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Why is a movie's financial success weighted so heavily by domestic sales?

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Why is a movie's financial success weighted so heavily by domestic sales?

Old 06-26-05, 06:04 PM
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Why is a movie's financial success weighted so heavily by domestic sales?

I have been doing some research on a lot of movies that were considered disappointments, and when I look at their worldwide grosees, it seems they were anything but, and last I checked that doesn't even include DVD sales.

Some examples: (source: box-office mojo)
MINORITY REPORT $358 mil worldwide.

LAST SAMURAI $456 million worldwide.

TERMINAL $218 million worldwide.

TROY $497.4 million worldwide

THE MATRIX REVOLUTIONS $425 million worldwide

These are amazing numbers, yet whenever I see these movies spoken about by box-office or analyst reports in movie magazine articles, they are typically referred to as disappointments or underperformers and then only cite their U.S. grosses. Do analysts seldom look beyond our shores when determining a movie's success or something? Hell, do they even look beyond its third day of release if it's an intended box-office blockbuster like BATMAN BEGINS, which I think has already brought in close $150 million worldwide?
What's their deal nowadays, why such a limited scope of analysis?

Last edited by Dr. DVD; 06-26-05 at 06:07 PM.
Old 06-26-05, 06:08 PM
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Great question.

Also, why does the movie have to make all it's money in the first few weeks to be considered a success?

Last edited by Giantrobo; 06-26-05 at 06:11 PM.
Old 06-26-05, 06:11 PM
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Because certain movies are expected to do a lot better here than they actually do. They don't lose the studio money but they are underperformers.
Old 06-26-05, 06:17 PM
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From
http://groups-beta.google.com/group/...ee19f89d4f4164

10) 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.

[Thanks to Peter Reiher for providing this.]

Last edited by Jay G.; 06-26-05 at 06:23 PM.
Old 06-26-05, 06:17 PM
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With the rising production costs (seems like a studio movie about two people on a picnic costs about $100 million nowadays) and decline of ticket sales in America, it seems they would have to rely on foreign markets to make money nowadays.

EDIT: interesting that the article was written about TItanic before it became the major phenom it was!

Last edited by Dr. DVD; 06-26-05 at 06:24 PM.
Old 06-26-05, 06:18 PM
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Because other than the people running the studios in Hollywood, who else gives a shit about how films do overseas? Sadly, that's the truth.

These "so-called" box-office analyst only cover the domestic gross of films, because that's what people want to know about. Nobody gives a flying fuck if Bridget Jones: The Edge of Reason made $300 million overseas (which it did). People are more interested in the fact that the film FAILED in their own country. It's like those threads on the forum asking if War of the Worlds or Mr. & Mrs. Smith are doomed. People just want to see a film either succeed greatly or fail miserably.

Do you think the studio heads at Warner were worried when $150 million pictures like Troy and The Matrix Revolutions didn't preform up to expectations when released in America? No. They knew when the film would be released overseas that the film would make a profit and then some. Originally in Hollywood, a studio would look forward to an international release of their films as if the film didn't clear the red (or cleared the red and then some), the overseas release would make them money or make them even more money. Now, with DVD being such a huge market, studios look forward to international releases AND DVD sales for being the big moneymakers.

FACT: International audiences dig the big, stupid, popcorn-fare blockbusters more than we do. Who would've thought that especially since America is one of the dumbest countries on the planet?
Old 06-26-05, 06:34 PM
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Nice post Matthew. You know, I have a feeling if a major American studio were to release a film in other places before America (not a foreign film, but one made with U.S. dollars) and then used its foreign success as a marketing trumpet, less people would be wanting to see it because they (seem to) automatically think lesser of people/audiences in other countries.

It's sad people have such a narrow view of places outside of their own soil.
Old 06-26-05, 06:50 PM
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I don't give a shit one way or the other how much money a movie makes. If I enjoyed it, then that is all that counts. There are plenty of movies that make way more than they should have, if this is all based on quality, and vice versa.
Old 06-26-05, 07:04 PM
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I'm more concerned with shitty movies getting greenlit by studios.
Old 06-26-05, 07:07 PM
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Originally Posted by Mr. Cinema
I'm more concerned with shitty movies getting greenlit by studios.
Hey, if the studio believes the film will turn a profit for them, they'll green light anything.
Old 06-26-05, 07:10 PM
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Originally Posted by Dr. DVD
You know, I have a feeling if a major American studio were to release a film in other places before America (not a foreign film, but one made with U.S. dollars) and then used its foreign success as a marketing trumpet, less people would be wanting to see it because they (seem to) automatically think lesser of people/audiences in other countries.

