The Profit Rule Of Thumb 2 1/2 X the budget
The Ken
Fellow film fans,
Back in 1989-90 I took some filmmaking courses in NYC. Back
then they taught us that a movie had to make two and a half times it's
budget to begin to make a profit. These other costs besides budget
covered marketing and distribution. But back in 89 a budget of $40
million was considered obscene.
Here we are, eight years later and we have movies like
"Titanic" that have crossed the $200 million mark in budget. Does the
2 1/2 rule still apply?
Please post here or email responses to:
ken...@rknet.com
Joe Anderson
In <336cabdc....@news.i-2000.com> the...@i-2000.com (The Ken)
writes:
>(snip)
> Here we are, eight years later and we have movies like
>"Titanic" that have crossed the $200 million mark in budget. Does the
>2 1/2 rule still apply?
> Please post here or email responses to:
>ken...@rknet.com
Hi,
Curious to know where you are getting the idea that Titanic crossed the
$200 million mark? Did you call marketing at Fox????
:)
Ross Mandell
the...@i-2000.com (The Ken) wrote:
>Fellow film fans,
> Back in 1989-90 I took some filmmaking courses in NYC. Back
>then they taught us that a movie had to make two and a half times it's
>budget to begin to make a profit. These other costs besides budget
>covered marketing and distribution. But back in 89 a budget of $40
>million was considered obscene.
> Here we are, eight years later and we have movies like
>"Titanic" that have crossed the $200 million mark in budget. Does the
>2 1/2 rule still apply?
> Please post here or email responses to:
>ken...@rknet.com
The real movie magic is not in story telling or in special effects,
but in movie accounting. The movie companies truly work wonders in
preventing ANY movie from ever turning a profit no matter what its
cost and what its revenue. They do things like taking their profit
off the top and writing it off as an expense to the movie, and many
other tricky and not so honest accounting maneuvers. The rule of
thumb is that NO movie ever turns a profit.
Roy A. Ruiz
Hi, I talked with the 1st AD and the UPM, and their knowledge of the
money spent on the budget is very close to Ken's question. Now Speed 2
buget is over 140 million believe it or not, and with all the competion
this year, its not going to do so well.
Tony Kondaks
: Back in 1989-90 I took some filmmaking courses in NYC. Back
: then they taught us that a movie had to make two and a half times it's
: budget to begin to make a profit. These other costs besides budget
: covered marketing and distribution. But back in 89 a budget of $40
: million was considered obscene.
: Here we are, eight years later and we have movies like
: "Titanic" that have crossed the $200 million mark in budget. Does the
: 2 1/2 rule still apply?
My understanding is that the 2 1/2 rule applies still...but not with all
films.
And this is due to two new dynamics:
1) the multiplex; and
2) the big, BIG budget movies (a la "Titanic" which you cite).
Distributors and Producers can say to theatre owners that they want, for
the first several days or weeks of a big budget's release, that they will
take 90% of the box office take (as opposed to 50/50 which, I have heard ,
is the usual split). They do this because with such big budgets they need
to really be assured that they can recoup at least SOME costs. Since the
multiplexes are no longer "one-film" theatres, they can absorb the
minimal revenue that they will receive from only one of seven or eight
screens (plus they'll still make out on the popcorn and soda sales) while
making out more on the others.
Of course, the 2 1/2 rule is obsolete for other reasons: First Run
theatrical release is only one small source of revenue. There are many
others today that even 15 or 20 years ago weren't takeen into account:
- Second release theatres;
- Pay-per-view TV;
- Video sales and rentals;
- Cable Premium channel broadcasts (e.g. HBO);
- Network TV broadcasts;
- Foreign distribution;
- Soundtrack disc sales;
- Merchandising (over $ 1 billion in sales for "Star Wars" paraphenalia)
--
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tkon...@primenet.com /__)/__) / / / / /_ /\ / /_ /
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m...@hotmail.com
joe...@ix.netcom.com(Joe Anderson) wrote:
>In <336cabdc....@news.i-2000.com> the...@i-2000.com (The Ken)
>writes:
>>(snip)
>> Here we are, eight years later and we have movies like
>>"Titanic" that have crossed the $200 million mark in budget. Does the
>>2 1/2 rule still apply?
>> Please post here or email responses to:
>>ken...@rknet.com
>Hi,
>Curious to know where you are getting the idea that Titanic crossed the
>$200 million mark? Did you call marketing at Fox????
>:)
mARKETING AT Fox would not tell you how much they spent. The Industry
is saying the Titanic is at around $200 million and will not make it
for summer. Its director has dropped his fee as a concession to the
difficulty he feels somewhat responsible for.
Mike Rice
mr...@centuryinter.net
SJHalpern
It's safe to say that the 2 1/2:1 rule doesn't apply. After awhile,
people were saying 4:1, and then even 7:1. For every rule, there are
exceptions.
A more generally accepted rule of thumb these days is that if a film's
domestic gross equals its budget, it is probable that, after taking into
account the other revenue sources in the food chain, the film will make
its money back.
