Movie Equations: When a billion dollar movie isn’t a billion dollar movie
Why are we so obsessed with the threshold when a billion dollar movie for a studio roughly translates to $600 million?
The “billion dollar” threshold is something people in the industry have become obsessed with over the last 20 years, but specifically over the last decade. A blockbuster movie’s success is tied into crossing $1 billion at the global box office, if headlines and Twitter talk is taken at face value. A billion dollars is not exactly a billion dollars, though — so why do we use it as the magical new number?
This question is part of a prompt from a reader, Constantine James, who reached out on Twitter to ask: “Why don't we ever remove the Exhibitor portion of the ‘$1B movie’? Studios’ share of that film is closer to $550-600M-ish depending on 1st frame/Intl right? Makes a big difference if that’s the [number] to beat.” He’s 100% right, and this is a big part of why studios are relegating some former theatrical releases to streaming only titles — why spend the additional tens of millions of dollars on marketing for a movie that likely isn’t going to compete at the box office with other IP-heavy blockbusters even in pre-COVID times?
James’ question also gets to the heart of what I want to do with Movie Equations, figuring out what makes sense for studios in a new world where they can more specifically control the distribution paths for their films — and therefore the revenue options — than ever before. Why put Pinocchio or Peter Pan & Wendy in theaters where the films may turn a profit, but could find themselves in the same position as Dumbo and lose around $160 million. With Disney+, and a subscriber base consistently looking for something new to watch to justify their subscription, those same live-action movies can still exist and serve a different purpose. For example, potentially pulling in new subscribers or those who have canceled to watch Dumbo for family movie night.
What does the billion dollar movie represent? It is the level of quick profit that studios can not expect to make through PVOD or streaming alternatives. It is the creation and often reiteration of a massive global franchise that creates simultaneous secondary monetization options built into a release. It is the bargaining chip for studios to use in talks with exhibitors to earn as much profit as possible. A $1 billion dollar movie does not equate to a billion dollars for Disney at the box office, but it often equates to several billion dollars overall.
Breaking down the box office
I realize that many people reading this will likely understand the ins and outs of how box office revenue works, but just in case others are confused, let’s break it down quickly.
A massive studio like Marvel Studios works with a distribution company owned by its parent company, Disney. In this case, Walt Disney Studios Motion Pictures (previously known as Buena Vista Pictures Distribution up until 2007) will distribute the film theatrically and/or digitally. Disney is a massive studio with an internal distribution arm, but smaller studios might partner with a big distribution partner to help alleviate costs.
When studios and distributors start talking to exhibitor partners (AMC, Regal) about films they have coming out, certain factors come into play, but everything comes down to one big question: will this movie get people into seats? A foreign documentary with little buzz? Probably not. A new Marvel, Star Wars, or DC movie? It’s a good bet. Pre-determining buzz helps studios and distribution teams also determine how many prints of a film they should make.
Let’s say a print costs $1,500. For most major blockbusters, the goal is to get as many people into a theater seat as possible. Take the biggest box office movie of all time — Avengers: Endgame — as an example: the movie opened in 4,662 theaters. That’s $7 million in prints in the US, if we use the assumed cost above. Then, add in the rest of the world. Disney doesn’t have to worry about the cost of prints or working with exhibitors because executives know people will show up. For a studio like A24 or Annapurna, which makes phenomenal films but not massive blockbusters, it may get a little trickier with distribution partners. Back in the 1980s, prints reportedly used to take up nearly 20% of P&A (print and advertising) budgets; by 2010, that number was down to 10%. Digital age means prints are far less expensive than they used to be.
The vast majority of what studios like Disney spend their money on is advertising. Disney reportedly spent more than $200 million on its advertising campaign for Avengers: Endgame. Remember, it’s all about drivability. Theater chains only make their revenue if people show up to watch a movie and spend their extra dollars on popcorn and a collectible Groot cup. Distributors and studios negotiate with theater chains based on all of these factors.
Is it worth it for the studio to pay the P&A costs to have a movie play in theaters for 10+ weeks? Is it worth it for the exhibitor to rent a theater to a distributor for a movie that might not bring in people, or let the guaranteed-winner own said real estate? This is where the studio (in these circumstances, the studios often have their own distribution arms) finds its real advantage. Disney needs screens and theater chains to play its movies in order to justify the $200+ million P&A campaign, but theater chains need Endgame more. Theater attendance is down year over year (has been for two decades), and the only movies people are going out to see are massive blockbusters, specifically superhero movies.
In the US and Canada, Disney demanded 65% of the box office gross. It’s the same figure Disney got for Star Wars: The Last Jedi. Typically, studios get 55% of the box office profit, with theaters taking 45%. For Disney to demand 65% is “steep,” according to Deadline, but the exhibitors see it as worth it, especially if there’s spillover, meaning that people go and see other movies.
“Captain Marvel, even though she was in her eighth weekend when Endgame opened, saw spillover business as a Marvel sister being the [number two] pic over April 26-28 with $8.3M,” according to Deadline.
A little simple math. Endgame earned a total domestic box office run of $858.4 million. Disney takes 65%, or $558 million. This doesn’t account for the international box office, where Endgame makes an additional $1.94 billion at the box office. If we lowball the number, and assume that Disney makes a standard 55% of that sum, Disney still sees $1.05 billion. Combined, Disney earns $1.56 billion from Endgame box office revenue, giving theaters another $1.24 billion. Not too shabby.
Considering the film comes with a $200+ million marketing budget, cast and crew payments, general production fees, and other assorted costs, securing more than $1 billion in revenue through the box office is important. When the movie is Endgame, those extraordinary costs are fine because the ROI is more than guaranteed. The film will continue to do well through VOD rentals and purchases, Blu-ray sales, and merchandise. Not every studio is Marvel Studios, however, and not every movie is Avengers: Endgame.