It's sad people have such a narrow view of places outside of their own soil.
I can't imagine anyone avoiding a movie in a scenario like that. Buzz is buzz. Americans might be apathetic about international box office, but we don't "think lesser" of international audiences.
Old 06-26-05, 08:36 PM
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I think the point is, that "analysts" who talk about box office receipts need something to talk about. Movies make a ton of money overseas and even more on DVD. I doubt there are any movies made now that truly lose money.

I don't think people have such a narrow view of places outside the US. The movie press and studios just like to think Americans do. If these "analysts" would stop dumbing down their articles and start including foreign receipts, people would accept it and that would be that.
Old 06-26-05, 11:14 PM
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Originally Posted by PopcornTreeCt
I think the point is, that "analysts" who talk about box office receipts need something to talk about. Movies make a ton of money overseas and even more on DVD. I doubt there are any movies made now that truly lose money.
I'm sure studio execs are breathing a sigh of relief learning about that. The cast and crew of Gigli, The Adventures of Pluto Nash, Shade and Breakfast of Champions are eagerly awaiting their residual checks as I type.

Besides which, the vast majority of Independent movies do not even break even, let alone make a profit.
Old 06-26-05, 11:23 PM
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Originally Posted by Matthew Chmiel
FACT: International audiences dig the big, stupid, popcorn-fare blockbusters more than we do. Who would've thought that especially since America is one of the dumbest countries on the planet?
Maybe it has something to do with big, stupid popcorn-fare being largely visual and thus not losing much in the translation. Other genres, like Dramas and even some comedies, are far more dialogue intensive, and also more culturally centered. Most countries still have their domestic movie business churning out a number of titles each year. Why go see a Hollywood comedy or drama when you can see one of similar production value set in your own country, in your own language? About the only thing the foreign studios can't compete with are $100 mil plus "blockbusters."
Old 06-26-05, 11:30 PM
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About the only thing the foreign studios can't compete with are $100 mil plus "blockbusters."
Will isn't that because Hollywood is a business and foreign films are usually financed by the country said film is shot in or backed by independent financers?

And as it's being seen in such countries like South Korea and Japan, "epic" films are becoming "cheaper" to make (mostly due to the advancement of special effects). This in turn has more people going to the movies in their respective countries along with the fact that people are also buying DVDs. The former is something America is slowly losing.
Old 06-27-05, 12:05 AM
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Well, considering Batman cost about $135 million and apparently an additional $100 million just to market, that's been a disappointment thus far. I don't understand how Warner spent that much when the advertising hasn't been nearly as widespread as Episode III or Fantastic Four.
Old 06-27-05, 02:07 AM
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Originally Posted by Matthew Chmiel
FACT: International audiences dig the big, stupid, popcorn-fare blockbusters more than we do. Who would've thought that especially since America is one of the dumbest countries on the planet?
I can back you up on this one. I was in South Korea last week, and when talk of Hollywood came up, some of the locals became livid over the swallowing of their cinematic expressions in favor of MATRIX-type events.
Old 06-27-05, 02:11 AM
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Originally Posted by Matthew Chmiel
Hey, if the studio believes the film will turn a profit for them, they'll green light anything.
Profit? What about simple things like blowjobs and coke?
Old 06-27-05, 08:57 AM
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A guy was on CNN This Morning and he was accrediting the lack of profit to movies that aren't that good. For the most part, I agree. This summer the only movies that really blew me away were Batman and Star Wars, the rest I could have waited for DVD easily.

In short, I felt like saying : "Well, duh," as this is something we have been aware of for a while around these parts.
Old 06-27-05, 09:09 AM
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Originally Posted by Dr. DVD
This summer the only movies that really blew me away were Batman and Star Wars, the rest I could have waited for DVD easily.
The DVD factor is one big reason why moviegoing is increasingly poor anyway. Other than the so-called shared experience and seeing the movie on a big screen (not such a big advantage anymore given the smaller screens of most multiplexes), who wants to pay highway robbery prices for admission and concessions, put up with increasingly rude moviegoers, suffer uncomfortable seating, get annoyed by poor picture and sound quality, and suffer through commercials along with too many trailers?

