Blockbuster economics: So you want to make a movie?
Published: 8th May 2012 00:00:36
If a Hollywood studio has spent a lot of money on a movie, say $200m, then you will probably find out about it.
Talk of vast budgets is good for business.
From the audience's point of view, it might be worth the price of the ticket just to see what justified that expense.
But finding out exactly how the money is spent is more difficult.
On rare occasions production budgets have leaked out, but up-to-date information is hard to come by.
And that's hardly surprising, as there is a lot at stake. Exposing a movie's financial details could upset a lot of powerful people.
A film's director, actors and producers will be some of the most significant costs in the budget, and they will not be happy to have their pay open to public scrutiny.
But it is possible to get an idea of where the money goes.
So, if you have always wanted to direct a blockbuster movie, here's a rough-and-ready guide to how much it is going to cost you.
And, lower down, find out how you might get some of that money back.
So what qualifies these days at a big budget? According to Nikki Finke, founder and editor-in-chief at the respected Hollywood news website Deadline.com, $200m is the starting price. "$200m is when they (studio executives) really start thinking hard about it."
Approving (or green-lighting) a project of that size might be beyond the remit of even a studio chairman. It might have to go to top executives at the parent company.
You are going to need a story for your movie. More often than not that will come from a book, a play, or in some cases a video game. The rights to a best-selling book can cost anything between $500,000 and $2m.
So you have permission to use the story, now it needs to be converted into a script. Top scriptwriters will command hefty fees and you could spend as much as $2m. That's the elite end of the market; most Hollywood writers toil away for much, much less.
This varies wildly form director to director. Some like Steven Spielberg may take a producer role, which means extra payment.
The most successful directors will ask for as much as $10m for a movie, and may also want a cut of the film's profits.
The title "producer" can mean a lot of different things in Hollywood. Typically it is the person who will shepherd the movie from the script page to the premiere.
A producer can be thought of as the chief executive of the film. They are the financial controllers and will make hiring-and-firing decisions.
They will also bring investors into the project and negotiate deals with distributors.
At the high end of the industry they will receive millions of dollars. While rarely getting paid more than the lead actor, they can make up to $5m for a film.
A big name actor can expect an up-front payment, $10-$20m would not be unusual. The biggest names can demand a percentage of a movie's box office return.
While studios are generally reluctant to offer such deals it can be a way of managing financial risk.
If the film is more successful than expected, everyone is happy. But if it fails, at least the payments to actors will be limited.
For the Hollywood elite, vast sums can be made. It is reported that Johnny Depp has made hundreds of millions of dollars out of the Pirates of the Caribbean movies.
Again, this can vary wildly.
If you want to film in Manhattan, you will have to pay for filming permits, insurance, security - the list goes on. And if you want to film at night, elaborate lighting will be needed.
You can save money by filming in cheaper locations. Many countries will offer tax breaks. The Lord of the Rings trilogy received substantial tax breaks from New Zealand.
Producers will have day-by-day breakdowns of how much filming will cost. Something relatively straightforward like a courtroom drama could cost $500,000 a day. For a 40-day shoot, that is $20m.
But if you want car chases or pyrotechnics, then you can expect to pay a lot more.
Keep plenty of money in reserve for this. Computer generated imagery (CGI) is expensive, and big-name directors like long movies.
For some films that rely on visual effects, it will almost double the cost of the movie. You could end up spending $100m.
A relative bargain. For an original song, a well-known pop star may charge up to $1m.
So you have made the movie, the director is happy and you have kept to the budget. Surely the worst is over. Wrong.
"Actual filming, unless the director goes off the rails, that is often the easiest part of it all. These days it is extremely rare that a production will be a month or two late. In this business, one or two days is a big deal," says Nikki Finke at Deadline.com.
You are now entering the world of marketing, which is very expensive. Big films will need a global advertising campaign. This can often amount to 50% or more of the original budget. Reports say that Disney's flop movie, John Carter, cost $250m to make and another $100m to market.
So the film has been made and the advertising campaign has been rolling for months, now it is time to make some money.
The rule of thumb is that a movie studio can expect to receive about half of the box office sales.
But in reality, the deals struck will be complicated. Studios often negotiate a high percentage for the opening week, which will then tail off, so the cinema chain gets a greater share as the film gets older.
In the US, home entertainment spending, which includes DVDs and film rentals, has been falling since hitting a peak in 2004. Nevertheless it remains an important part of a film's revenue.
Bruce Nash, the founder and president of Nash information services, which provides movie industry research and support, says: "The death of that market is somewhat overblown.
"The DVD market peaked much earlier than studios would have liked, but the overall viewing of video at home continues at the same rate as ever. It's a much more mixed market between DVD, Blu-ray, video streaming and rental services like Red Box."
A studio will typically take 40% of DVD and rental sales, and that can generate some healthy sums.
DVD sales of the movie Avatar totalled $600m in the US alone. Another $57m was spent on renting the movie.
In the business this is known as ancillary revenue. It includes licensing for toys, games, posters and other items. This area is particularly important for animated family films like Pixar's Toy Story series.
