How to Break Down Box Office

Movies

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Before beginning my new weekly box office breakdown series on the website, I thought it was important to cover my methodology and where many in the box office space retrieve information and calculate numbers such as projected marketing costs and break-even points. It is important to know that even though there are standards for these calculations, there are different ways to calculate the data, and, ultimately, each movie and/or studio could have unique financing that will not work with typical calculations. With that caveat out of the way, let’s dive in!

Budgets and Marketing

One of the most important factors in determining the financial success or failure of any movie is to first look at the total costs spent on production (before, during, and after actual filming) and what the likely cost of marketing would be for that particular film. Many industry so-called “experts” receive information that allows for budget estimates to be made. Usually, these estimates are accurate, but as Disney tax returns from the UK have recently shown, there are times when the budgets are grossly underreported by studios (especially Disney) that actually sometimes spend close to twice as much as initially estimated.

In addition to budgets, the cost it takes to market the film must be considered. A studio may spend $100 million to make the movie (production budget), but that number does not take into account any of the costs for movie posters, TV spots, and any other marketing a studio might do for a particular movie. The industry standard for the cost of marketing has almost always been half the size of the budget. This means that, whereas a studio may spend $100 million on the budget, they would typically spend an additional $50 million on marketing for a film of that size. This would make the total cost for the film $150 million (or 1.5 times the budget). There are times when a studio may spend more or less than the industry standard on the marketing for a film, but unless this is officially disclosed, it is impossible to know whether or not this is the case.

Break-Even Point

Now for one of the more disputed aspects of box office analysis: how much does a movie need to make to break even? The first thing to recognize is that movie studios do not make 100% of the reported box office. Just because a film makes over $1 billion at the global box office doesn’t mean the studio gets all that money. Prior to COVID-19 and the shift away from theatrical releases and towards streaming, many studios made roughly 90% of the domestic opening weekend box office while theaters made only about 10%. Having worked at a movie theater for several years, I had many conversations with our general manager about this point, which helped explain why AMC and other theater chains had to charge so much for popcorn, candy, and soda. The fact is that theaters do not make much on ticket sales and make most of their money from concessions.

Some things have reportedly changed since theaters began to reopen and studios started releasing their films with different theatrical windows (the time a movie stays in theaters exclusively). Box office analyst Valliant Renegade has extensively covered what the tax filings from AMC Theaters have shown about the current split between theaters and studios and how much of that has likely been impacted by shorter theatrical windows. Essentially, before COVID, many movies would see theatrical windows of 45 days or longer, which would incentivize theaters to make deals with studios that guaranteed less money in the first week or two but a lot more down the stretch. If a movie had a huge opening weekend, the studio would get the vast majority of that money, but if a movie had good legs and kept making money past week 2, the theaters would start to get a majority of the ticket sales. Prior to this massive shift, the split was roughly 60% going towards studios and 40% going towards the theaters. With the various changes that have occurred, it now seems that studios get roughly 55% of the box office receipts from the domestic market, with it potentially being as low as 50% according, once again, to the solid research done by Valliant Renegade.

With the domestic breakdown now being understood, we can shift our focus to the international market. Though the studios get a majority of the box office from the domestic market, the story is very different internationally, where studios get roughly 20-40% of the box office, depending on the country and any other potential factors. The general rule is that most international markets will give about 40% of the box office to studios, with a major exception being Communist China, where they only give studios about 25% of the box office. This is why if a film has a very high budget and makes most of its money internationally (with a large chunk from China), they will have a much more difficult time making their money back.

With all that preamble out of the way, let’s discuss the often debated break-even number for most movies. For a long time, the typical break-even point has been a box office total that is 2.5 times the budget of a given film. This multiplier assumes that the total cost of the film is the budget x 1.5 and that studios will get 60% of the overall box office. Depending on where a movie makes most of its money and how much the studio spends on marketing, this can be a fairly accurate metric. It is still true, however, that a more accurate multiplier for many of today’s top-grossing big-budget films might actually be closer to 3 times the budget due to higher-than-average marketing spending and/or a smaller percentage of the total box office compared to previous years. Ultimately, we can still get a pretty good idea of how much a movie has made or lost, even though it is far from an exact science.

Miscellaneous Factors

One of the many reasons I try to keep the box office breakdowns as digestible as possible (though I may often fail at this) is that I think it is important for the general audience to have a better understanding of how movies are made and how they actually make – or, in many cases today, lose – money. The truth is that there are a plethora of other factors that can influence the success or failure of a movie. There are many films today that have multiple production companies involved with various splits in how much they spend and how much they get back. There are also many studios that will pay companies that have produced movies for the right to distribute their films, which could make up some, if not all, of the production costs and could lead to a distributor spending an unknown amount of money on standard marketing or additional marketing. Lastly (though there are many more reasons), there is the question of alternative revenue streams. Many movies contain product placements, which could either lead to additional costs or potential credits depending on the deals that are struck. There is also the question today of post-theatrical releases on PVOD and streaming services. Many studios may also sell distribution rights to international groups if they do not have the ability to release their films across the world. All these things lead to extra costs and potential credits that are hard and possibly even impossible to quantify fully. This is a primary reason why if a film “breaks even” or sees a small amount of profits or losses, one could still argue that the film will be financially solvent in the long run due to various post-theatrical deals or through other means.

Conclusion

Because of these various factors that can push a film in either direction, the safe bet is to use standardized methods of calculation to determine the success or failure of a movie. Keeping things simple not only reduces the headaches that these numbers can cause but also leads to what is likely the most accurate and fair representation of the financial success or failure of a given movie. I hope that this breakdown has not only helped explain why many in the box office analysis space have various disagreements, but also why I chart movies the way I do. My next article will look into how and why I make projections for what the final box office of a given film will be after the first two weeks of a wide release and how the failure of Solo: A Star Wars Story led me down the path to becoming obsessed with box office analysis and general number crunching. Have a wonderful day, everyone, and God bless!