As for the $200 million films, other questions arise. The question is not
"will the film make its money back" but "who will make the money back"?
If a film is a co-production, one partner may have domestic, another
foreign, etc.
This is why, although some will say that no movies ever make a profit, I
argue that ALL movies make a profit.... the question is.... who makes the
profit. If you distinguish the studio distribution arms from their
production arms, all studio distribution entities make a profit. (A study
I saw from Paul Kagan about three years ago indicated that 91% of studio
released films were profitable -- for the distributor.) Take, for
example, the Melniker and Uslan suit over BATMAN. The film may not have
made a profit per the formula in their contract, but that doesn't mean
that Warner Bros. didn't make a profit.
Finally, the 90/10 vs 50/50 exhibitor/distributor split aren't
inconsistent. Although a big film may be 90/10 the first week, and for
certain films, for more than a week, the formula gets reduced to 80/20,
70/30 etc. (as an incentive for the exhibitor to keep the film running),
so that, in the end, 50/50 is considered the accepted
exhibitor/distributor split.
m...@hotmail.com
Ro...@Juno.com (Ross Mandell) wrote:
>the...@i-2000.com (The Ken) wrote:
>>Fellow film fans,
>> Back in 1989-90 I took some filmmaking courses in NYC. Back
>>then they taught us that a movie had to make two and a half times it's
>>budget to begin to make a profit. These other costs besides budget
>>covered marketing and distribution. But back in 89 a budget of $40
>>million was considered obscene.
>> Here we are, eight years later and we have movies like
>>"Titanic" that have crossed the $200 million mark in budget. Does the
>>2 1/2 rule still apply?
>> Please post here or email responses to:
>>ken...@rknet.com
>The real movie magic is not in story telling or in special effects,
>but in movie accounting. The movie companies truly work wonders in
>preventing ANY movie from ever turning a profit no matter what its
>cost and what its revenue. They do things like taking their profit
>off the top and writing it off as an expense to the movie, and many
>other tricky and not so honest accounting maneuvers. The rule of
>thumb is that NO movie ever turns a profit.
Thats so some of the players who are profit participants have to
sue to get paid. Ron Shelton had to sue recently to get $10
million from one of the studios. The judge in the case made it
a class action, which would seem to allow other prof-particiipants
to get their money without going thru a lawsuit. Naturally, the
studio is appealing.
Mike Rice
mr...@centuryinter.net
Peter Reiher
m...@hotmail.com wrote:
>
> Ro...@Juno.com (Ross Mandell) wrote:
>
> >the...@i-2000.com (The Ken) wrote:
>
> >>Fellow film fans,
>
> >> Back in 1989-90 I took some filmmaking courses in NYC. Back
> >>then they taught us that a movie had to make two and a half times it's
> >>budget to begin to make a profit. These other costs besides budget
> >>covered marketing and distribution. But back in 89 a budget of $40
> >>million was considered obscene.
> >> Here we are, eight years later and we have movies like
> >>"Titanic" that have crossed the $200 million mark in budget. Does the
> >>2 1/2 rule still apply?
> >> Please post here or email responses to:
> >>ken...@rknet.com
> >The real movie magic is not in story telling or in special effects,
> >but in movie accounting. The movie companies truly work wonders in
> >preventing ANY movie from ever turning a profit no matter what its
> >cost and what its revenue.
> >. The rule of
> >thumb is that NO movie ever turns a profit.
I presume the original poster cares about genuine profitability,
not the studios' fictitious version. That, at any rate, is where
the 2 1/2 times budget figure came from. It was based on the fact
that, roughly 1/2 of all moneys paid at the box office to see a
film were returned to the studio. The rest were kept by the theaters.
So if your film cost $40 million to make, you'd need $80 million at the
box office before $40 million flowed into the doors of the
studio/distributor. However, the studio also had to pay advertising and
print costs, so the extra 1/2 in the factor covered those.
The figure no longer applies for various reasons. First, the effects
of foreign box office have become extremely important. Slightly
more than 1/2 of the money spent at box offices for Hollywood films
is now spent overseas, and the proportion is generally rising. Thus,
any formula that doesn't count that effect is skewed.
Second, the video market is far more profitable than any other second
market was before. In years past, the studios could get a little
money selling films to airlines, to broadcast TV, and from occasional
revival showings, but (with a few exceptions), this was peanuts.
Now, a fairly large video hit can nearly equal its domestic box
office.
Also, these other sources of income vary a whole lot based on type
of film, star, etc. For example, large budget action films may
do far better overseas than in the US, while any half-decent animated
film will do far better at the video store than in theaters.
If you needed an equivalent rule of thumb for today, a film that
grosses something like its negative cost at the US box office will
probably make the studio folks happy. But the other posters are right
that, when you look at the books, the film will appear to be in the
red.
--
Peter Reiher
rei...@cs.ucla.edu
<http://fmg-www.cs.ucla.edu/project-members/reiher>