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Snippet of 11 - How Movie Money Works, Rebroadcast

Last Played: January 04, 2021
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If you're wanting to be a screenwriter, it's best to know how the process of creating movies works all the way through. You may be wondering how movies make money once they're created, if so, listen in to this snippet to get some insight into how it all works. If you're still left wanting to learn more, make sure you check out the full podcast episode!
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The budget for a movie is negotiated between the filmmakers and producer in the studio, based on the script and based on the cast and based on the expectations of what this movie could eventually bring back in in income. But the marketing budget expands and contracts based on the end result. They can look at a movie and say, This is a dog. We're dumping it. We're not going to spend that much or they can say, This is great. We're tripling your marketing budget. I know that on the first hangover, I think they saw the the initial cut of the movie and went All right, let's spend way more than we spent on the movie to sell this because it's a hit. Yeah, that's gonna be the case you look at. Another example would be the saw movies or any of the low budget horror movies. They look at one of those like, Oh, actually, it's great potential here, so that's they're gonna spend 10 times their shooting budget on advertising because they feel like they make their money back out of it for sure. Other things that get included in the overall cost of making the movie, so we have the negative cost you have. Negative cost would also fold in interest. So basically, in order to have the money to make something you are taking out alone now, usually you're actually taking out a loan from the studio itself. But they're charging you interest. Eso. It's in a way you are paying. That's the studio paying itself with. That is how it goes and insurance and insurance. Overhead insurance is both the little the policy for in case a stuntman dies. But it's also insurance to make sure that the film could get completed if there are there catastrophes, because the last thing you want to have happen is you get, like 80% done with the movie and then you can't actually finished the movie in a movie that can't be finished or can't be delivered is, it's a horrible situation because you've burned all this money, you have no way of getting the money back out. So you buy insurance and a bond a completion bond, uh, to make sure that you will be able to finish shooting the movie. In some cases, it does kick in. There's, you know, a star dies when River Phoenix died during that dark water or whatever, that movie Iwas that became an insurance claim because, you know, you have to figure out what you gonna do with that movie. Every movie at some point another has an insurance claim. You know, I went down one day when I was directing because I had bronchitis and the doctor literally pulled the plug on me and sent me home. And that's an insurance date because every day costs money. People showed up. They cooked food. They built props there, waiting around. That's money. Yeah, on go, we had insurance claim for camera malfunction, basically had, like, negative flashing, and we had to go back and reshoot. And so that was two days of reshooting where we had to sort of way had to really press our case for, like, we have to reshoot these things. There is no technical solution for this. We actually have to go back and reshoot, and that does happen on a lot of shows. And while it's not an expense that you have while you're shooting the movie, ultimately charged against the overall cost of making the movie will be things they're paying out to first dollar gross players and residuals. So those were those going to cost that will be charged against the movie. Ultimately, it's other things. They're siphoning money off from the film. So which, which prescribed is good because residuals are a very good thing because residuals will kick in even though the movie will never itself become profitable. Right residuals air based on gross receipts, the other major expense that every movie occurs and this is the fun. One is a distribution fee so a studio does not distribute. The studio that makes the movie doesn't distribute the movie they own, a company that distributes the movie. So every Disney film is not distributed by Disney. It's distributed by the Buena Vista Pictures distribution company. What is a distribution company? It's a bunch of people in the same building employed by the same people who work with the theaters to place movies and distribution is incredibly important thing because big studios tend to be able to get any movie into a theater until lots of screens, if they so desire, because they trade on the movies that the theater owners know we're gonna be big hits. So I have Pirates of the Caribbean coming down the line for Christmas. You need to take this movie now and put it in your theater or I'm not gonna give you Pirates of the Caribbean. Okay, I'll take it. So there is a real value to the distribution company. They obviously do a lot of work, but in the end, here's the deal. What? This is one of the areas where the studios pull a fast one on us. They basically say it cost $30 million. Our district, our distribution company, charges $30 million to distribute this home. What that means is they move $30 million from their left pocket to their right pocket. It's the same company. They're charging themselves money and then telling you it's an expense. Yeah, there are exceptions to that. When George Lucas hires 20 Century Fox to release the new Star Wars movies, it really is a separate company, kind of releasing it, but in most cases is exactly the same people who made the movie that people who release the movie e beautiful to step back and take a look at the three big players of like how movies are made and released even the production company, the people who physically make movies. You have the distribution company who take movies that have been shot and distribute them to the people who could show them. And you have exhibitors for the people who actually are physically showing them. So the theater owners and once upon a time, those were all the same people on that was vertical integration. And so 20 Century Fox would make a movie distributed movie and show it in its own theaters. I forget the name of the classic lawsuit that broke up that that model. I can't