
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That article was very "The Sky is Falling, the sky is falling!" now wasn't it? Some of it was interesting, but others was so hysterically pessimistic it ruined the whole thing. It seems to be striving to set a new standard for box office success that we can decry anything a flop now.

No Studio makes a big budget movie thinking they are going to be rolling in the dough right after it is released.

Last edited by onebyone; 08-14-06 at 04:33 AM.
Old 08-13-06, 11:59 PM
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Originally Posted by Artman
I was told in film class a rule of thumb to go by is to TRIPLE the film's budget. Say a film costs 100m, studios typically (and this was eight yrs ago btw) spent 50% more on marketing - so you're at 150m. Movie grosses 300m, split in half and boom you've split even.

POTC 2 should gross 900m worldwide, I'm guessing part 3 is good for 700. (you watch - it'll gross less)
Yeah, the article said to triple, but I have always heard double. A friend on another board, who is obsessed with the box office, uses double, so that's what I go by.
Old 08-14-06, 12:14 AM
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Can you explain this a little further?
Well a studio only takes home around 55% of the box office total (the other 45% goes to the theaters).

That's only for theatrical revenue though, you also have to factor in DVD sales, rights, licensing, etc. which is just astronomical for a franchise Disney movie.
Old 08-14-06, 12:53 AM
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Forget B.O. numbers, from now on we go by merchandising sales to figure out whether a movie is a hit or not.

Pirates of the Carribbean took a 57% drop in Davey Jones plushy sales this week. Flop!
Old 08-14-06, 01:43 AM
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I don't see why Hollywood is always gloom and doom. It's not like they're NOT gonna invest $500 million in some crazy movie in a few years, it's not like they aren't gonna keep making movies that keep losing money. There will always be movies.
Old 08-14-06, 03:29 AM
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Originally Posted by Quake1028
Yeah, the article said to triple, but I have always heard double. A friend on another board, who is obsessed with the box office, uses double, so that's what I go by.
The "rule of thumb" is to always double the budget to add in marketing and distribution costs. However, that current "rule of thumb" doesn't apply to most films now due to the fact that the internet plays a major role in film marketing now -- and is a lot cheaper than buying billboard, television, and radio space.

Example 1: Serenity had a $40 million production budget, but Universal only spent only around $10 million on marketing.

Example 2: Snakes on a Plane had a $40 million production budget, but New Line has spent barely $10 million on marketing.

For both films, add another $6-8 million for distribution.

Last edited by Matthew Chmiel; 08-14-06 at 03:32 AM.
Old 08-14-06, 07:16 PM
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This isn't the first time the $350 million dollar price tag has been brought up before. I've heard it ion a couple of other places that weren't bringing it up to bash Disney, just stating it. It is true that Disney has been a bit coy about how much the movie cost. The ramification of having made not one, but two $350 million dollar movies would be really bad for the studios and even worse for moviegoers.

Lots of Pirates was shot on water - shooting on water is extremely expensive. Take an already expensive movie and have a few hurricanes fly through the set last fall and you're movie's only gotten more expensive because you have to rebuild everything that was damaged.

But Disney felt it was worth the gamble, and guess what, it payed off for them with the first movie.
Old 08-15-06, 08:17 AM
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After seeing Dead Man's Chest, I have to say I'm not surprised it cost so much to make. That movie is (obviously) full of ridiculously elaborate set pieces, expensively animated CGI characters, huge sets (most on the water) etc, etc, etc. It's one of the most excessive movies I've ever seen in the sheer amount of stuff that's on the screen. It's on par with something like King Kong.

Now that they have to up the ante for the third movie, I can see the total budget being 700MM.

Having said all of that, once you figure in DVD sales, the movie is going to make a killing for Disney in the long run.
Old 08-15-06, 09:08 AM
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This is a bit dated, but stil informative article on when and how films make money:

http://www.faqs.org/faqs/movies/faq/current-films/
18) When does a movie break even?

There are multiple answers to that question, and it differs for every movie, not just because they had different production costs. Assuming we're talking about genuine profits (as would be recognized by most of us), and not the contractual definitions that keep net profit participants from collecting a cent on even the biggest grossing films, here are some rules of thumb, and a few important exceptions.

First off, we're talking about major Hollywood films that are distributed by the studio that made them. That's important, because the distributor takes a big cut off the gross. If the distributor is the same studio as produced the film, then, from an outsider's point of view, it all ends up in the same pockets in the end. If the film was produced by someone else, then you have to lop off the distribution fee before determining if the film was profitable. Also, let's ignore for the moment co-productions, and certainly ignore low budget independent films.

The capsule answer, as a rough rule of thumb - if a film's domestic gross equals its negative cost, it will be profitable. Thus, for example, if we accept a negative cost for "Titanic" of $200 million, a US/Canada gross of $200 million would probably lead to a profit.

Now let's talk about why this is a reasonable rule of thumb, then why it sometimes isn't.

Films make their money from three basic sources - domestic gross (counting only the US and Canada), foreign gross (box office receipts from everywhere else), and other sources. The largest component of the latter is video, but cable, pay-per-view, and broadcast sales are also often significant, and lesser revenue streams like in-flight movies, rentals to colleges and art houses, and others also chip in. For certain films, merchandising adds hugely to this figure. For others, it adds nothing.

Still speaking roughly, the current breakdown is that these three revenue sources are approximately equal. Not quite. In the last couple of years, foreign box office has slightly exceeded domestic, for example. And there are many exceptions, which I'll get to later. But for rough calculations, equality is around right.