I was at Best Buy yesterday (getting a copy of Brother Bear two-disc edition for only US$8.99! ) and another thing really hit me: there is a plethora of TV series in complete seasons now available on DVD. From Alias to Xena: Warrior Princess and everything in-between, people are increasingly nowadays watching complete TV seasons rather than watch a movie in a theater.
Old 06-27-05, 09:26 AM
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I still like to go to the theaters for the big actioners that my mediocre home theater can't duplicate the A/V experience, but as far as dramas and comedies go, I'd just rather wait for the DVD. A lot of people I know do the same thing nowadays.
Old 06-27-05, 10:06 AM
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Originally Posted by scott shelton
I can back you up on this one. I was in South Korea last week, and when talk of Hollywood came up, some of the locals became livid over the swallowing of their cinematic expressions in favor of MATRIX-type events.

Well who's fault is that? Is someone forcing these movies into their country? I guess I'm the total opposite of them because I WANT MORE FOREIGN FILMS RELEASED HERE. I would love to see some of the latest films from another country without having to go arthouse joints. I welcome their films and a look into their culture. But that's just me and I realize the "bottom line" is what determines things like this.

It seems to me the rest of the world is full of snobbery and shit.
Old 06-27-05, 11:37 AM
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Another factor, no dang originality! Everything that's coming out nowadays is either a sequel or re-make, not to mention getting greenlit.
Old 06-27-05, 06:26 PM
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Originally Posted by Dr. DVD
Another factor, no dang originality! Everything that's coming out nowadays is either a sequel or re-make, not to mention getting greenlit.
I've never really bought into the idea that the present day is awash in an abnormal amount of remakes, sequels, and TV adaptations. In fact, in response to a similar thread on usenet, I performed a very informal, anecdotal investigation.

From:
http://groups-beta.google.com/group/...ff19584169441e
Going through IMDB's search I looked up the film output for one film studio in 3 different years.

Universal

1940 75 films - 60 full length - 9 remakes/sequels - 0 TV adaptations

1980 18 films - 17 full length - 3 remakes/sequels - 3 TV adaptations

2003 18 films - 15 full length - 3 remakes/sequels - 0 TV adaptations

So in 1940, far more remakes were made than in more recent years. However, far more films were made as well. As a percentage, it's only 15% of the studio's total output. Compare that to 1980 - 18%, and to 2003 - 20%. So remakes and sequels have gotten more prevalent, but they are far from overwhelming. The difference between 1980 and 2003 isn't that drastic either. Also, note that in 1980, Universal had 3 TV show adaptations. Given the original article's denouncement of these as creatively bankrupt, if we add those to the percentages, 1980 was a far less creative year than 2003, with 35% of Universal's output that year coming from "uncreative" sources.

This example is far from definitive, of course. This is only one studio, and the individual years I picked may have abnormal numbers compared to surrounding years. Also, the 9 films for 1940 were the 9 that I could accurately identify as remakes. Several of the dozens of other films that year may also be remakes, especially the westerns. With their generic plots and rehashed ideas, it's hard to tell if one is specifically a remake, or just very similar to westerns that came before.

1940 Remakes/Sequels:
Alias the Deacon (1940)
Flash Gordon Conquers the Universe (1940)
House of the Seven Gables, The (1940)
Invisible Man Returns, The (1940)
Invisible Woman, The (1940)
Law and Order (1940)
Mummy's Hand, The (1940)
Son of Roaring Dan (1940)
Spring Parade (1940)
As for getting sequels and remakes getting greenlit, it's more a cause of cautiousness than unoriginality. There's plenty of original scripts floating around Hollywood, although it can be debated how "original" some of those scripts are. However, remakes and sequels are films based on known properties. Hollywood presumes these as less of a risk, taking the "if they loved it before, they'll love it again" philosophy towards them.

Finally, sequels and remakes aren't inherently uncreative. While many turn out as such, they do have the ability to look at existing material from a new angle, or to expand on characters and story already established. Which is why we occasionally have remakes or sequels that are better than the originals, like Spiderman 2 or The Maltese Falcon.
Old 06-27-05, 10:15 PM
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Originally Posted by Dr. DVD
A guy was on CNN This Morning and he was accrediting the lack of profit to movies that aren't that good. For the most part, I agree. This summer the only movies that really blew me away were Batman and Star Wars, the rest I could have waited for DVD easily.

In short, I felt like saying : "Well, duh," as this is something we have been aware of for a while around these parts.
Movies suck every summer. That excuse is pretty lame. What came out last year? Spider-Man 2 and what else that didn't suck?

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