The internet is full of articles and social media posts assuring you that a movie cannot be successful unless it makes at least twice its budget. You can find them all over the place. This has been written about since at least 2011.
The idea that a movie needs to double its budget to be profitable seems counter-intuitive. Common sense says that, the moment you cover your costs, everything after that is profit. How can that not be the case for movies? The answer to that lies in Hollywood accounting and the various loopholes, non-budgetary expenses and other “hidden” factors that most Hollywood movies are subject to.
Whatever the reasons are that people say a movie needs to double its budget, the question remains – is it true?
Movie Money 101
A movie, as most of us understand it, has a fixed cost. Sometimes we hear of a movie going over budget, something Waterworld famously did. That movie is still considered a massive flop, even though it made millions in profit. The movie may have a budget of $30 million or, as in the case of Star Wars: The Force Awakens, $447 million, which stands as the highest budget of all time.
Movie budgets cover the salaries for everyone involved. That’s the actors, director, screenwriter, cinematographer, editor, F/X team, sound people, lighting, construction, drivers, animal wranglers, you name it. For Iron Man 3, 3,310 people are credited as being part of the film crew. Art departments alone can have thousands of people working on them. All of those people need to get paid.
After the people are paid, money needs to be paid for actual equipment. Cameras, lights, sets, vehicles, clothes, food, everything you see on screen and also behind the scenes has a cost to buy or rent. Some cameras can cost six figures.
Once everything is bought and paid for you can make a movie. Keep in mind, from the first day on a set to the day the movie is ready to watch, that can take between one year and two and a half years. People are working and getting paid that whole time. But that only gets you to the point where you have a film in the can. No one has seen it yet. Hell, it hasn’t even left the editing studio yet. You need to get it out in the world, right?
After a film is made, there are the P&A costs, or prints and advertising. There’s also general marketing, dubbing, shipping, subtitling and distribution fees. This is where the big secondary expense comes in because advertising a movie is not part of the budget but we all know some movies have massive ad campaigns.
Big, tent pole release movies can have marketing budgets of around $150 million. Barbie had a $150 million marketing budget and the film’s budget was $145 million. Marvel’s marketing budget for Avengers: Endgame was $200 million.
Basically, if the studio is all in, the cost of marketing a movie can nearly, and in some cases more than double the budget. So suddenly you see how Barbie, with a $145 million budget, needs to literally make $300 million to break even. Luckily it did that and more.
Hollywood Accounting
The screenwriter of Bohemian Rhapsody sued the studio after the movie made $900 million at the global box office and he didn’t see any of it despite having a deal to receive 5% of the profits. The studio countered by claiming the movie actually lost $51 million. The budget for the movie was $55 million, for the studio’s claim to be true, there needs to be about $900 million of extra expenses they sunk into that film in order to make it somehow unprofitable. So where did that money go?
The problem with Hollywood accounting is that no one really gets to see the books. We don’t know where that money allegedly went. But there are, as we mentioned, expenses after a movie is made.
Writer Ed Solomon wrote Charlie’s Angels, Men in Black and the Bill and Ted franchise and has gone on Twitter to complain about how Hollywood accounting works. He too had a deal to make 5% profit off of his movies and has pointed out that he has made $0 off of any of them. He also mentions how, despite studios claiming they made no money, they made three sequels to MiB, two more Charlie’s Angels and two more Bill and Teds and the box office take was over $2 billion.
The man who played Darth Vader in Return of the Jedi? Never got a penny in residuals because, despite making $475 million on a $32 million budget, it didn’t make money on paper.
So how is any of this possible? How does Hollywood accounting work? Let’s look at the very successful Harry Potter and the Order of the Phoenix. The film cost $150 million and made $940 million but, thanks to some leaked documents, we know Warner Bros had this movie as a loss on paper.
Part of the money is lost to distribution fees. Warner claimed it cost $212 million to distribute the movie so right away you can see that $150 million budget rises to $362 million. Little by little we lose profits. Except there’s an issue here.
Warner Bros. distributed Harry Potter itself. So the $212 million they claim as an expense was paid to a different division of Warner Bros. They didn’t lose a dime doing that, but they sure called it an expense on their accounting sheets.
Warner also claimed to have spent $130 million on advertising. Now the budget’s up to $491 million. But most of that money was paid to Warner Bros. as well. They claimed $57 million lost to interest because of financing but they financed it themselves so that was interest they paid to themselves. Now we’re over half a billion dollars that’s eating away at profits, except it’s all lies.
In the end, Warner claimed Harry Potter and the Order of the Phoenix somehow had a $167 million loss. Based on how the company does their accounting, the Harry Potter franchise should be considered a flop because it lost hundreds of millions. But we all know that’s not true. However, it allows Hollywood studios to get out of paying creatives and taxes as well. You can’t pay tax on a billion dollar movie if your accounting says it lost money.
