What happens to the money when two friends decide to go to the movies?
A lot depends on whether a movie is a box-office hit or a loser, whether it stars Dustin Hoffman or an unknown, whether it cost $1 million or $31 million. But for almost all movies, the money starts down a well-worn path. And by following the $10 paid for a pair of tickets to ”The Fly,” a slick horror film starring Jeff Goldblum and directed by David Cronenberg, which was a solid box-office success last summer, one learns much of interest about how the movie business works, including these little-known facts:
* Almost no movies make a profit from being played only in American theaters. Profits, if any, come later.
* The distributor of a movie – the studio that releases a film to theaters – usually ends up with less than 50 percent of the money paid for tickets.
* Who, if anyone, makes money depends on the relative strength of the theater chain, the studio, the star and the director. How the Money Is Divided
Let’s start with the $10 bill that two teen-agers exchanged for tickets to ”The Fly,” a film distributed by 20th Century-Fox, at the Eastgate Theater in a suburb of Indianapolis last summer. In its third week at the theater, $5 of the $10 the teen-agers paid went to the theater and $5 went to Fox.
The manner in which income is distributed changes from week to week. During the first two weeks, generally, the theater owner’s expenses – the cost of labor, the electricity to run the popcorn machine, taxes, mortgage, depreciation, new carpets – are deducted from the box-office receipts, then the distributing studio gets 90 percent of the remainder and the theater keeps 10 percent. However large the expenses, the distributor is guaranteed at least 70 percent of the box-office receipts.
At a 400- to 500-seat theater near a middle-sized city, like the Eastgate, expenses typically run $3,500 to $4,000 a week. By contrast, at an even smaller theater in Manhattan, the expenses will run about $10,000 a week.
The ticket money that is returned to the distributor is called film rental. The percentage returned drops each week a movie plays, and the average major-studio movie ends up earning about 45 percent of the box-office gross in film rentals. Since smaller studios have less clout with theater owners, their movies will earn less than 40 percent of the box-office gross.
There are always exceptions. Universal earned 60 percent on the top-grossing picture of all time, ”E. T.,” because it was so successful week after week. But Universal also earned 60 percent on last summer’s ”Howard the Duck,” an eagerly awaited film that collapsed at the box office after Universal had obtained high advances and guarantees.
”The Fly” was a box-office success. It was also surprisingly well-liked by many critics, with several suggesting in reviews that Mr. Goldblum deserved an Academy Award nomination. The movie cost $10.7 million and brought Fox $17.5 million in film rentals at theaters in the United States and Canada. But those figures do not mean that ”The Fly” is already profitable because of costs beyond those of making the movie. Only one movie out of 20 turns a profit through North American theatrical distribution alone. It does mean that ”The Fly” will be very profitable once it has earned revenues from video cassettes, cable television, independent television stations and theaters abroad. Distribution Fee for Studios
The reason few movies become profitable during their first theatrical run is that every studio takes a distribution fee – usually 30 percent -from every dollar a movie earns.
In its third week at the Eastgate Theater, ”The Fly” sold $5,683 worth of tickets. Of that $5,683, Fox got 50 percent or $2,841.50 in film rentals and charged the movie’s account $852.45 to distribute it. In other words, of the $5 Fox kept from that $10 ticket sale, $1.50 went for distribution. To run a major-studio distribution operation, with a dozen booking offices and several dozen salesmen costs $15 million to $20 million a year.
After a movie is charged its distribution fee each week, the next money pays for prints and advertising. Money is not applied to the costs of making a film until the prints and initial advertising expenses have been paid for.
In recent years, movies have tended to open in 800 to 2,000 theaters, requiring that many prints – at $1,200 for an ordinary print and up to $10,000 for a better-quality 70-millimeter print. Then the studio spends $2 million to $6 million for publicity, advertising and promotion of a film through its first two weeks.
By the third week, the prints and advertising expenses on ”The Fly” totaled slightly under $6 million. The movie had earned film rentals of $12.6 million. After Fox charged its 30 percent distribution fee of $3.78 million and recouped $6.02 million for prints and advertising, there was roughly $2.8 million left to start paying off the actual cost of making ”The Fly.”
It is hard to be precise, since much of the cost of the prints and advertising for ”The Fly” was recouped by the end of the second week, but at least $1 from those two tickets went toward the major expense of opening the movie. Complex Contracts a Factor .
Up to this point, the routine is much the same for all movies. Whether a movie stars Jane Fonda or no one you’ve ever heard of, the out-of-pocket costs of distributing it are paid first. After that, however, the complex contracts of stars and major directors make the fate of the money diverge widely from picture to picture.
Steven Spielberg and George Lucas demanded such good terms from Paramount for ”Raiders of the Lost Ark” that the studio turned the project down twice before gambling on it. If the movie had not been a major box-office success, Paramount would have lost millions.
Some stars can command 10 percent of the gross film rentals after fees, prints and advertising and before the actual cost of making the movie has been paid off. Some actors, writers and directors get a percentage of the profits. It usually takes a long time to see those profits since there are distribution fees and advertising expenses every week. Marketing ”Out of Africa” cost Universal $20 million. Paramount’s marketing costs for ”Crocodile Dundee” are at $12 million and climbing.
Of course, any studio is delighted to have a blockbuster like ”Dundee” or ”Ghostbusters,” which earned $128 million in domestic film rentals. In its sixth week in a theater in Northern California, Columbia’s ”Ghostbusters” sold $32,000 worth of tickets. The contract between Columbia and the theater gave the studio 90 percent of box-office gross after expenses or 50 percent of box-office revenues, whichever was higher. Because the movie did so well, Columbia got 73 percent of the box office. To open ”Ghostbusters,” Columbia had spent $2.25 million on prints, $1 million preparing promotional materials and $7 million on advertising and such incidental marketing costs as a $150,000 premiere benefit for a hospital and hotel bills for press junkets. Above and Below the Line
The costs of making a movie are divided into ”above the line” and ”below the line.” On ”The Fly,” the above-the-line or creative costs of the story, producer, director and actors came to $3.5 million. The below-the-line costs of production and post-production included $135,000 for special effects, $645,000 for set construction and $180,000 for the camera crew and cinematographer. Transportation -taking actors to and from the set and sending a truck for plywood or a six pack of soft drinks – added $250,000. As might be expected for a film in which a scientist gets his chromosomes mixed up with those of a fly, the biggest expense was $1.6 million for makeup and hairdressing.
Profit-participation contracts are a closely guarded secret, but it is likely that the cost of making ”The Fly” had to be paid before any profit participants earned money. Thus, the last $2.50 from that $10 bill started that process.
Although financed by 20th Century-Fox, ”The Fly” was made by Mel Brooks’s Brooksfilm and only became a Fox movie after it was completed. Often, in this kind of deal, the studio and the film maker split any profits 50-50. The financial arrangements here were also a little more complex because ”The Fly” was directed by a Canadian, Mr. Cronenberg, and made in Canada, which qualified it for certain Canadian tax credits.
So, of the $10 plunked down on one sultry night last August, $5 went into the coffers of the Eastgate Theater, and $1.50 paid Fox’s distribution fee. About $1 was applied to prints and advertising. And the remaining $2.50 began the task of paying for Mr. Goldblum, the laboratory in which he met his fate and his horrifying metamorphosis into a hairy insect.
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