There are other important considerations. First, the costs usually bandied about for making films are the negative costs. The negative cost of a film is the price paid from the moment the project was thought of to the instant that the studio owns one complete, finished negative of the movie. There are still big bucks to pay for a major Hollywood release, however. The biggest bucks are for advertising and distribution, with a significant cost to make all the prints. (If you put out 2000 prints, a not-uncommon run for a big film nowadays, at, say, $10,000 a print, you can see it adds up.) Advertising and
distribution varies quite a lot. People used to assume that the total print and advertising costs for a big film were approximately equal to its negative cost, but $100 million plus negative costs blew that estimate out of the water. I doubt if anyone ever spent $100 million advertising a single film. For a large scale film, $50 million for prints, adevertising, and other distribution costs (like shipping 2000 really heavy sets of boxes containing the prints all over the country) is not an unreasonable estimate.

A second consideration is that theaters take a share of the gross. Again, things are complex. The short rule of thumb is that the theaters take half. But the way the contracts actually work, the theaters' cut is on a sliding scale, with the studio taking a much larger percentage in early weeks, and the theaters gradually getting more and more as the run continues. Thus, the attendance pattern of a film makes a big difference. So far, "The Lost World" and "Men in Black" have grossed in the same general ballpark, something like $250 million. However, "The Lost World" made a vast amount of money in its first week, and dropped off quickly, while "Men in Black" did very well its first week, but has held audiences longer. The distributor thus
ended up with more of the gross from "The Lost World" than from "Men in
Black." Assuming you're not a professional or obsessive, live with the 50% estimate.

A third factor. For many big films, there are gross profit participants. These folks, typically the really heavy hitters like Steven Spielberg, Harrison Ford, and Michael Crichton, get a percentage of all money collected by the distributor. In some cases, the contracts allow the distributors to deduct certain costs off the top, in others they don't. The dollars that go to gross profit participants cannot fairly be considered as contributing towards the studio's recoupment or eventual profit, since they don't get those dollars. In
some cases, like "The Lost World," we're talking serious chunks of revenue, perhaps 20% total or more. Let's not worry about that, for the moment, but don't forget it completely.

A fourth factor. Foreign theaters keep a larger percentage of the profits than US theaters. So, while the foreign gross is slightly larger than the domestic gross (averaged over all films), the domestic box office still returns more dollars to the studios. Also, the distribution costs mentioned above only covered US distribution. You'll need to advertise it in other countries, too, and perhaps even come up with ad campaigns customized to each country. More costs. Overall, let's just factor everything here together and say that
studios end up with 50% of the foreign gross. Not too accurate, perhaps, but we'll balance it against an inaccuracy in the opposite direction from other sources.

A fifth factor. There are distribution costs associated with the other, non-box-office revenue streams. It costs something to stamp out a videocassette, and to ship it to the store, and to advertise it. Some of the other revenue streams have lesser costs (like selling to cable), some have significant ones. For airline screenings, you typically have to recut the film, for example. Let's again assign a 50% return of gross here. It's probably a bit higher, but we'll balance that against our earlier overestimation of foreign returns.

Finally, as a general rule the domestic box office is the engine that drives the other revenues. There are many exceptions, but foreign gross and video sales (and other revenue streams) are largely predictable given domestic gross.

OK, let's review the bidding. The studio spent the negative cost plus maybe $50 million on prints and advertising. Speaking roughly, they'll get 50% of each of the three reveune streams. Roughly, again, that means that for a $200 million negative cost film, they need to have around $250 million roll in various doors before they've really shown a profit. Thus, if the film makes $500 million domestic, it's shown a profit before any other revenues are considered.

For a bare profit, that $200 million film then has to return $85 million or so in domestic box office. (Since that would translate to another $170 million in money from other sources.) $85 million + $170 million = $255 million, slightly above the $250 million negative plus advertising plus distribution cost we'd estimated. But, remember, we're only getting half the money, so for an $85 million domestic return, we need a $170 million gross. That's not quite its negative cost, but it's in the ballpark. If you assume they'd have to spend
more on advertising such a big film, or you're going to strike a whole lot more prints, the revenue requirement goes up a bit.

This is already an obscenely long posting, so I won't go into the exceptions in detail. But action films will do better overseas, dramas not so well, films with local tie-ins to major foreign markets (Japan, UK, Germany, France) may do significantly better there, children's films (especially animated ones) will kick butt on video, and comedies based on dialog will bomb outside English-speaking countries. There are many other exceptions - Disney would be ill-advised to predict any revenues on "Kundun" from China, for example. Sometimes, for completely unpredictable reasons, a film does a whole lot better in some foreign market than in the US or anywhere else.

Actually applying this all to "Titanic" gets complicated, unless you are willing to accept all the rules of thumb and ignore all the exceptions. For example, "Titanic" was a co-production of two studios, one of which had a cap on its share of production costs, and owns only the US gross. The other had no cap, and has all other rights. So the right thing to do, really, is to figure the two studios' profits separately.

Also, Cameron is one of those heavy hitters I mentioned earlier. He undoubtedly started the exercise with large gross profit participation. However, due to his severe budget overruns, it's possible (but not certain) that he traded back or lost some of his gross points.

And what about merchandising? Will every parent in America buy his kid a Titanic toy that sinks in the bathtub while an internal waterproof music box plays "Nearer My God To Thee," leading to a merchandising bonanza? Who knows?

Bottom line, if "Titanic" grosses less than $100 million in the US, folks lose a lot of money. If it grosses more than $200 million, folks get a lot of money. In between, it's variable, highly dependent on whether "Titanic" proves to be one of the exceptions, and generally too close for outsiders like us to call.

[Thanks to Peter Reiher ([email protected]) for providing this.]

Last edited by Jay G.; 08-15-06 at 09:25 AM.

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