Behind the Scenes: The Business of Making Movies
During its theatrical run in 2019, Avengers: Endgame took over the world and grossed nearly $2.8billion(Weiss 2021), breaking every box-office record in its wake. To put this figure in perspective, Endgame grossed more than the entire 2020 US box-office combined. Breaking down the costs of production, print and advertising costs, distribution, and residual payments on the back-end, we can trace the trail of money to reveal approximately how much Marvel studios profited from Avengers: Endgame. The goal of this article is to study the economic framework of making Endgame in an effort to better explain how streaming services have affected the way movies make money.
Before costs can be deducted, we should identify the studio’s true takeaway from the $2.8billion box-office revenue. Courtesy of theatrical and non-theatrical rentals, the total box-office revenue for Marvel Studios will drop by $1billion to $1.8billion(Weiss 2021). This cut makes sense considering theaters, on average, take around 40-50% of ticket sales (Tyson 2021). Being aware of this average pay cut, Marvel Studios knew they needed to make twice their production budget, or around $712million, if they wanted to break even. With advertising and distribution costs factored in, which generally amount to an additional 50% of the production budget, a studio should hope to earn closer to three times its budget before boasting, “It’s a monumental success!”, to the press. Given Engame’s production budget was $356 million(Weiss 2021) Marvel Studios would have been aiming for a worldwide box-office of upwards to $1billion!
Convincing a studio to produce a movie that takes $1billion to make a comfortable profit is no easy task. In general, when deciding budgets for a film there is a long list of factors that are weighed depending on the project’s starting point. Most of the time, that starting point is a good script. Your budget revolves around the number of locations, characters, explosions, CGI, or any cost that’s going to get the movie made based on said script. For Marvel, they're in a unique position because they've had 20+ similar productions prior and therefore know most of the costs that likely need to go into making a film as big as Endgame. For a lot of films, that luxury isn’t there. Poor estimates can lead to inaccurate budgets, unrealistic time frames, and eventually complete rewrites. To ensure those issues don’t occur, sometimes the filmmaker might even start with a budget range in mind and write the script accordingly. General budget ranges are as follows: low-budgets ($0-9 million), mid-budgets ($10-90 million), and high-budgets ($100-400 million). A film looking to make a theatrical run will certainly aim for the mid- to high-budget ranges as they will have the money to advertise substantially. Endgame had the hype, the star power, and the past performance of similar titles to justify any budget in the high ranges- explaining the great risk they took on such a large budget.
The second largest cost for Endgame was Print and Advertising (P&A): a reported $155 million(Weiss 2021). P&A costs are strongly correlated to profits. Making a movie doesn’t matter if no one goes to see it or not enough theaters are showing it. This is especially true to those invested in the film's financial success. Some sources speculate Endgame’s advertising budget might have even been over $200million (Weiss 2019)! Disney’s great investment in advertising assuredly put the film in front of everyone and anyone, using social media, Super Bowl commercials, or the shelves of your local grocery store. The biggest hurdle movies have to jump over are the countless platforms dividing potential audience’s attention. If a studio isn’t willing to spend $155million on advertising, they’ll require efficiency and a lot of creativity. One of the more creative examples is a press release for another Disney project- The Force Awakens. “In an attempt to tap into the lucrative Chinese markets, Disney placed 500 Stormtroopers along the steps of the Great Wall of China”(Chia 2020). Another creative example is Westworld’s publicity event in anticipation of their newest and final season. The popular tv show sponsored a pop-up coffee shop in New York City, hiring actors to pretend to be androids as the baristas. There are countless ways to advertise creatively and efficiently, although it certainly isn’t cheap.