Many studios can pull Hollywood accounting off, legally, by making a subsidiary company to control the production of a film. The studio, which owns the subsidiary, charges them huge fees to bulk up all of these expenses and get out of any profit sharing deals, all while never actually giving the money to anyone but themselves.
Because of all this creative accounting, or outright lying, however you want to view it, a movie will only make a profit if the studio is willing to admit it made a profit. They can work the numbers any way they want and make even the most successful film look like a dud, or vice versa. Much of it depends on the narrative they want to paint.
Incidentally, the Bohemian Rhapsody lawsuit was dismissed by the screenwriter in 2023 after two years. There was no word on what kind of settlement was reached.
Let’s leave the studios a minute and see how movies make money in the first place.
Ticket Sales
Movies make money by selling tickets. We refer to that as “box office.” But box office isn’t 100% studio profit. There’s one more link in the chain and that’s theaters. There’s an old belief that theaters make all of their money off overpriced popcorn and soda and not ticket sales, but that’s not really true. Theaters make a ton of money off of concessions, yes, but they also make up to 50% of ticket sales. Some theaters make less than 50% of all of their revenue off of concessions, so that box office profit is not going solely to the studio by any means.
In general, major Studios make about 40% to 45% of the box office. If a movie really takes off and becomes box office gold, they’ll end up getting a higher cut up to about 55%. Back in the day, studios used to have deals in place where they would make a higher cut for opening weekend and it would lower over time. Those deals don’t generally exist anymore, however. theaters get a standard cut across the board.
Different studios do still have different deals in place for how box office dollars are distributed. Also, domestic box office versus international box office can vary greatly based on deals as well. All of these factors that affect how much money a studio takes in help it when it comes to Hollywood accounting.
Box office can be higher overseas for some movies, you’ll often see a movie absolutely exploding in China like Avatar, for instance. However, Hollywood needs to use different distributors and subsidiaries so the profit they get in return is much lower than they would make in domestic theaters.
One side note worth remembering, as brought up by Matt Damon on Hot Ones, is how big DVD and physical media used to be for the film industry. Physical media brought in over $25 billion in 2005. Without that boost to revenue, films are riskier propositions, smaller movies don’t get made as often, and accounting has gone off the wall.
Streaming
The monkey in the wrench of how we understand movie money, box office profits, and the whole economy of filmmaking is streaming. You could make a strong argument for no one understanding how streaming works in terms of profit. That includes the people who actually make streaming movies. Streaming literally doesn’t make money for the many of the people who do it like Paramount and Disney. Netflix didn’t make a profit until 2023.
Apple TV+ is mocked frequently for spending billions of dollars to make shows that barely anyone watches. Netflix gets the same treatment for making huge budget movies that are critically derided and even made fun of by their own actors sometimes. The company once spent $55 million on a show it never aired.
Doug Liman, director of Amazon’s popular remake of Road House, complained about how the streamer treated the film. It was supposed to be released theatrically but ended up on Amazon Prime after the studio, MGM, was bought by Amazon. He said he made the movie as if it was going to be in theaters and he, and others, were paid accordingly. Meaning there was an expectation of a cut of box office profit. But it went to streaming, and he got nothing, even though 50 million people watched it in the first two weeks.
On a streamer like Netflix, a movie is considered a success if a certain number of people watch it. Every so often, Netflix or Disney+ or one of the other streamers will release the viewership information to promote one of their films or TV shows. Prime boasted that 65 million people watched Fallout in its first two weeks. There’s no doubt that’s a lot, but it’s hard to see what that means compared to box office for a movie. If those 65 million were already subscribers, did Amazon make any money? We don’t know because streamers don’t often share that kind of information.
Subscribers is how streamers have to calculate profit, however. They produce all these new shows and movies, or buy the rights to your old favorite shows and movies, to entice you to subscribe. So every month when they get your subscription fee, that’s their box office. And to make more money if they need to produce or distribute more films and shows that other people want to watch to convince them to subscribe.
Netflix boasted eight million new subscribers in the second quarter of 2024 for a total of 277 million worldwide. Those are good numbers. In early 2024, Prime said they had 200 million monthly viewers, so those seem like good numbers. Disney+ has about 153 million subs but they lost over 1 million in February 2024 when they raised prices.
Studios can still make money off of the streaming model, it’s just a little different. For instance, Paramount sold Coming to America 2 to Amazon Prime for $125 million. Would it have made that much money in the theaters? This was during the height of Covid, so you can make a good argument that sending it to Prime was a better deal. Arguably it became Amazon’s problem to do marketing at that point. Paramount made double their $60 million budget without the extra fees we’ve talked about on top, so they came out ahead.
Does a movie need to double its budget to be profitable? Sometimes, yes. Sometimes the numbers will never make enough sense for us to know one way or another. And sometimes there are other routes to making money, like streaming, that can backdoor the process entirely.