June 22, 2017

ghostbusters_ver6_xlg

Some might find it odd that a film that has grossed $194 million worldwide in just four weeks could result in a possible $70 million loss for the production company, but for many genre fans this is par for the course. In an industry were John Carter can earn $284 million in worldwide gross and result in a $200 million loss and The Lone Ranger could gross $260 million worldwide and result in a $190 million write offGhostbusters’ reported financial failure falls within a familiar pattern that frequently lists the same familiar excuses. One of the first things to get the blame in all of these cases is a bloated marketing costs which often exceed $100 million, as is reported to be the marketing budget for Ghostbusters. The next thing to receive blame is typically the budget of the film. Analysts will often state that given the high costs of the film, in combination with the marketing, the film could not make a profit. To give an example of how “true” this analysis is, given John Carter‘s $300 million budget and as much as a $165 million marketing budget it would have to have made $600 million in order to break even. If John Carter had made Hunger Games money in the box office, it would still have likely resulted in a loss for Disney.

Some fans argue that Ghostbusters is different than John Carter and The Lone Ranger because it’s actual production costs were about $100 million less than either of those movies and current analysis only includes box office revenue. Ghostbusters will also make money from the Non-Theatrical (airlines etc.), Home Video (actual DVDs), Television, Video on Demand (streaming and download to own), and Ancilliary Rights (toys, comics, soundtracks, etc.) markets. Some fans argue that the revenue from these should be taken into consideration when evaluating the financial success or failure of a film. To a certain degree those fans are right, at least they are right that those markets should be taken into consideration when a studio is thinking about whether or not to make a sequel. A studio will never take these things into consideration when reporting on the immediate financial success or failure of a film. This is because studios have at least four different ways of accounting for a films profit/loss based on which audience they are presenting the information to. These four methods are (using Schuyler M. Moore’s book The Biz as a reference):

  1. Calculating earnings based upon Generally Accepted Accounting Practices or “GAAP.” This means of reporting is done for the benefit of investors and maximizes the reported earnings of a film. This is where you will get the “rosiest” picture of a film’s failure or success.
  2. Calculating income and loss for tax purposes. This is where you will get the bleakest report of a film’s success or failure, because all things being equal no one wants a film to actually be profitable for tax purposes.
  3. Making payments to profit participants, such as writers and actors. This will be as bleak a report as possible, but the terms of this reporting will be heavily negotiated by agents and studio attorneys who will each be negotiating in their clients’ interest.
  4. Calculating cash available to make distributions to equity holders, such as shareholders, of the film company. This will fall somewhere between options one and two, but will always be done in such a way as to advantage the production company.

The press reports that we are most familiar with, those that report write offs, typically fall under the second method. These are the bleakest projections of the films earnings and are primarily done to justify tax write offs. But this doesn’t mean that they are entirely fabricated or even largely inaccurate. Too often fans think that when a film makes $122 million in domestic box office that the production company has made $122 million or some number close to that. This is not the case at all. Typically the studio distributing the film will receive around 50% of the revenue from the box office. You can see this reflected books like Edward Jay Epstein’s The Hollywood Economist where he reports that studios receive as low as 40 percent of the box office depending upon the negotiated share with distributors and theaters. The amount of box office revenue retained by movie theater chains is reflected in their financial statements. Cinemark’s August 2016 10-Q filing with the SEC states that their “film rental and advertisement” expenses were 56.3% of box office receipts, Regal’s 10-Q for the same period reported 54.5% of box office receipts were due to film rental and advertisement, and AMC’s 10-Q reported that “film exhibition costs” were 54.6% for the past three months. These various expenses include the money that the movie studios will see along with internal and external advertising costs on the part of the theater companies. The amounts reported by the movie theaters though fit within a range that allows one to speculate that the studios received somewhere between 45% and 50% of the money generated in the box office.

What does this mean for Ghostbusters? The first thing it tells you is that Columbia Pictures has only earned approximately $62 million in domestic receipts (based on a box office of $122 million domestically). The share of foreign box office they’ve received is only knowable to those with internal documents. Edward Jay Epstein argues in The Hollywood Economist that after expenses are deducted studios can see as little as 15% of box office receipts from the foreign gross depending on the country etc. This 50/50 deal domestically is more common than it once was. There was a time, as reported in The Hollywood Economist and Jeffrey C. Ulin’s The Business of Media Distributionwhen the studios received a 90/10 split on opening weekend with the 90% decreasing the longer the film was out. Those times are both largely a myth and long gone. They are a myth because any 90/10 split was calculated after the theaters deducted their expenses in what was termed the “house nut.” As a former 21/Craps dealer, I prefer the term “vig” but the point is the same. The split was determined after some negotiated amount of expenses that was greater than zero. So the 90/10 split as 90/10 split was a myth, but it is one that is largely gone. As films have increasingly become creatures without “legs” which open big and then have HUGE dropoffs in revenue, I’m looking at you Suicide Squad, theaters came to understand that they needed a larger percentage of the revenue generated during the opening weekend. This resulted in the current model where the studios negotiate a fixed percentage for the run of a film that no longer includes the vig.

Ghostbusters will very likely generate a lot of revenue from the Non-Theatrical, Home Video, Television, Video on Demand, and Ancilliary Rights markets. Given that a film like Midnight in the Garden of Good and Evil made as much revenue from “Pay TV” rights as it did from Box Office Revenue (source: The Hollywood Economist), it would not be surprising to find that Ghostbusters makes as much, if not more. That’s money that will pour in over the next 2 to 5 years though and does little to build excitement among those who want return on an investment in a film production. It’s good if you want to buy stock in Columbia Pictures, because they’ll be making money off the film for years/decades to come, but it’s less good if you are attempting to secure financing for a sequel that would be released before the majority of that long-term stream of money begins to yield results.

In the end, this means that it is unlikely that Ghostbusters will lead to an established franchise with the new cast. What is often overlooked, and has yet to be mentioned in this piece, is that the film is a female driven movie that has generated $194 million globally. This speaks very well for the possibility of releasing a lot of lower-end blockbuster movies with women in lead roles. If the film ends up with $250 million in box office, we might not see another Ghostbusters, but we will certainly see more films featuring Kristen Wiig, Melissa McCarthy, Kate McKinnon, and Leslie Jones.

Geekerati Radio , Movies , Television

Leave a Reply

Geekerati Podcast Archive

Listen to internet radio with Geekerati Radio on Blog Talk Radio

Archives

Geekerati Network



Subscribe to Geekerati

Enter your email address to subscribe to this blog and receive notifications of new posts by email.