Film Industry Revenues

The Summer of 2011 maybe one of the highest grossing seasons the movie studios have seen as of yet. The new Pirates of the Caribbean movie already hit $1 billion dollars in revenue and it looks like others such as Transformers and Harry Potter are right behind it. The amount of money these movies make is much more interesting than their story lines to me, so I looked into the movie industry to see who profits the most from these movie releases and how they rake in so much cash.

Many movies nowadays have budgets north of $100 million dollars with the very largest up to twice or three times that amount. These high budget films take on a lot risk in order to turn a profit for everyone involved. On paper however, it turns out most Hollywood movies never turn a profit. One example is the classic movie, Forrest Gump which grossed well over $600 million on a $55 million budget, but still managed to show a net loss. In 1994 when the movie was released it was number one at the box office for 10 weeks. Even though movies are wildly successful, many movie producers hire skilled accountants to find a way to show a loss on movies  in order to not have to share any of the profits made. That is why the smartest people involved in the making of a movie always take a percentage of revenues earned as opposed to profit.

While everyone is fascinated by the revenue made at the box office, this may not be the largest source of profit for most movie studios. Theaters take roughly half of those profits right off the bat. Millions of dollars are also spent marketing and distributing movies, which isn’t included in the production budget. Studios often times make back most of their money through DVD sales and television licensing agreements. Most of the biggest studios are subsidiaries of large conglomerates whose  parent companies own several television channels to which the studios license their movies. Through these licensing agreements studios continue to earn money from films long after they are made. The money that comes in from these licensing agreements allows the big studios to work with much larger operating budgets when making movies.

It’s much harder for smaller studios and independent film makers to remain profitable overtime since they can’t rely on the residual income from big movie libraries like those of the bigger studios. They must operate on a much more conservative budget and make sure they profit from the few movies they do produce. The best movies are sometimes made on shoestring budgets though and can have a return of investment of up to X,XXX% or XX,XXX%. Paranormal Activity, is one of the biggest successes, having been produced for only $15,000 but earning close to $200 million in worldwide sales.

Beyond box office revenues not much is ever released about profit generated from individual movies. If a movie is a big commercial success, you can be sure I’ll cover it and try and find out how it was marketed and the reason for its success. The industry is fascinating because it takes so much effort and collaboration from so many people to tell the world a story in just a couple hours. If your interested in producing a movie yourself, the good news is the cost of technology needed to make a movie has significantly decreased. There are also many other revenue streams for movies that aren’t released in movie theaters nationwide. The bad news is technology does make it easier for movies to be pirated, but there are ways to make it more difficult for people to share your content free online. Before worrying about making your own movie, go check out some of the cool movies that are out in theaters now.

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