Another major expense for Endgame is shipping the finished prints of the film to the theaters in contract with them- which was around 4,600 theaters(Pountain 2019). It is not as easy as sharing a file on Google Drive, individual prints need to be made, each costing around $1500-$2000 on average(Tyson 2021). On top of the prints, theaters will also demand a flat fee to cover basic costs of showing the movie. Negotiating these costs are the distribution companies who are the middleman between studios and theaters. Buena Vista, Disney’s distribution subsidiary, handled the leasing agreement for Endgame’s prints as well as the percentage of ticket sales the theaters will take. Disney, like other mega-studios, will typically own their own distribution company so they don’t have to split profits(the downside is it also means they don’t split losses). In total, Disney spent around $112 million(Weiss 2021) in video/distribution costs. A great expense that could be largely avoided if Disney were to upload the film to their streaming platform.
The final, major expenses of Endgame were the allocation of profits on the back-end. An estimated $276 million(Weiss 2021) in participations, residuals and off-the-tops, and in interest are deducted from the remaining revenue. These costs came from outsourcing investments and for actors who may have taken less money on the front end, in exchange of a percentage of the backend to lower the production budget. Taking the $276million, plus the aforementioned expenses, amounts the total costs of making the movie to $910million. Deducted from the $1.8billion revenue, the total box-office profit for Avengers: Endgame and Marvel Studios is $890 million!(Weiss 2021) This profit is a reflection of the love audiences have for the genre, the characters, and the actors who play them.
The certainty of profits surrounding blockbusters, which largely includes sequels and legacy films, is a reason a majority of films being released into theaters fall into that category. A major reason that the same sense of certainty doesn’t surround mid- or low-budget films is the destruction of the DVD and VOD markets. These markets were the biggest safety blankets for poor theatrical runs. In the past, DVD and VOD sales had the potential to mirror or exceed box office returns, turning financial failures into financial successes. Streaming services have had a destructive impact on the DVD and VOD markets which has been a major reason for their decline. Numbers from 2006-2019 show that “DVD sales have dropped more than 86%”(Whitten 2019). If back-end earnings aren’t promised, it is hard for studios to justify almost any movie that they don’t think can prove itself at the box-office alone.
Marvel is a rare case of consistent profitability. Most movies, in fact, don’t turn a profit. Studios can typically count on the financial successes of 3 out of every 10 films they produce. With the odds already against them, they must take every metric into account to accurately measure what the audience demand is for certain films. An example of what statistics studio’s will look at, using data supplied by the MPAA, are what kind of movies audiences are paying to see. Take the top 10 highest grossing films of 2021: 10/10 were rated pg-13, 8/10 were action films, and 9/10 were films associated with a franchise. What these stats tell us is that audiences are going to the theaters to see pg-13 action films associated with a franchise or legacy characters- so studios will green light projects accordingly. Think about all the superhero films that have come out in the last year alone? Until viewership numbers decline, studios should greenlight almost anything with the word ‘superhero’ attached.
A movie like Endgame knows they will sell tickets. Specifically, over 100 million tickets were sold for the film in 2019 (Mondello 2019). Although, not all blockbusters are as confident as Endgame can be. The colossal failure of Lightyear, the fifth film in the Toy Story franchise, stands as the most recent example. Toy Story is one of the highest grossing franchises ever, and everyone loves Buzz Lightyear, still Lightyear bombed at the box office, earning 25% less than it’s $200+ million budget(Mendelson 2022). Some blame advertising or COVID on Lightyear’s misfire, but the bottom is it flopped. If studios can no longer count on audiences to see a huge Pixar movie with a beloved character, then how can they count on audiences showing up for anything less?
No matter the title or the budget or the cast or the director or the advertising, most of the economic theories in the film industry are exacerbated trying to predict what types of films are going to perform the best with critics, the public, and ultimately the box-office. From the perfect runtimes, to the perfect cast, to the perfect genre, et cetera; it is closer to a coin toss whether a film will perform how you calculate it will. Confounding factors like a long run at the box office from an unexpected contender or an actor's arrest for domestic violence can throw any sort of economic prediction out the window. How can studios expect to turn a guaranteed profit then? They can’t.
