Thursday, 15 July 2010

Hollywood Babble On & On #555: Where Does All The Money Go?

Welcome to the show folks...

Today I have a question:
je pressman asked: Also FURIOUS D this film has made over 300 million dollars worldwide, when did a figure like that indicate disappointment or why are the financial hurdles set so damn high?
Once upon a time a worldwide box-office take of $300 million was the signal to start doing the happy dance at studio headquarters because your movie just made a truckload of money. Nowadays not so much. Now there are reasons for this, and it goes beyond simple production costs. That's because production costs are just the beginning, or to be more exact, the middle.

It all starts with...

DEVELOPMENT: This is the stage where pitches are green-lit to become scripts, in the hope that those scripts would someday be green-lit to become movies. Back in the day it wasn't a very expensive process. Usually the producer developing the project had a writer they trusted working on the script, and others only stepped in when the original writer was stumped.

Nowadays it's done differently. A studio buys a property, like a novel, a comic book franchise, an old TV show, or even a board game, then hires anywhere from five to fifty writers to work on their own drafts, then try to piece together something coherent from drafts written by the others and vice versa. These writers are all getting paid to do this, so are the producers overseeing this cluster-fuck, usually far better than the writers. Unless a script that meets the approval of about twenty studio executives, as well as their wives, mistresses, and illegal immigrant housekeepers is found right away, it becomes an extremely expensive process.

But even then it's not over. Directors are hired, so are their own writers, leading to more rewrites, production designs, firings, more hiring, etc. etc.... It all adds up.

An extreme example of script development run amok lies behind the
Superman Returns. Producer Jon Peters literally pissed away over a decade of time and $50 million+ of the studio's money before a frame of film was even shot. All development costs, and then some, are then slapped onto the 'negative cost' of the film.

Then you can begin...

PRODUCTION: This is often blamed because it is horrendously expensive to make a movie, and is often the source of many misconceptions. Many think, even I thought this too, was that big budgets were supposed to result in big stars, big sets, and big special effects. Well, that's only partly true. The key thing that a big budget buys a filmmaker is time. Remember, cast and crew are all very well paid professionals. Their time is worth money, a lot of money, and the more time spent making a movie, the more money spent.

Which brings me to salaries, one of the key budget killers. People like actors, directors, writers, producers are referred to as "above the line costs." Many of them are due residuals if the film makes money. However, studio accounting makes the mob running the Central States Teamsters Pension Fund look positively clean, and they know that they're going to get screwed on those residuals. That's why anyone of these "above the line" people with the slightest amount of clout demands as much up front cash as they can get their grubby little hands on. Their agents, who get 10% of that up-front cash, gladly play along.

So you end up with a film like Judd Apatow's
Funny People, which has no special effects, no major stunts, big fancy sets, or even a long production time, getting saddled with a production budget of $70 million. Pretty much all star salaries. Toss in big special effects

Now just when you thought it was over, it isn't, because then you have to pay for...

THE RELEASE: It costs money to make movies, it also costs money to get movies into theaters. These costs are called P&A, or Prints & Advertising. The bigger the film, the bigger the P&A costs, because they aren't going spend $100-$200 million on making a movie without spending a commensurate amount, usually the same if not more than the production budget, getting it on as many screens as they could with as much hype as money can buy.

Now you'd think that the studios all being owned by big media conglomerates would help them save money on advertising through the TV channels, newspapers, and other outlets that are owned by the same parent company. Well if you did,
you'd be wrong.

If a film released by Warner Bros. wants ad space on Time-Warner owned channels like CNN, or publications like
Time or People magazine, it has to pay through the nose for those ads. Often paying more than if they were buying ad-time from a competitor, because they don't have to buy those ads from the competitors, and are thus more prone to the rules of the free market.

Now that you have the ads bought, then come the ticket sales. The theater chains have to take their cut, called the House Nut, which generally leaves the distributor getting about half of the ticket price, an amount called The Rental.

A simple formula for determining the break even point of a film is to take the production budget, double it, and see if the domestic box office meets or exceeds that amount.

Why domestic?

Well, to answer that we need to look at the...

FOREIGN BOX OFFICE: This is because while most studios handle their own domestic distribution, and collect all of their own rentals, foreign distribution is a different kettle of fish. Only a handful of major companies are able to handle releasing films in every territory in the world. A lot of the time they have to license their film to be released by local distributors.

Those local distributors in the other countries then have to collect the rentals from their local theaters, shave off their own cut, and send the rest to the American distributor. So while the studios like to trumpet the foreign markets to make films look successful, they are, in fact, far less successful than they want you to think.