All a billion dollar movie means is that increasing marketing costs (anywhere north of $100- or $150 million), extraordinary production costs (north of $200 million) and other P&A fees are more than covered by the film’s theatrical run. If a film costs $250 million to make, and another $100 million to market, on top of other fees, it needs to generate about $500 million to recoup losses. If that same film hits $1 billion at the box office, it’s netted the studio about $500 million. If it surpasses $1.5 billion, the studio nets $1 billion from its theatrical release alone. (This doesn’t take into account merchandising, VOD, and first window deals, which are also vital for many blockbusters.)
What does this mean?
A billion dollar movie is not always a billion dollar movie, but $100 or $500 million isn’t anything to laugh at. The bigger issue is dwindling audiences alongside more accessible streaming and digital options makes taking those swings a little riskier.
Consider that between 80 and 90% percent of a film’s total box office is amassed within the first month of its release, according to a 2020 note from media analyst Michael Nathanson. The same is true for Endgame’s domestic release. The film was in theaters for 140 days, or 20 weeks. By its 31st day in theaters, Endgame had amassed $798.5 million. That’s roughly 93% of Endgame’s full domestic haul within the first 31 days. Fate of the Furious, which made more than $1 billion, but only amassed $226 domestically, made 95% of that total within the first 31 days. (If NBCUniversal earned 60% of that revenue, the company walked away with $135.6 million domestically.) There’s a limited time for a film to find its audience, and that’s hard when a movie expected to make more isn’t picking up steam within the first few weeks.
A movie like Dumbo, which cost $170 million to make and another $50 million or so to market, opening on 4,259 screens, has no chance of recuperating its losses. The film made $114.8 million domestically, not even covering the production alone. Compared to live-action movies just a few years earlier, including Jungle Book, Beauty and the Beast, Alice in Wonderland, and Maleficent, Dumbo wasn’t performing. But that’s true for a number of Disney live-action movies that Disney devoted a significant amount of production and P&A expenses toward.
As analyst and venture capitalist Matthew Ball pointed out (and as I wrote in a previous newsletter), “Mary Poppins Returns basically broke even, while Maleficent: Mistress of Evil and Through the Looking Glass both saw more than 40% drops in profit compared to the first films. Christopher Robin lost more than $40 million, and Nutcracker saw a loss of just under $70 million.”
Only 47 movies have ever achieved crossing $1 billion, according to Business Insider, but of those 47, only two were released before 2000 — Titanic and Jurassic Park. Of those 47, Titanic is one of only a handful of movies that aren’t part of a gigantic franchise. Most films associated with a massive franchise: Harry Potter, Pirates of the Caribbean, DC, Marvel, Lord of the Rings, Jurassic World, Frozen, or Fast and the Furious.
These movies also generate billions of dollars in merchandise, and boast highly engaged fan bases who are willing to spend money on related items while also giving titles earned media via fanfiction, fanart, and general conversation on platforms like Twitter, Instagram, or TikTok. They produce their own version of recurring revenue, making them bigger than single box office bets — the $1 billion is just proof to studio executives they can play big and small (hence 10 Star Wars and Marvel shows, a new Harry Potter series at HBO Max, a Fast and Furious show at Netflix, etc).
A billion dollar movie is proof there’s an audience who will bring themselves to a theater to watch something they are likely to continue engaging with even when it’s over. The Lion King soundtrack on Spotify, a rewatch of certain movies on Disney+, buying a new lightsaber because it’s the same model as Kylo Ren’s. Studios can create the next installment in their series that’s an exciting spectacle to get people excited, making $500 million or $1 billion in the process, while figuring out how to spin that into recurring revenue.
If a movie is not going to secure that kind of guaranteed ROI, there are new homes. A Century Studios film heads to Hulu exclusively or after 17 days in theaters on just 1,000 screens, where there is some box office revenue (specifically in cities like Los Angeles and New York City) and secures awards eligibility but helps build subscriber growth for a streamer. The same is true for WarnerMedia’s HBO Max and Disney+. Remember, Alan Horn told The Hollywood Reporter that Disney+ is just a new arm for those movies to exist in.
“Now, I can say to [Disney Studios head] Sean Bailey, you can make those films again because we don’t need to spend $30 million in marketing,” Horn said. “I don’t see it as an ‘A or B movie’ thing. It’s financial.”
P&A costs for these films are much, much lower, and Disney retains 100% of the revenue through subscriber growth. There are no terms to be negotiated with the chains, and no box office reports to see pop up in the trades. If the movies do their job, they also help retain and amass subscribers. Win-win-win for the studios. Streaming and digital exclusives will never replace a movie earning $500+ million at the box office, but streaming can replace smaller box office gains or total losses by allowing studios to focus on other pathways.
James’ original prompt is a necessary question — why are we so obsessed with the $1 billion line when studios don’t actually take home $1 billion? The answer is because $1 billion at the box office is a sign that something is working, and that is something studios will try to replicate, changing what is available at theaters.
Remember: of those 47 movies that crossed $1 billion, only two came out before 2000. Only eight came out before 2010. 83% of all films that made $1 billion came out within the last 10 years. While there are more films being made than ever before, it’s not random titles popping into the billion dollar space — but with more films being made than ever before, it’s bringing exceptionality to theaters in order to compete for people’s time and money.
The movies that are routinely making $1 billion plus are not doing so by a coincidence; it’s studios figuring out what works, leaning extra hard into it, and integrating those brands into their streaming platforms to continue growing the IP, and securing the next $1 billion movie.