“It is all very well studying the market, assessing the competition and second-guessing the audiences’ preferences, but the fact is that 60-70% of the studio’s product will still lose money” (UKEssays 2018).
Unlike studios, streaming services don’t rely on ticket sales or the success of a few blockbusters to earn that juicy profit. Netflix is the golden example. They have 214 million subscribers worldwide(Kats 2022) spending on average $12.99 per month; that’s almost $2.8 billion a month in revenue. The same profit as Avengers: Endgame; a movie that symbolizes a decade of work to achieve that sum. In this scenario too, filmmakers aren't as pressured to make what the studio wants. Risks are being taken on streaming that would never be taken in theaters which is why now is one of the most exciting times to be a consumer of content. On a platform like Netflix, unknown filmmakers are getting the chance to become known and their unseen films are getting a chance to be seen and their recognition deserved. Releasing to theaters, too, can be tricky and many small films simply don’t have the budget to distribute or advertise as much as they’d need to to guarantee an audience for their work.
With streaming services' taking the eyes of all and movie theaters facing bankruptcy during COVID, some thought the box-office might never make it back to its billion dollar glory. Some thought wrong. Theaters survived and the box-office has returned to full force. Spider-Man: No Way Home broke the billion dollar mark, Top Gun: Maverick flew in at a close second, and even lesser known titles like Everything Everywhere and The Northman turned a modest profit. The Northman did it on the back end too, which proves there is still room to take bets on lesser-known titles. All in all, the real disruption streaming seems to be making is not a decrease in box-office revenue, it is a decrease in audiences who are willing to give a new film a chance. A good friend recently told me, “why would I go spend $20 on a film I may or may not like, when I know I can see it a month later on Disney Plus for free?”.
Streaming services are here to stay, have already affected the predicted earnings of theatrically released films, and will continue to do so. It would be wrong to view them as a threat to artistic films or indie/low-budget projects however. Streaming services can take, and do take, risks on new and different projects as much as mainstream ones. The risk surrounding mid and low budget projects remains high for studios. Avengers: Endgame is a statement film that there remains an extraordinary audience that is still willinging to see movies in theaters. The question is will that same audience see movies not labeled as blockbusters? Until the industry can adapt to the profit losses of the DVD and VOD markets, and the still-felt effects of the pandemic, studios will continue to rely on blockbusters to turn a profit. And streaming services will continue to rival the theater experience.
References
Chia, Osmond. “How Much Does a Movie Need to Be Profitable?” SlashGear, SlashGear, 23 Jan. 2020, https://www.slashgear.com/how-much-does-a-movie-need-to-be-profitable-25607407/.
Kats, Rimma. “How Many Subscribers Does Netflix Have? Member Stats (2022).” Insider Intelligence, 5 Jan. 2022, https://www.insiderintelligence.com/insights/netflix-subscribers/.
Mendelson, Scott. “Poor 'Lightyear' Box Office Highlights Disney's Increasing Reliance on Marvel.” Forbes, Forbes Magazine, 1 July 2022, https://www.forbes.com/sites/scottmendelson/2022/06/29/box-office-lightyear-failure-hints-at-a-disney-almost-dependant-on-star-wars-avatar-marvel/?sh=4a67ee3e673e.
Pountain, David. “Avengers: Endgame to Play on a Record Number of Theater Screens.” We Got This Covered, We Got This Covered, 23 Apr. 2019, https://wegotthiscovered.com/movies/avengers-endgame-play-record-number-theater-screens/.
Tyson, Jeff. “How Movie Distribution Works.” HowStuffWorks, HowStuffWorks, 18 Sept. 2000, https://entertainment.howstuffworks.com/movie-distribution.htm.
Weiss, Josh. “Avengers Endgame's $200m Marketing Budget Cost More than Most Blockbusters.” SYFY Official Site, SYFY, 22 Oct. 2021, https://www.syfy.com/syfy-wire/avengers-endgame-marketing-budget-marvel-studios-disney.