To explain what Lorraine means, let’s examine 2019’s Avengers: Endgame. The film’s gross (its box office sales before deductions) was just under $2.8 Billion. That seems massive, but the profit is actually much smaller. Theaters take 50% of that figure on average, which leaves Disney with $1.4 Billion. Endgame‘s budget was kept under wraps, but the directors have since confirmed it to be $500 million while marketing is estimated to have been $200 million. Not including various cast, crew, and executive deals, Endgame probably made around $700 million in profit–a 100% return on investment (though this article doesn’t have the scope to consider video/streaming sales or merchandizing opportunities).
Now let’s examine 2011’s Paranormal Activity. It’s gross was only $193.3 million, but its budget was only $15,000! Subtracting 50% for theaters and $0 for marketing (they told viewers of early screenings to “Demand it!” for their local cinemas, and it spread like wildfire), and Paranormal Activity made a profit of $193.2 million with a 4,305% return on investment. Yes, Endgame‘s number is higher, but Paranormal Activity seems more efficient.
Lorraine’s question hits upon a multifaceted issue in Hollywood: perception. Besides networking, covered last week, steering how the industry views a project is the most powerful tool filmmakers can wield, though it’s a fickle instrument.
On the one hand, a studio can trot out their numbers to keep the press and public interest positive. If a movie with a $200 million production price tag and a $100 million marketing budget pulls in $60 million its opening weekend, headlines can be spun either way. Perhaps this hypothetical movie hasn’t opened in France or Japan yet, or perhaps there’s no competition for its audience next week. Negative press could cut into that needed future revenue while positive press could bolster next week’s performance. Saying a movie grossed $60 million is going to attract a lot more eyes than saying a movie, after deducting theaters’ cut, made back 10% of its budget.
NOTE: If you’re wondering how much a movie must ACTUALLY gross to break even, a safe estimate is 3x its production budget.
On the other hand, Hollywood learned a lesson early in its establishment: too much success can attract the WRONG kind of eyes–i.e. the government. Theatrical gross isn’t taxed as thoroughly as profit, especially when a studio can write off said profit as a business loss. The most infamous recent example of “Hollywood Accounting” occurred in 2011, when Warner Brothers’ distribution charged the production company that made Harry Potter and the Deathly Hollows: Part 2 a $1 Billion licensing fee. Normally, this would be outrageous, and the production company could easily sue, win, and get 10x that number in punitive damages. That didn’t happen, though, because Harry Potter‘s production company was ALSO Warner Brothers. The movie “didn’t make a profit,” and WB paid $0 in income taxes for Deathly Hollows: Part 2.
Going back to Paranormal Activity, Hollywood DID take notice, since Jason Blum, its producer, started the BlumHouse company with that film and has since used the label to produce dozens of hits (along with six Paranormal sequels).
Frustratingly, many studios learned the wrong lesson from Paranormal‘s success, believing that its “Found Footage” style and demonic possession elements were the keys to its success–hence last decade’s shaky cam craze and host of exorcist movies every fall and winter. Studios can afford mistakes like that, but a tight, well-told story made for a low budget and marketed smartly will always be a path for lucky indie productions to make a killing. If you someday find yourself fortunate enough to be involved in a production like that, however, make sure someone hires a good accountant–the IRS will be paying you a visit.
Anime has a lull this week as production studios change over to the new “cour,” or quarter year. In the meantime, Jenny Slate FINALLY gets a chance to bring her one-inch shell character to the big screen. This heartwarming comedy thoughtfully tackles aging and dementia, scoring a perfect 100% on Rotten Tomatoes.