The
Hollywood Economist
The numbers behind the industry.
Send in the Aliens
They're the last hope for the foreign box office.
By Edward Jay Epstein
A persistent media myth is that Hollywood earns most of
it money in foreign lands and that this is what accounts
for dumbed-down movies. For example, a recent Wall Street
Journal article blithely explained, "It's the foreign
box office, stupid. While movie attendance has been stalling
in the U.S., it's growing in other parts of the world, making
Prague as much a bellwether for Hollywood as Peoria."
The problem here is that the entire Czech Republic, including
Prague, provided Hollywood studios with less than three-tenths
of 1 percent of their foreign movie revenues in 2005. The
place where the studios look for their profits is not that
elusive: It is America. The Hollywood studios make—and
have always made—most of their money in the domestic
market, a fact that such stories almost always omit. In
the first quarter of 2005, according to the studios' internal
data supplied to the MPAA, the six majors and their subsidiaries
took in 56.2 percent of their total money in the United
States. As for the breakdown, the U.S. share was 50.9 percent
of the world box office, 55.5 percent of world video, and
59.9 percent of world TV. (Click here
to see the world box office numbers.)
As far as most of Hollywood's foreign revenue is concerned,
it's a very small world after all. In the first quarter
of 2005, just eight countries provided nearly 75 percent
of the studios' total foreign revenue. Britain alone accounted
for 20.7 percent of it; Germany, 12.8 percent; France, 9.6
percent; Canada, 8.1 percent; Japan, 7.2 percent; Italy,
6.1 percent; Australia, 5.1 percent; and Spain, 4.8 percent.
(Click here to see a selection of foreign box-office numbers.)
The other hundred or so countries furnished only a few scraps.
For example, in China, where government regulations severely
limit distribution and piracy is common, Hollywood studios
took in a grand total of $1.5 million (slightly more than
one-tenth of a penny per capita) from theaters in the first
quarter of 2005. So, it's not surprising that the studios
concentrate their marketing on only the handful of countries
that produce the lion's share of their foreign revenues.
A second misconception is that the foreign box office provides
pure profits for the studios. In reality, the foreign box-office
number is the theaters' ticket sales, not the studios' share
of them.Consider a typical action movie, such as Disney's
Gone in 60 Seconds. Its reported foreign box office was
a staggering $129,477,395. Of that sum, Disney, according
to the Dec. 31, 2003, participation statement, got $55,979.966,
and of that figure, it paid out $37,986,053 in out-of-pocket
expenses. Of that, $25.2 went for foreign advertising—including
$6.5 million for Japan, $3.1 million for Germany, $2.5 million
for Britain, $1.4 million for France, $1.1 million for Australia,
$997,000 for Spain, and $915,000 for Italy—and another
$5.7 million went for foreign prints, $823,000 to dub and
subtitle them, and $455,000 to ship them abroad. On top
of that, it had to pay $5 million in foreign taxes, $267,000
for converting currencies, and $122,000 for dues to foreign
trade associations. After paying these expenses, Disney
was left with $17,993,913, which amounts to about 15 percent
of the reported $129,477,395 "box office."
Indeed,
not all Hollywood movies do this well overseas. In fact,
many, if not most, releases lose money abroad. Clint Eastwood's
Midnight in the Garden of Good and Evil, for example, earned
$3.1 million from the foreign box office, while the foreign
prints and advertising bill was $6 million, leaving it with
a $2.9 million loss. On balance, the studios make a substantial
profit from foreign distribution, but it is not possible
to determine the profitability of a title in foreign markets
without taking into account the cost of advertising and
distribution.
A third misconception is that the studios' share of foreign
markets grows with globalization. In the first quarter of
2005, the studios' revenues from the domestic box office
increased by 9.2 percent but their revenues from the overseas
box office fell by more than 13 percent. The drop-off was
precipitous in six out of the seven key markets on which
the studios depend for most of their foreign profit. In
Japan, studio revenues fell 49 percent; in Spain, 28 percent;
in France, 24.1 percent; in Australia, 26.9 percent; in
Germany, 20 percent; and in Italy, 15.6 percent. Only Britain,
among the top markets, was up (8.2 percent). (Click
here for a table of the foreign box office.)
There
are, no doubt, many local factors involved in this decline,
but globalization may actually be part of the problem. As
late as 2003, studios generally used a so-called staggered
rollout for major films: After opening in the United States,
films would open in one foreign market after another. With
a box-office success in America, the studios had leverage
to secure better play dates overseas and to send the stars
from country to country to promote the films. Now, however,
with the proliferation of video piracy, zone-free DVD players,
and Internet file sharing, studios find it risky to delay
foreign releases. "Waiting three or four months after
domestic [release] to release our bigger pictures [overseas]
is not something we can do anymore," Paul Hanneman,
vice president of Fox International, explained to Variety
in 2005. So, studios now open major films abroad on the
same date as they open in the United States, with the result
that it is more difficult to get optimal play dates—and
promote them with stars—overseas. As a Warner Bros.
executive lamented, "It is now much harder to make
big money overseas."
Whether
or not the quest for gold abroad "dumbs down"
movies depends on what one considers "dumb." Before
giving a movie a green light, studio executives take into
account its foreign prospects. The elements considered likely
to kill them are "U.S.-centric stories," which
include ones about high-school proms, American sports, fraternity
parties, and ghetto violence. Horror movies and gross-out
comedies also tend to do poorly abroad. On the other hand,
movies that contain epic heroes—either historical
like Alexander the Great or fictional like the Terminator—tend
to do well at the foreign box office. But the jackpot element
with which studios can really clean up on abroad is aliens
from other universes or time periods. For example, George
Lucas' three Star Wars prequels account for a large part
of Hollywood's foreign earnings in recent years. Hollywood
has found that fantastic aliens—even ones intent on
destroying the Earth as in Steven Spielberg's War of the
Worlds—are more palatable to foreigners than high-school
teenagers coming of age or playing baseball.
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