With Marvel’s The Avengers finally out on DVD/Blu-ray on September 25th, 2012, and the movie largely out of the theaters, it is finally the perfect time to dissect the film’s box office earnings. You see, despite earning nearly $1.5 billion at the box office, many would be surprised to learn that less than a quarter of that amount will be what Disney/Marvel Studios actually sees as a profit.
When Bryan Singer was told that Superman Returns underperformed at the box office, he responded by telling Empire, “That movie made $400 million…I don’t know what constitutes under-performing these days.” Whether you liked Superman Returns or not, Singer’s response reflects how few people truly understand the complicated nature of finances in the movie industry (even those in the film industry).
This confusion is because most people (even those in the movie industry) don’t understand how a movie’s box office earnings are not hoarded by the studio, but are actually divided between the studio, theaters, and everyone else involved in the production and distribution of a film.
Since Superman Returns came out years ago, I felt that we should take a look at a more recent movie and given that Marvel’s The Avengers has earned just under $1.5 billion, making it one of the highest grossing films of all time, I felt it would be a perfect film to use to dissect Hollywood economics. This film was in fact so successful that it was is credited with pushing Disney’s stock to an all time high in May 2012, according to Time.
So with The Avengers fresh in our minds and its financial success still being discussed, I wanted to use this film’s financial accomplishment as an example of how a box office total is a far cry from the amount of money a movie studio ends up earning.
First, it’s important to know that every time you buy you a movie ticket, the theater obviously keeps a percentage of that money. Most theaters have a sliding scale of how much money they keep from tickets. As one study of theater contracts shows (“At the Movies: The Economics Exhibition Contracts” by Darren Filson, David Switzer, and Portia Besocke), studios keep about “perhaps 70% in the first week, 60% by the third week, and as low as 30% at the end of the run.”
Overall, some studios only earn a little under 50% of a film’s box office haul. For instance, according to Edward Jay Epstein in The Hollywood Economist: The Hidden Financial Reality Behind the Movies, theaters kept $139.8 million of the $237 million worldwide box office earned by Disney’s Gone in 60 Seconds. Meaning that Disney only kept a little over 40% of what this blockbuster movie generated.
However, when you factor in a theater’s sliding scale of profit, “a rule of thumb is that the studio will earn about 50% of a movie’s final US box-office take” – (this statistic is fully explained in this article from The Guardian by Gary Susman).
So if we look at the $1,511,288,000 that The Avengers has earned over its four months in theaters (as of September 23, 2012), it means that only about $750 million are flowing back to Disney/Marvel Studios. However, this number does not represent what the profits will actually be for the studio.
“Why not?” you ask, “What else is there?”
Well, the studio first has to recoup the cost of production. Given that The Avengers cost $220 million to make, movie’s profits come down to $530 million. Additionally, according to a Bloomberg Businessweek article by James Ellis about another $100 million was spent on marketing this movie; bringing the film’s earnings down to $430 million.
However, we’re not done yet. At this point, Disney needs to start paying Box Office-bonuses to people who get a cut of the movie’s gross profits. For instance, after Iron Man became a huge hit, Robert Downey Jr. had his contract re-negotiated so that he’d get a cut of the final profits. Few people will ever know how much money Downey Jr. has coming to him, but according to an article from The Hollywood Reporter by Matthew Belloni insiders have estimated that it could be as high as $50 million. Meaning, that Disney/Marvel will have about $370 million dollars of profits from The Avengers. This is less than 25% of the film’s total box office haul.
|Marvel’s The Avengers Box Office Breakdown|
|Who is Getting a Cut||Amount of Money Disney Losses||Money Left over|
|Total Box Office||$1.5 billion|
|Theaters’ and Distributors’ cut||About 50%||$750 million|
|Production Costs||$220 million||$530 million|
|Advertising Cost (estimated)||$100 million||$430 million|
|Box Office Bonuses||$50 million||$370 million|
|Disney’s/Marvel’s Net Profits||Less than $370 million|
However, this does not mean that Disney CEO, Bob Iger, is going to make money-forts out of bricks of cash.
Some of the profits from The Avengers will probably go to paying off the $200 million hole created by John Carter. Additionally, while filming never began on Disney’s Kung Fu-Snow White film, The Order of the Seven, according to The Hollywood Reporter, extensive pre-production work had been completed before the film was canceled. Though Disney has released no number on how much money they had already sunk into the project, we do know that a director, Michael Gracey, and actress, Saoirse Ronan, were signed on, and that the film was going to be set and filmed in Asia. Meaning, that Disney had sunk some money into this project they lost when they decided to end it.
Overall, the point of this article is not to say that we should shed a tear because the Disney Empire didn’t make as much money off of Marvel’s The Avengers as many believe. The goal of this article was to examine the complicated financial ecosystem that is the movie industry. I hope this breakdown of The Avengers helps you understand why some movies that appear to do well at the box office and are really smart are seen as financial disasters (Serenity, Scott Pilgrim vs. The World); while cheap to produce, but critically hated films often become the source of profitable franchises (the Alvin and The Chipmunks live-action films).
Now that you know how The Avengers’ profits are being divided and what Disney/Marvel will actually earn from the film, I’m curious to know what you think about this film’s box office earnings. Are you surprised by what Disney/Marvel will earn?
(Also, I know that Disney/Marvel will profit from the sales DVD/Blu-rays, toys, other merchandise and marketing outlets. Unfortunately, this information is difficult to gain access to, so most of us will never know how much is generated from these other items, which is why I didn’t include these numbers.)