The numbers behind the industry.
The Box Office
The media, by treating the box-office grosses released on
Sunday afternoons as if they were the results of a weekly
horse race, further a misunderstanding about the New Hollywood.
Once upon a time, when the studios owned the theaters and
carted away locked boxes of cash from them, these box-office
numbers meant something. But nowadays, as dazzling as the
"boffo," "socko," and "near-record"
figures may seem to the media and other number fetishists,
they have little real significance other than to measure
the effectiveness of the studios' massive expenditures on
begin with, the Sunday numbers are not actual ticket sales
but "projections" furnished by Nielsen EDI, since
the Sunday evening box office cannot be counted in time
to meet the deadlines of the morning papers. Variety, to
its credit, corrects the guess estimates on Monday with
the actual weekend take. Yet even these accurate numbers
leave in place four other confusions about who earns what.
the reported "grosses" are not those of the studios
but those of the movie houses. The movie houses take these
sums and keep their share (or what they claim is their share)—which
can amount to more than 50 percent of the original box-office
total. Consider, for example, Touchstone's Gone in 60 Seconds,
which had a $242 million box-office gross. From this impressive
haul, the theaters kept $129.8 million and remitted the
balance to Disney's distribution arm, Buena Vista. After
paying mandatory trade dues to the MPAA, Buena Vista was
left with $101.6 million. From this amount, it repaid the
marketing expenses that had been advanced—$13 million
for prints so the film could open in thousands of theatres;
$10.2 million for the insurance, local taxes, custom clearances,
and other logistical expenses; and $67.4 million for advertising.
What remained of the nearly quarter-billion-dollar "gross"
was a paltry $11 million. (And that figure does not account
for the $103.3 million that Disney had paid to make the
movie in the first place.)
box-office results reflect neither the appeal of the actual
movies—nor their quality—but the number of screens
on which they are playing and the efficacy of the marketing
that drove an audience into the theaters. If a movie opens
on 30 screens, like Sideways or Million Dollar Baby, there
is obviously no way it can achieve the results of a movie
opening on 3,000 screens. And how do studios motivate millions
of moviegoers—mainly under 25—to go to the 3,000
screens on an opening weekend to see a film no one else
has yet seen or recommended? With a successful advertising
Studios spend $20 million to $40 million on TV ads because
their market research shows that those ads are what can
draw a movie's crucial opening-weekend teenage audience.
To do that, they typically blitz this audience, aiming to
hit each viewer with between five to eight ads in the two
weeks before a movie's opening. The studios also spend a
great deal of money testing the ads on focus groups, some
of whom are wired up to measure their nonverbal responses.
If the ads fail to trigger the right response, the film
usually "bombs" in the media's hyperbolic judgment.
If the ads succeed, the film is rewarded with "boffo"
the "news" of the weekend grosses confuses the
feat of buying an audience with that of making a profit.
The cost of prints and advertising for the opening of a
studio film in America in 2003 totaled, on average, $39
million. That's $18.4 million more per film than studios
recovered from box-office receipts. In other words, it cost
more in prints and ads—not even counting the actual
costs of making the film—to lure an audience into
theaters than the studio got back. So while a "boffo"
box-office gross might look good in a Variety headline,
it might also signify a boffo loss.
and most important, the fixation on box-office grosses obscures
the much more lucrative global home-entertainment business,
which is the New Hollywood's real profit center. The six
major studios spoon-feed their box-office grosses to the
media, but they go to great lengths to conceal the other
components of their revenue streams from the public, as
well as from the agents, stars, and writers who may profit
from a movie.
Each of the major studios, however, supplies the real numbers
to its trade association, the MPAA, including a detailed
breakdown of the money they actually receive, country by
country, from movie theaters, home video, network television,
local television, pay television, and pay-per-view, which
is then privately circulated among the six studios as "All
Media Revenue Report." (To see these private data click
numbers tell the story. Ticket sales from theaters provided
100 percent of the studios' revenues in 1948; in 2003, they
accounted for less than 20 percent. Instead, home entertainment
provided 82 percent of the 2003 revenues. In terms of profits,
the studios can make an even larger proportion from home
entertainment since most, if not all, of the theatrical
revenues go to pay for the prints and advertising required
to get audiences into theaters. (Video, DVDs, and TV have
much lower marketing costs.)
profit reality has transformed the way Hollywood operates.
Theatrical releases now essentially serve as launching platforms
for videos, DVDs, network TV, pay TV, games, and a host
of other products. Even so, the box-office totals are losing
their traditional influence. Up until a few years ago, the
results from the U.S. box office largely drove secondary
markets, especially video. If a film had a huge opening,
the video chains would order 200,000 or more copies (at
$60 or more apiece wholesale) for rentals. But this buying
formula ended when consumers began buying DVDs at mass retailers.
By 2004, Wal-Mart was accounting for more than one-third
of the studios' revenues in video and DVD.
For merchandisers like Wal-Mart, DVDs are a means to lure
consumers, who may buy other products, into the store. The
box-office numbers are of little relevance (especially since
it's teenagers who create huge opening weekends, and they
cannot afford to buy more profitable goods like plasma TVs).
Instead of box-office results, merchandisers look for movies
with stars such as Tom Hanks, Julia Roberts, or Arnold Schwarzenegger,
who have traction with their highly desired older customers.
For example, whereas the sophisticated mind-bending love
story Eternal Sunshine of the Spotless Mind had a dismal
seventh-place finish in the box-office gross sweepstakes—earning
a mere $8.1 million for the theaters during its opening
weekend—thanks to the presence of recognizable names
like Jim Carrey and Kate Winslet, it did extremely well
on DVD, selling more than 1.5 million copies during its
first week in the stores.
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