The screenwriter William Goldman famously explained Hollywood
this way: nobody knows anything. One reason that the workings
of Hollywood studios seem inexplicable to the public is
the continual, almost obsessive, focus on the weekly box
office race. The media, by treating the box-office grosses
released on Sunday afternoons as if they were the results
of a weekly horse race, only furthers the misunderstanding
about how modern Hollywood makes its money. Once upon a
time, as late as 1948, the tickets bought at the box-office
accounted for virtually all of Hollywood's profits. But
nowadays, the domestic box-office is only a small, and often
misleading, part of Hollywood’s big picture.
First, these reported " box office grosses" are
not actually what the studios take in from their movies.
They are the ticket sales which go to the movie houses.
The movie houses usually keep about half for themselves
and remit the balance to distributors (which may or may
not be an arm of the studio). The distributor then deducts
from the its out-of pocket cash expenses, including prints
and advertising (called “P&A,”). These deductions
often wipe out most, if not all, of what remains. Studios
spent on average $35.9 million just for P &A on each
of their titles in 2007. (Even their so-called “indie”
divisions, such as Miramax, Sony Classics, and Fox Searchlight,
spent an average of $25.7 million on P & A.) As a result,
the studios spent more on P&A to lure in an audience
into American theaters for an average film then they got
back from their share of the box-office. And that does not
take into account the cost of making a movie, which for
a studio averaged $70.8 million in 2007 (Their Indie divisions
spent only $49.5 per film). So while a "boffo"
box-office gross might look good in a Variety headline,
it might also signify a boffo loss.
Second, and far most important, it diverts from the reality
that the domestic box-office provides only a minute part
of the studios’ revenues/ (See Table
1). In 2007, according to the secret MPAA studio
numbers, only about 20 percent of the the studios' revenue
came from movie theaters, and over half of that came from
foreign theaters. In 2007, worldwide TV, Pay TV, DVDs, and
other licensing provided 80% of these revenues.
Movies now serve as launching platforms for
creating properties that make their real profit in the so-called
“back end” , much like the runways at haute
couture fashion shows. Because of the crucial importance
of these post-theatrical rights, Hollywood's profit margins
depend upon optimally leveraging these properties across
all the platforms they can find, such as Pay Per View, DVDs,
Video-On-Demand, and TV movies. There is (no longer) a movie
industry, there is an entertainment industry.
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