Money In

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Film-industry players make money through a variety of means. In the Hollywood commercial film business, these Big Six players are Warner Brothers, Paramount, Twentieth Century Fox, Universal, Columbia Pictures, and Disney—all owned by large parent conglomerates (see Figure 7.1). Together, the Big Six account for more than 90 percent of the revenue generated by commercial films. They also control more than half the movie market in Europe and Asia.

Nevertheless, the cost of producing films has risen, and studios have had to find ways to generate more revenues to produce movies profitably. They have six major revenue sources to draw from:

  1. Box-office sales. Studios get about 40 percent of the theater box-office take in this first “window” for movie exhibition (the theater gets the rest).
  2. DVD/video sales and rentals. This release window accounts for almost 50 percent of all domestic-film income for major studios. A small percentage of this market includes “direct-to-DVD” films.
  3. Cable and television outlets. These windows comprise pay-per-view, video-on-demand, premium cable (such as HBO), and network and basic cable. The syndicated TV market also pays the studios on a negotiated film-by-film basis.
  4. Foreign distribution. Studios earn profits from distributing films in foreign markets. In fact, international box-office gross revenues are almost double the U.S. and Canadian box-office receipts.
  5. Independent-film distribution. Studios make money by distributing the work of independent producers and filmmakers, who hire the studios to gain wider circulation. Independents pay the studios 30–50 percent of the box-office and video-rental money they make from their movies.
  6. Licensing and product placement. Studios earn revenues from merchandise licensing (for example, licensing sales of action-figure toys representing characters from a particular movie) to retailers. Companies that make cars, snacks, and other products also pay studios to place their products in movies—showing actors and characters using those products. Famous product placements include Reese’s Pieces in E.T.: The Extra-Terrestrial (1982) and Pepsi-Cola in Back to the Future II (1989). The James Bond movie Skyfall (2012) reportedly contains a new record amount of product placement, accounting for almost a third of the movie’s budget.
FIGURE 7.1 // MARKET SHARE OF U.S. FILM STUDIOS AND DISTRIBUTORS, 2011 (IN $ MILLIONS)

Synergy— the promotion and sale of a product throughout the various subsidiaries of a media conglomerate—has further driven revenues in the film industry. Companies like Disney promote not only the new movies produced by its studio division but also books, soundtracks, calendars, T-shirts, and toys based on these movies.

Blockbusters like Transformers: Dark of the Moon (2012) are sought after despite large budgets because they can potentially bring in twice that much in box-office sales, DVDs, merchandising, and licensing fees.