Here are some important business lessons from the box office collections of three movies released this year: The Mummy, Split and King Arthur: Legend of the Sword. As a movie buff, I am also a box-office receipts buff and all money information is from www.boxofficemojo.com (as on June 28th 2017).
Announcement: As readers may know freefincal has an automated stock analysis spreadsheet for Indian stocks. Now I have extended it to cover US stocks listed at NASDAQ/NYSE. Do share the link with those interested.
The economics of a movie
The cost of making the movie – paying for everything from star fees to daily breakfast – is known as the production budget.
The cost of marketing – paying reporters to write a good review, appearances in chat shows, premiers etc. – is the marketing budget.
Counterintuitive as it may seem, the more a producer spends on the movie and its stars, the more they tend to spend on marketing with a singular hope – earn as much as possible in the first few days of ticket sales.
The marketing budget could be as high the production budget – at least anywhere between 50% to 75% of it.
According to boxofficemojo, the producer can be expected to earn (on average) about 55% of the final gross.
So you can imagine what is at stake when the production budget (and therefore the marketing budget) is high!
Awful product (just about) saved by brand image and marketing
In the Mummy, Tom Cruise finally becomes an official on-screen superhero and is the first part of a dark universe “league” like the Avengers. For a movie that should have set the tone and pace of the franchise, it is downright awful.
However, as critics have panned the movie it is the biggest hit for Tom Cruise world-wide.
Production Budget: $125 million (official, could be higher)
Marketing Budget: ~ $100 million (estimated)
US Box Office: ~ $71 million
International Box Office: $275 million
Estimated profit: (275+71 -100 – 125) x 55% ~ $ 60million.
It is way short of what Universal Studios must have expected from a big budget Tom Cruise, summer action movie and that too part of a superhero franchise.
However, even as many believe Tom Cruise is responsible for the bad script, he is also responsible for the box office. He is the no 1/2 superstar in the world (Johhny Depp being the other). It is his brand image – action + thrills + running that saved the day for Universal.
He does not rest easy on his laurels and spends hours interacting with fans – the end user. He understands the importance of marketing and does several interviews and show appearances before the movie comes out.
Just imagine the kind of profits such effort would garner had the movie been better! All said and done, his box office charisma is alive and kicking and primarily because of the effort he puts in to talk and interact with his fans.
Great Product = Great Word of Mouth = Great Profits
Opinions about M. Night Shyamalan are not only polarised but also fluctuate wildly. This is what he has to say:
After I made _Wide Awake_, the critics said I was worthless. A year later I released The Sixth Sense (1999) and the same critics called me a master. A year later I released Unbreakable (2000) and they called me pretentious. Then I released Signs (2002) and they said I was the next Spielberg. After Lady in the Water (2006) they said I was an egomaniac and a charlatan. Now, after The Last Airbender (2010), I’m a worthless filmmaker again. When the next movie comes out I’ll [probably] get called a master. And after that they’ll call me a charlatan. It goes back and forth to the point where you can’t really take it seriously. You’re only as good as your last movie, but I feel like I’m at a point in my life [now] where I want to take risks, where I want to make movies that don’t necessarily “work”, where all the elements seem misplaced, and maybe in doing this I can find a new way of expressing myself through movies. A style of filmmaking that is my own and true to my own sensibilities. – SOURCE: IMDB
“Split”, as revealed in the last few seconds of the movie is a sequel to his “Unbreakable” (he is scheduled to film the third part titled, glass soon). In split, three girls are kidnapped by a man with 23 distinct personalities and an emerging superhero-like 24th. It is the story how girl managed to escape the “man”, played by James McAvoy (who is fantastic).
The movie is eminently watchable and has been widely praised. Now have a look at these numbers.
Production Budget: $9 million (official, could be higher)
Marketing Budget: ~ $20 million (my guess as Universal should have spent more after seeing its reception)
US Box Office: ~ $138 million
International Box Office: ~ $138 million
Estimated profit: (138+138 -20 – 9) x 55% ~ $ 130+ million.
Now, that is a hit! If you check out M Night Shyamalan’s box office record you will agree with me that he is one of the most successful directors around. The most important reason being his movies cost so little to make. A great product need not be expensive to produce.
I am willing to bet that great word of mouth (the only reliable form of marketing and promotion) played a prominent role in the success of the movie. This, of course, requires a good script + directing + acting, all of which was present.
There is a great business lesson in the split. Focus on quality, keep costs down, market well and there is a fair shot at profits. Of course, things can still go south, but that is a chance needed for gain.
Think before you spend! Marketing can only help so much!
Special effects can make or break a movie. When you go to the mummy, you expect special effect because it is a fantasy tale. You don’t expect to see outrageous effects in a tale about Arthur which has been done and redone several times.
If you want such a movie to come across as a superhero tale (perhaps even part of a franchise), then it better had a well known & charismatic actor as King Arthur.
Guy Ritchie has given some great hits, but this must rate as one of his biggest flops
Production Budget: $175 million (official, could be higher)
Marketing Budget: ~ $50 million (my guess)
US Box Office: ~ $38 million
International Box Office: ~ $101 million
Estimated profit: (38+101 -175 – 38) x 55% ~ about – $48-$50 million. (a huge flop)
The loss is a direct result of the inflated production budget, a good chunk of it went to pay the special effects. None of the cast members had an image strong enough for marketing to pay off. It is not a bad product at all, but just was too expensive to make.
Here is an example of smart spending:
- Pirates of the Caribbean part 1 (product budget): $140 million
- Pirates of the Caribbean part 2 (product budget): $225 million
- Pirates of the Caribbean part 3 (product budget): $300 million
- Pirates of the Caribbean part 4 (product budget): $250 million
- Pirates of the Caribbean part 5 (product budget): $230 million
Disney recognised that as that series got older, profits will reduce (and they did considerably) and decided to spend less on part 4 and 5. It should have been even lower!
Ask Questions with this form
And I will respond to them in the coming weekend. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you. PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.
[contact-form][contact-field label=’Name’ type=’name’ required=’1’/][contact-field label=’Email’ type=’email’ required=’1’/][contact-field label=’Comment’ type=’textarea’ required=’1’/][/contact-form]
GameChanger– Forget Startups, Join Corporate & Live The Rich Life You want
My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want, co-authored with Pranav Surya is now available at AmazonOpens in a new window as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no kindle necessary).
It is a book that tells you how to travel anywhere on a budget and specific investment advice for young earners.
The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when traveling, how traveling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
You can Be Rich Too with Goal-Based Investing
My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.
The book is available at:
Amazon Hardcover Rs. 271. 32% OFF
Infibeam Now just Rs. 270 32% OFF. If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!
Flipkart Rs. 279. 30% off
Kindle at Amazon.in (Rs.271) Read with free app
Google PlayRs. 271 Read on your PC/Tablet/Mobile
Now in Hindi!
Pre-order the Hindi version via this link
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google Plus and Pinterest
Do check out my books
Get it now. The Kindle edition is only Rs. 199.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second book is now only Rs 199 (Kindle Rs. 99) Get it or gift it to a young earner
The ultimate guide to travel by Pranav SuryaThis is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)