In-flight entertainment is also included in this bracket.
Ancillary revenue can amount to about 10% of box office take.
Generally a film will be offered on some kind of video-on-demand service first, then a premium cable package, and finally it will make its way on to regular television.
The fees will be based on the film's box office performance. A studio can expect to make about 11% of its box office total from TV releases.
At 03:55:45 in WorldIndian election campaigns are lively, colourful affairs which many believe best capture the essence of its democracy. But the 2014 elections are seeing some politicians use unique ways of communicating with the voters. One of them is the opposition candidate, the BJP's Narendra Modi, as Sanjoy Majumder found out.
At 03:43:59 in HeadlinesRussia's leaders are refusing all negotiations with their Ukrainian counterparts, Ukraine's acting President Oleksandr Turchynov has said.
At 03:23:00 in WorldShares in Chinese media firm ChinaVision soared over 250% after Alibaba announced it paid $804m (£484m) for a controlling stake in the company.
At 03:21:24 in PoliticsDavid Cameron is set to make his first visit to Israel on Wednesday since becoming UK prime minister.
At 03:20:49 in HeadlinesMalaysia's air force chief has denied remarks attributed to him that a missing Malaysia Airlines plane was tracked by military radar to the Strait of Malacca, far from its planned route.
At 03:19:06 in HeadlinesThe northern Australian city of Darwin has been hit by a major blackout, forcing schools to close and knocking out traffic lights.
At 02:41:51 in HeadlinesThe funeral is to take place in the Turkish capital Istanbul of a teenaged boy who died died nine months after being injured during anti-government protests.
At 02:37:38 in ScotlandA song has been released in support of Inverness Caledonian Thistle ahead of the team's Scottish League Cup Final match against Aberdeen on Sunday.
At 02:32:09 in ScotlandThe value of salmon exports to America has seen a four fold increase in five years reaching £200m last year.
At 02:30:50 in ScotlandNew sources of credit are needed for small and medium sized businesses (SMEs), according to the Scottish Parliament's economy committee.
Harvard CitationBBC News, 2012. Blockbuster economics: So you want to make a movie? [Online] (Updated 8th May 2012)
Available at: http://www.ukwirednews.com/news/1427032/Blockbuster-economics-So-you-want-to-make-a-movie [Accessed 12th Mar 2014]
News In Other Categories
The family of a pensioner who died has demanded an inquiry into all hospitals under the control of a south Wales health board.
David Cameron is set to make his first visit to Israel on Wednesday since becoming UK prime minister.
There has been a sixth death at a Belfast hospital where treatment delays could have been a contributing cause of death, the BBC has learned.
Women who suffer swelling following breast cancer treatment should be encouraged to exercise, say experts.
With the doors to its brand new £1million training centre officially open, one of the UK's leading apprentice training providers, Bristol based S&B Automotive Academy, is showcasing its world-class facilities by launching a series of foreign student exchanges for the first time in its 41-year history. To get a flavour of what life is like as an apprentice in the UK, the Academy hosted 16 apprentice engineers and bus drivers from the G9 Automotive College in Hamburg, Germany, as part of a Europe-wide vocational training initiative called the ‘Leonardo Programme’ with support from the European Social Fund. In a reciprocal arrangement, S&B will be sending nine apprentices to Germany during February 2012 so that they can get an appreciation of life in the automotive industry on the Continent. A further three German exchange groups are being planned for next year. Designed to assist the development of vocational skills and training across Europe, including work placements for trainees, the Leonardo Programme has a budget of €1.75bn, which is helping to encourage UK organisations to work with their counterparts abroad. In what is expected to be another challenging year for employers in the UK automotive sector, S&B’s Chief Executive, Jon Winter, claims that the exchange initiative will bring many benefits to the Academy and its apprentices: “In a world of global automotive brands, it’s important for our learners to understand the international context of the industry they have chosen to make their career. This new exchange programme will enable apprentices and Academy staff alike to achieve a better understanding of the challenges and opportunities within the automotive arena in Europe. With the Academy’s influence also extending to the USA and Asia, there’s every possibility that this initiative could move further afield in the future.” Continued Winter: “The need for skilled technicians across the world is on the increase and we actively encourage our apprentices to look at broader horizons during their training. Many of them have already learned the phrase ‘Vorsprung durch Gelehrtheit’, quite simply, ‘Advancement through learning.” In the 2010/11 academic year, S&B doubled the number of successful Apprenticeships over the previous year with some 350 apprentices graduating from the Academy. At the same time, achievement levels reached an all-time high with an overall success rate of 85%. For those learners on the Advanced Apprenticeship three-year programme, success rates were even higher, at over 98%. PHOTO CAPTION: As part of their exchange visit, S&B Automotive Academy arranged for the German apprentices to visit Hampshire bus operator, Bluestar, at its Barton Park depot. The students are pictured with S&B’s Andy West (3rd right) and Steve Prewett, Bluestar’s Area Engineering Manager (2nd right). Ends http://www.sandbaa.com
Glastonbury Festival has been granted a new ten-year licence.