Then it all drops into the bizarre world of....

STUDIO ACCOUNTING: This is a strange world where madness reigns, nightmares are made flesh, and only the bravest auditors dare fear to tread it, and few of them return from these Lovecraftian realms with their sanity intact. Here are some of the more common black holes where the money vanishes:

1. LOANS: The studio borrows money from their parent company to make the film, but that loan comes with an interest and repayment plan that makes Knuckles the neighborhood loan shark look positively sweet-natured. Suddenly tens of millions of dollars vanish just to pay the interest on money loaned from the right hand to the left hand.

2. FOREIGN RELEASE: Remember those foreign distributors I mentioned, well, even the ones owned by the same multinational conglomerate that owns the studio are going to gouge a big cut out of the international release income. It's going to the parent company, but it's not going to the movie.

3. HOME VIDEO/TV: The home video company may have the same name as the movie studio, but it is, in fact, a legally independent company that license the movies from the studios in exchange for about 20% of the profits made on home video. The same trick is also pulled with selling the film to TV, one division licenses the film to another, to sell the film, at a deep discount, to the same channel that made this movie pay so much extra for ad space. So if you have a deal giving you 5% of the home video profits, you are due 5% of the 20% given to the studios by the home video company, and that's only if you're lucky because there's always...

4. STUDIO OVERHEAD: These are supposed to cover the costs of actually running the studio. However the definitions of what constitutes proper studio overhead is amorphous at best. It could include things from executive salaries, office and studio infrastructure expenses, to the new Lamborghini sports-car the CEO's daughter got for her sweet 16 birthday, as well as the party it was presented at.

All of these things eat away at the box office take until there are nothing but losses left. A
Harry Potter film with a global box office take of over $900 million has allegedly lost $167 million according to Warner Bros. Pictures.

If you're a big name in Hollywood with a lot of clout, you might be able to get some money out of a picture if you have what's called a "Dollar One Deal." That's where you can get anywhere from 5%-25% of every dollar from every ticket sold from the first one. These deals are rare, reserved only for the most powerful stars. More common are what are called "adjusted gross" deals where stars get a percentage after the film earns an amount past a set amount determined in the contract. Studios love to play around with these, so it's still a struggle to make what many consider their fair share, so most just ask for tens of millions up front as well as these adjusted gross deals.

An urban legend is that the last film to pay net profits to those with shares was the movie Splash, and only because it cost so little to make, made so much, so fast, the then struggling Disney company couldn't hide the money fast enough. Jim Carrey allegedly made money from a "net profit" deal, but from what I've seen it looks more like an adjusted gross deal, with iron-clad target numbers set in concrete.

And that's the story of Hollywood, money, and how they manage to lose lots of money even when they sell lots of tickets.


  1. je pressman15/7/10 7:38 pm

    The first thought that popped into my head ,after reading your where does all the money go explanation,is that there is a lot of wiggle room for dodgy behavior in the front office.However it is the front office execs who have created this Mad Hatter world of movie making.They know how the system functions so why bitch and moan about it? Why not make it more sensible? Because they don't want to,since it works well enough to suit their purposes.That is why movies like MacGruber or Furry Vengeance get made,because they suit the purpose,such as ,"robbing Peter to pay Paul",a write-off,or excessive compensation? You know I have always really enjoyed the movies,because as a kid in the fifties, there were armchair adventures, lessons in human behavior,love stories, war stories odysseys,some very special movie actors doing some really captivating performances.The majority of first run feature films today aspire to a theme park experience,a thrill ride,without much substance,often high tech filmmaking,great cinematography but the memeory of it slips away rather quickly.But that is true also of many indie films as well,which strive for gravitas and veritas but often impress me as overwrought,contrived and formulaic in their own way.Right now movies are stuck in second gear and unless the film business overall is satisfied making teenage vampire movies, yet more animated flicks,dreary indie dramas,Pirates of the Carribbean meets Spider Man,vs X-Men,vs Harry Potter and the Temple of Doom Part IV.Once upon a time the Easy Rider,Raging Bull generation gave new life to a venerable industry,is said industry.The majority audience gets more excited by animated toys than gangster sagas. So the studios are making animated,"soulful" toy epics,those movies make a billion..However here we are back to if the millions are not enough ,will one billion ultimately not be enough as well?

  2. Add to current movies that provide a theme park experience, a thrill ride......Inception.It is just thoughtful enough,to be taken seriously? By whom? It is 21st century storytelling .