Do Hollywood Movies Make a Profit

1
Do Hollywood movies make a profit?

• Hollywood has a negative reputation when it comes
  to transparency and financial openness. It feels
  as though each month brings yet another news
  story about a Hollywood flop losing millions or
  another lawsuit where people accuse studios of
  fiddling the figures to prevent having to pay out
  profit shares.

2
What Is Profit?

• I have frequently struggled to explain Hollywood
  economics to smart business types as they are
  often unwilling to be as flexible on certain
  terminology. For example, it can be completely
  legitimate for a number of stakeholders in the
  same movie to have different contractual
  definitions of profit. Three people who are each
  entitled to 1 of the profits could each end up
  receiving vastly different sums, due to the
  particular type of profit they agreed to.

3

• How a movie with a 150m budget will typically
  set the studio back around 417m when all costs
  for are accounted for. These include.
• The original production budget
• Marketing and advertising
• The physical costs of getting the film in
  cinemas and on shelves
• Contingent compensation for key talent
• And other costs such as overhead, interests
  and financing costs

4

• That same film will typically bring in 433m of
  revenue via..
• The theatrical run (i.e. cinemas)
• Home Entertainment (i.e. DVD and Blu-ray)
• Television deals
• Video on Demand (i.e. Netflix, iTunes, etc)
• And other income streams such as hotels,
  airlines, merchandising and a cut of music sales.

5
Can we estimate profitability for all Hollywood
movies?

• Now that we have some understanding of how films
  make a profit, I thought it would be fun to apply
  this learning to all movies released to make a
  good guess at overall movie industry
  profitability. There will always be some
  outliers (such as those movies which made
  unexpectedly high amounts on VOD or those which
  gross well but have very high costs to recoup)
  but overall these will be lost in the crowd of
  movies following the expected patterns.
• As the selection of films is not random, we
  cannot draw any lesson from the overall figures,
  but we can use the data to look for patterns
  which would allow us to infer profitability in
  Hollywood en masse. I decided to focus on the
  two figures which are most easily available for
  movies the production budget and domestic
  theatrical box office

6
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