Do Hollywood Movies Actually Make Any Money?
When you see how much a film has grossed domestically and worldwide, you probably see a big number, an even bigger number, and a dollar sign to bring it all home just how big those numbers are, and how much they represent — millions of dollars, often hundreds of millions, and, very occasionally, cresting a billion dollars. Often, no matter how you look at it, it’s a lot of money. At least it seems like it is.
The truth of the matter is a little bit more complicated. Take last year’s Star Wars spin off, for example. Solo: A Star Wars Story, pulled in almost $400 million at the box office, and with a production budget of about $300 million, you would expect that Walt Disney Studios would have walked away with a cool $100 million. Not bad, right?
However, the film actually lost them money. You might have seen headlines about this movie, or other movies, needing to make a certain amount to break even. In this case, Solo would have needed about $500 million to break even. But, hold on, that doesn’t seem right. We know that the budget was only $300 million. They should have made $100 million, not lost it, right? In reality, however, there are several additional costs that aren’t included in the budget of an individual film. Namely you have marketing costs, with distribution costs filling in the rest.
Marketing is expensive. To get your film out there on the minds of potential viewers, you need to put it in front of them. And in order to do that, you have to pay. First to make the ads, the photoshoots, the graphic design, etc. And you have to pay for airtime, for preroll ads on YouTube, for billboards, for ads that scroll on Reddit, or run between paragraphs on your favorite blog. Even the creation of a trailer is it’s own mini-production, and those costs are repeated if you have multiple trailers and teasers.
The fact is, every part of producing ads costs money, and every part of getting those ads out into the world cost money. And it’s not cheap. The more eyes you want to get your ads in front of, the more of a premium you’re going to pay. As one extreme example, a Super Bowl ad, which can indeed present your project to millions of viewers, is going to cost you $5 million for just 30 seconds. It’s easy to see how all of these costs, big and small, can add up to significantly pile onto the production budget. A general rule of thumb is that you can take a movie’s production budget and add another 50% on top of that to get an idea of how much marketing cost. So, continuing with our Solo example, if it cost $300 to make, then it probably cost another $150 to market. And perhaps more since this is one of the studio’s biggest franchises. That brings us up to $450 million. Of that remaining $50, a lot of that is likely tied up in distribution costs. So a film like Solo, which has a budget of $300 million, is actually going to put a studio in the hole for upwards of $500 million, for the simple fact that although a movie is done being made, a studio is far from done with spending money on it.
Luckily for the studios, at the other end of the process, it’s also true that although a film is done being shown, it’s not done making money. There are plenty of other ways that films make money for their studios and production houses. A big chunk of that is home release and video on demand. Now, when films have had their theater run, they move on to DVD, Blu-ray, and video streaming services. Licensing to streaming services like Netflix can mean the difference between a film losing and a film making money. And then there are specialty profits. For a film like Solo, merchandising can rake in the money. For a film like, say, Transformers, there’s a huge opportunity for product placement. A movie about high tech super hero cars is perfectly suited for something for which that Solo is veritably unsuited. Transformers makes millions from featuring Chevy cars in their franchise.
So why don’t studios include all of this in their budgets and in their gross? Well for one thing you have tradition to contend with. This is simply the way that it has always been done. But furthermore there are some very good reasons for the persistence of this paradigm. For one, most studios have a marketing budget, just like any other major company. They then decide how they want to divide that between their titles. Although, of course, major titles often operate outside of that and on a more individual basis, it’s simply easier to organize the information with those two simple distinctions. Cost of making the movie vs profit made at the box office. It’s helpful for studios to conveniently ignore marketing costs to showcase how successful their films were, and when taxes come around it’s convenient for them to point to all of that additional overhead to claim that their films lost them money. There are plenty of reasons why this slightly misleading system is the go to, but perhaps there aren’t really two simple figures to compare that tell the whole story. Whether it’s tradition, slyness from the studios, or the lack of a better option, it’s just the way that it is. Either way, now you know that the way that it is, those two numbers, are far from the end of the story.
