Understanding the Movie Business

For film buffs and individuals enamored by the lure of Hollywood, many people are fascinated with the business of movie making. Hollywood is an extremely complex business with many facets and many niches that are extremely interesting. If you always wanted to understand the movie business, here are some key tips.

The movie business is a lot of ways is like corporate America and a lot of ways like a mom and pop shop. Hollywood is constantly changing, constantly fighting with itself between artistic integrity and bottom line. However, box office dollars usually seem to win out.

Most people don’t realize that most movies need to take in considerably more than their box office receipts state in order to make a profit. For instance, if a movie has a budget of $80 million dollars and an advertising budget of $20 million dollars, it usually needs to take in about $200 million in either box office receipts or DVD discs and licensing in order to break even. The key is that the studio and the theaters both have profit sharing on the movie.

Movie theaters get a take in the movies that they sell tickets to. For instance, while contracts may vary, the first week a movie runs in a theater, the movie studio gets to keep about 70% of the box office receipts and the movie theater keeps the remaining 30%. If the movie continues to be popular and is in theaters an additional week, the movie theater now gets a higher share of the box office receipts, let’s say a 60/40 split. Once a movie is in a theater for more than two to three weeks, a movie is split evenly at 50/50. Movie studios make the most money the first week, which is why they try to have a strong opening weekend, the movie theaters make their most money as a movie stays longer in the theater and they look for movies with legs that will continue to bring in viewers week in and week out.

Another part of the movie box office equation is domestic and overseas ticket sales. While most studios will determine if a movie is a success by being successful domestically, many movies make more money overseas and even sometimes count on international box office receipts to push a film into profitability.

You might ask yourself that since there are so many films that have a $100 million budget but never make $200 million at the box office, how are the studios not going out of business. The answer is simple – DVD sales. DVD’s these days are an important factor in profitability. If a movie sells 1 million copies of a DVD that can be upwards of $10 to $12 profit each that can add an enormous amount of money to the bottom line. Besides DVD sales, cable rights, television rights and now online downloading rights can fit into the equation. For kid’s films, action figures and merchandising also fit into the movie business equation. For people that are more than film buffs, the movie business can be extremely fascinating.

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