Monday, 28 December 2009

Hollywood Babble On & On #420: You Have A Question I Have An Answer

Welcome to the show folks...

Reader Blast Hardcheese, which I assume is his real name, had a question for me:
My question is, does Avatar really need to do Titanic-level BO to be considered a success?
My answer is.... probably.

I've tackled this topic before, but every once in a while I think it's good to offer a little refresher course on Hollywood and money.

You see the box office take is big, but it's not exactly what the studio sees.

Here how it works...

Step 1. You buy your ticket.

Well a portion of that ticket goes to the theater in what is called the HOUSE NUT. The House Nut is what it costs to run the projector once, divided by the number of seats in the theater, if it's a sell-out, or the number of tickets sold. (The specific amount of the House Nut is a better kept secret than anything done by the CIA.)

You're probably wondering how the theater owners make a profit, when the House Nut only covers the break even cost of showing a movie. The answer is very simple. Movie theaters are not really in the movie business. Movie theaters are in the candy business, and they make their profit margin selling you popcorn, M&Ms, and watered down cola that makes you need to pee during the climactic battle scene.

Then the money left over enters...

Step 2. The Distributor Gets Their Piece.

Now this might not happen right away. In fact, the theater chains are notorious for holding onto ticket receipts until the very last minute. Why? Several reasons, one of them is being able to hold onto the interest earned by that money, and the second is to use it as a form of collateral when they apply for loans or financing.

The big distributors don't cause much stink, because they need the theaters to show their movies, and the theaters don't push it too hard, because they need the movies to attract the people to buy the candy.

Anyway, the distributor gets the money, now called a RENTAL, and then...

Step 3. The money is transformed!

The money gets transformed, mutated if you will, into three forms....

1. GROSS RECEIPTS: This is the money from dollar one of the Rentals. It is the biggest single amount, because it doesn't take into consideration the cost of the movie, the cost of the marketing and distribution, or the studio's day to day overhead. If you have a chance to get a piece of the profits, then ask for gross, you do not ask for...

2. ADJUSTED GROSS: This is the gross rental income, but with some, but not all, of the film's production, marketing, distribution, and studio overhead costs deducted. The actual nature and amounts of these costs are deliberately vague, and can lead to some screwing over, but they are not as bad as the...

3. NET PROFITS: You have more luck seeing Bigfoot shopping with the Loch Ness Monster in downtown Manhattan than seeing any net profits. These are the receipts with the total costs of production, marketing, distribution, and studio overhead deducted, and that pretty much sucks the box office dry.

But what are these costs that make adjusted gross and net profits vanish into the ether?

Allow me to explain...

PRODUCTION COSTS: This is the amount needed to make the film from development to post-production.

MARKETING & DISTRIBUTION: Also called Prints and Advertising (P&A), and it's the cost of getting films into theaters and bums into those theater seats. Because it costs money to make prints, getting them into theaters, and to buy the advertising in print, TV, radio and the internet. It's not uncommon for the P&A costs to be equal to, or even greater than, the costs of making the movie. Usually the bigger the movie, the more P&A spent, because they need to hype the film to the maximum.

STUDIO OVERHEAD: These are the day to day costs of running the studio, and are so vaguely defined it could include everything from employee salaries, to a certain "happy ending" given to the CEO at a certain massage parlor. The definitions of studio overhead costs are more obscure than a serious Canadian novel, and form a black hole for money.

Once it's all said and done a film has to make
at least double its production budget to be considered a "break even" movie.

As for
Avatar, I think someone is playing silly buggers with the numbers, because before the film was released word was that the production budget alone was $500 million. After the film was released, that amount was magically reduced to $350 million on production with $150 million allegedly spent on distribution and marketing.

I suspect that's all just a little too neat and tidy, and fits the narrative of making the film look more successful than it actually is.

But then again, I might be paranoid.

I hope that answers your question.


  1. Hah! I was right (mostly). Do I get a gold star for paying attention teacher?

  2. Give yourself a silver star, "mostly" right doesn't get the gold.


  3. Blast Hardcheese29/12/09 10:03 am

    Thanks, D.

    Actually, my real name is Biff Plankchest.

    I have a little perspective on overhead, since I work in the aerospace industry. There are several large, bloated companies (for example, one whose name might rhyme with Hockreed Lartin) who charge a fantastic amount for overhead, well north of 100%. Plus there's the G&A (General and Accounting) costs. The upshot is that, out of every dollar the customer (usually the DoD) pays to the company for a particular program, well over 1/2 goes to overhead and G&A.

    The exact amount is secret (except to the gov't customer), but it is a 'set' amount. From what you've said, it sounds like the studios are even less forthcoming and efficient than major aerospace companies. There's a sobering thought!


  4. Actually, my real name is Biff Plankchest.

    I salute another MST3k fan.

    Though I could swear your name was Slab Bulkhead.

    (and D, I just said "mostly" because I didn't want to be pretentious enough to give myself a perfect score)

  5. Please Nate, this blog is the home of know it all pretensions, so don't hold back.


  6. Avatar's earnings are as inflated as Pres. Obama's ego. So far being a Sci Fi special effects nut, for some reason I have had no desire to see this film. Maybe it is form being burned out on the big effects filled films of the summer. I for one am sick of all the anti-military eco crap Hollywood is still trying to jam down my throat. It was bad enough in the 1990's.

    Aliens being treated like crap in District 9 made sense because it took place in contemporary times not 140 years int the future.

    No wonder Hollywood and the Democrats are best buddies because both like to spend obscene amount so other people's money on that do not make a return on the investment.