remember it either, but it zits like Taft Hartley. But it's not Taft Hartley. We'll put that in the show notes. But the studios are not allowed to own movie theaters anymore. So Pacific Theaters or AMC theaters, they have to be their own separate companies. And the distributors, which are really the studios, negotiate with the different theater owners to figure out who's gonna play what movie and how that's all gonna work right in the theater owners. Basically, the way the studios make money off of movies is the theater owners pay them a rental charge because they're renting the print from the studio. Obviously, they don't own it, so they pay them a flat rental fee. And then, of course, they give them a percentage of the box office receipts. So I'm gonna just put a boldface header here like this is the second section of what we're talking about. So we've talked about all the money that goes out now we're starting talking about the money that comes back in. And so this is how people make money on making movies is by showing them in theaters and showing them on TV and everything else. So with theaters were negotiating with AMC or lows or one of these places. And we're agreeing to basically split the box office with the theater owners. Um Well, yes, yeah, to some extent, to some extent, generally, you know, in negotiating with theater owners about which theater we're gonna show them in which screens we're gonna have. It's an ongoing conversation, but you're trying to get into the right houses of the right size and you say, like, okay, opening weekend, we will keep. We'll make a 90 10 split and we'll pay you a certain amount per theater there's like a Each theater has, like a house nuts. So this is how much we're gonna pay you for the right to show our movie in your theater. That makes sense. Yeah, yeah, but you're basically, Here's the deal. It's all a negotiation. Okay, if I got a movie that let's use Harry Potter, everybody wants Harry Potter, it's a guaranteed hit. There's no chance of bombs. So Warner Brothers says to a theater and typically a theater chain, a very large chain. We will give you Harry Potter at this level, but that's a favor from us to you, because we could give it to your competitor across the street. We're giving it to you in return for the first weekend, which is where the big bulk of money has made. Oftentimes, a third of the entire box office run has made that first weekend. We'll make sure that you don't lose money showing it right, and maybe we'll give you a little piece of the box office. But the bulk of it comes to us as weekends progress that split trends more towards a 50 50 kind of thing. I mean, it's because every movie is different It's hard to sort of say ultimately, what a theaters keep from box office because everybody says they look at box office reports and they say, Wow, Harry Potter made $400 million in the U. S. That means Warner Brothers made $400. No, the theaters to keep a lot of that. Someone once told me, It's sort of like a 60 40 thing if you average out all the weekends and and sort of how it all flows 60 to the studios. 40 to the theaters. But you'll another truism. You'll societies that like, Oh, the theaters make more money off of concession sales and they do off of ticket sales, which doesn't seem to make sense at all, because if you buy a ticket for $11 but like not everyone spending $11 on candy and popcorn, whether that statistic is true or not, the thinking behind that is that the theater are said to keep all the concession money for themselves. They're not splitting into that money back with the studios who are making the movies in the theater owners, our const. There's a war going on. I don't know if people understand this. There's an endless struggle between exhibitors and studios. Obviously, they must. They they need each other, but they have crossed purposes. Theaters obviously wanna make a much as they can, the studios Wanamaker's much as they can, so the studios tend to win the whole box office, battle the theaters in order to make their money back and to be profitable. Obviously, they want to constantly raise ticket prices, which the studios constantly fight against them doing because studios want more people showing up. The theater owners obviously keep raising prices on concessions, and the big one that the studios hate is this. The theater owners run advertising, which pisses audience members off. Then in return. What the theater owners hate is that the studios, in order to generate more money for themselves, want to shrink the time between the time that the movies in the theater and the time you could buy it on DVD. Because as piracy spreads, studios air panicked that no one's gonna go to the theater. Or if they go, they won't buy the DVD because they could get it that night on bit turn or something. And the theater owners hate that because it means that the theater experience is being cheapened and isn't a special since endless woe. And then one last thing. The other big War is technology. Studios want theaters to have excellent projection. They want them to have three D. They want them to have better sound digital delivery. And the theater owners were saying great. But that's entirely our burden. That's a capital expense on our end, and it costs you nothing. So help us. And it's to some degree. Studios are hamstrung to directly invest in the theaters because they're not supposed to be owning theaters. So yeah, so it would behoove everyone if people had better projectors, it would be best for people we're going to see. Movies would be best for distributors because that way they don't have to make as many prints and digital deliver prints. And they love that. It's better for the theater owners ultimately, because there's less physical stuff for them to have to handle, and they could get by with fewer projectionists. There's reasons why it's good for everybody. It's just that switching over to a new production systems are really expensive. And so that's why when they build new theaters. They tend to have nicer projectors, and everything is more digital and three older theaters. That's hard to justify converting them. But it comes down to even things that seem really cheap, like there was a fight recently over three D glasses. And who should be responsible for providing three D glasses should be the theater owners or should be people who are producing the movie. It could be a very low margin business and so little that cost of those 50 cent glasses can add up. Yeah, sure.
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