If you missed our first installment on movie marketing, check it out here.
If you’re anything like me, you might find special effects in movies distracting. Not on the basis that they’re not awesome because they most certainly are, more so because you start to wonder how much they cost or why movie budgets are apt to spiral out of control during production. I’ll hear something like, “It only cost $220M to create The Avengers” and think that’s normal. 30 seconds later, I find myself thinking What? $220M! How the…? So for each of you wondering where these gargantuan numbers come from, here you go.

First and foremost, most film budgets are obtuse by no incident. More often than not, they are either grossly inflated to impress audiences or deliberately depressed to appease investors and/or make them appear more profitable, so what you see isn’t necessarily what you get. On the backside, reading that a movie has made X million dollars doesn’t mean much on its own; especially, if the development costs are astronomical. Gross revenue might be a lot, but it might not be enough.

Production Budgets
A film’s production budget includes all costs incurred before production, during filming and after in post-production. This includes everything from buying the rights to a script, to the actor’s salaries, set construction, catering, editing, pretty much anything you can think of. This is typically split into two portions: above-the-line and below-the line. Above-the-line cost consists of all things creative; below deals with the technical aspect. Per The-Numbers.com, the average cost of a major studio movie was about $65M when the MPAA stopped tracking the number in 2006 and has risen since then. Feature films now commonly cost more than $200M to make.

P&A Budgets
Studios seldom release accurate production budgets, and they’re even more cautious with revealing how much they spend in regards to print and advertising (P&A). The P&A costs for a movie can be incredibly high. For a smaller production, the promotional budget can exceed the original production budget. For a film that costs tens of millions of dollars to make, marketing costs will likely be at least half the production budget, and the numbers only go up with bigger films. If the studio spends a lot on production, they’re going to want to protect that investment by advertising it heavily.

Of course, these numbers will vary, more so when a studio clearly has a lemon in its hands. For films that are clearly going to suck, a studio will most likely taper back so as to reduce the money at stake. It’s the rough equivalent of drawing a 12 on a blackjack table and then having the option of recalling some, or all, of your bet to save yourself from a near certain loss.

Distribution with Movie Theaters
Opening weekend is the most critical period for a release because this is when studios will most likely make the bulk of their money domestically. Studios often structure deals with theaters where they receive a higher percentage of the box office receipts that particular weekend. The balance is shifted more favorably for theaters, but it usually winds down to a 60:40 split in favor of the studios. As a sidebar, if you’ve ever wondered why a bag of popcorn costs $36 at the theater, it’s because concessions are what keep the lights on.

Revenue Generated Internationally
Though the international box office has grown considerably faster than North America’s, it’s difficult to say whether one is more important than the other on the basis that even if a film grosses more overseas, studios take a bigger cut of box office receipts domestically. According to the book The Hollywood Economist by Edward Jay Epstein, studios take in about 40 percent of the revenue from overseas release — and after expenses, they’re lucky if they take in 15 percent of that number.

Additionally, the international box office revenue is much less predictable than that of the United States’. According to the Economist, Gulliver’s Travels had a disappointing run in North America, taking in just under $43M at the box office. To clarify, Fox had pretty much given up on this movie before it had the chance to pull out of the gate, but a strong turnout internationally helped it reach almost $195M in sales bringing it to a total of $237M. As a result, it most likely ended in the black despite the underwhelming level of marketing.

Home Entertainment
When it comes to home entertainment, studios get a much bigger cut of DVD rentals and sales than they do theatrical revenues. According to Jay Epstein, “The studio pays none of the cost of advertising, prints, or logistics. Almost all proceeds, minus some residuals paid to third parties, go to a studio’s bottom line.” But DVD sales may have seen its brightest days already having declined year-to-year since the start of the global recession. “Sales of movies on Blu-ray discs and films delivered digitally and on demand rose in 2011, but not enough to make up the gap in falling DVD sales” according to an article in USA Today.

Add up all the variable costs, and you’ll see that studios have to tip toe along a very fine line. If it goes all out in production and marketing, it runs the risk of being unable to recoup the massive budget even if the film grosses well. If it tapers back on one or both, it stands to produce something that fails to pop up on the radar. This isn’t an exact science, not from what I know at least, but there are movies that earn sure footing by finding the right moderation.

The Hunger Games, which ranks in at #14 on highest domestic grosses, is a great example. It featured zero A-list stars and operated on a relatively modest budget of $78M. As of this moment, it’s earned $645M, which is more than enough to put it in the black. As a general rule of thumb, if a film can earn its production budget domestically, revenue generated at the international box office and later on home video should recoup the remainder of its costs and make it profitable.

Photo Credit: Rachel Murray Art