You plunk down an average of around $8.14 per movie ticket according to the most recent (2014) figures from the National Association of Theatre Owners. Did you ever wonder where all that money goes?
Tracking Hollywood finances is a bit like cat herding, but here is a very simplified overview of the paths that your money takes. (Just to make the math easier, let's say your ticket costs $10.)
- Movie Studios — Arrangements vary, but the movie studio usually ends up with about 60 percent of the proceeds from American box offices. Overseas, the number is usually less, anywhere from 20 percent to 40 percent depending on the film distribution arrangements, agreements, and other costs associated with foreign distribution (not to mention piracy).
That figure varies according to the usual supply and demand principles — an extremely hot first-run movie may start out with distribution fees up to 90 percent (in other words, 90 percent of the fees during that time are going back to the studio). As the film stays in distribution longer, the fees go down since demand goes down until eventually the theater replaces it with a different film.
In aggregate across all films and all times, 60 percent is a reasonable estimate.
In case you are curious, this differential in ticket percentage going to the studios is a major reason why box office totals are reported in terms of money and not in terms of tickets. Besides, the studio could care less if 20 million people pay $10 each or 10 people pay $20 million each to see the film.
- Theaters — Theaters receive the remaining approximately 40 percent that does not go back to the studios. Along with their concessions take, this goes to pay all their overhead expenses — employee salaries, rent, maintenance, gum removal expenses, etc. That may sound great, but the profit margin for theaters tends to be around 4 percent — and is in increasing jeopardy from alternate distribution options.
Thus around $4 of your ticket is distributed throughout the theater expense chain and around $6 to the studio. Let's follow your $6 through the studio, keeping in mind that these costs vary greatly.
- Distribution — This used to be a straightforward distribution of physical movie reels to theaters and accounted for about 10 percent of your ticket ($1 for our example). The advent of digital distribution and other rights and fees can make today's distribution agreements considerably more complicated. For our simplified example, let's stick with a $1 cut of your ticket on the average.
- Actors — For a typical film, something in the range of 5 to 8 percent of the ticket price ends up with actors. Let's go with 6 percent, or $0.60 in our example.
Most actors are paid a flat fee, but big name stars are sometimes able to negotiate a percentage of the gross (not the profits — studios have been known to add fees and charges in the next two categories to adjust profit downward).
- Production — All the other costs except salaries and advertising expenses fall in this category, which takes about $1.00 to $2.00 of your ticket price. Let's go with $1.50 average.
- Marketing and Promotion — High profile movies take massive amounts of advertising, especially suspected stinkers. Have you noticed that advertising volume is often in inverse proportion to movie quality? A reasonable typical cost in terms of the ticket price would be 25 percent, or $2.50 of your ticket price.
This leaves about 4 percent average profit for the studios, but take that number with a big block of salt. First, this only refers to American box office takes. Through other forms of revenue over time such as DVD sales, video-on-demand, and multiple broadcasts on other media (HBO, Netflix, etc.), the Wall Street Journal estimates that every box office dollar yields around $1.75 over a decade's time.
Further, in accounting terms the vast majority of movies "lose" money — because of inflated production and advertising costs. Various sources estimate that 60 to 80 percent of movies never turn a profit.
True Hollywood accounting is beyond our scope, but now you have some idea of where your ticket money is going. It's generally not the theater. Keep your theater complaints directed toward concessions, or perhaps inadequate gum removal.
This article was provided by our partners at MoneyTips.