What It Takes to Make a Fortune in Hollywood
Jun 8th 2013 9:20AM
Updated Jun 8th 2013 1:00PM
Have you ever wondered what it takes to really make a fortune in Hollywood? You can get a pretty good idea of this from an article in the June issue of The Hollywood Reporter.
April and May saw a flurry of big-budget blockbusters from almost all of the major studios. The Reporter tapped some insider sources to get a fresh handle on the production and marketing costs for each one, and then sat down to do the math. The following chart will help you visualize the discussion.
Walt Disney takes the cake with Iron Man 3's estimated global box office of $1.2 billion. The Marvel purchase is starting to look savvy these days, don't you think?
The Robert Downey Jr. movie spent the most on production and marketing, and it also led the league in terms of profit-sharing arrangements. But it's all worth it: A solid $400 million drops all the way down to the final profit line. That's more than the other four titles put together, on just 62% of the rivals' combined revenues. Economies of scale really pay off here. Iron Man scores the highest profit margin in this comparison at a solid 33%.
The muscle cars of Universal's Fast & Furious 6 aren't far behind, though. The sixth car-chase extravaganza in the series is set to deliver 27% of its box office take straight to studio owner Comcast's operating income. That's in spite of the second-thickest slice of profit-sharing deals with superstars like Vin Diesel and The Rock. Seems like you often get what you pay for in Hollywood. Big names pull in large audiences. In a business where nearly 100 cents out of every extra revenue dollar turns into operating profit, that's a pretty nice deal.
For another example of this, check out Time Warner's Hangover franchise. The first installment was a surprise hit, but the actors have blossomed into bankable stars by now. A sequel without Ed Helms or Zach Galifianakis would lose its marquee luster very quickly. Keep the production and marketing costs equal, reduce the star bait fees by half, and drop the ticket take to $200 million. You'd end up with a $100 million loss. The Hangover series has allegedly run its course -- if not for running out of raunchy jokes, it might be because the studio can't afford to pay the stars what they'd demand for a fourth installment.
The smallest profit-sharing budgets here also end up with the highest straight-up production costs per box office dollar. Viacom's Star Trek crew is largely made up of relatively fresh faces, hoping to take a star turn after this marketing blitz. Warner's The Great Gatsby hangs its hat on the fading star of Leo DiCaprio, who isn't the ticket seller he once was.
Gatsby's $25 million profit contribution would be a rounding error in Warner's $1.2 billion of annual operating income. Viacom runs a smaller ship with just $325 million of reported EBIT income last year, so Spock's efforts will be appreciated. But in the context of Viacom's $3.9 billion of cable network profits, the entire Paramount venture seems like an afterthought.
The combined production and marketing budgets for these silver screen hits range from $253 million to $375 million, which is a fairly tight range. But the varied franchise brand values and star power quotients make a big difference to ticket sales. Disney and Comcast can laugh about it all the way to the bank while writing the huge paychecks they owe to Vin Diesel and Iron Man himself.
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The article What It Takes to Make a Fortune in Hollywood originally appeared on Fool.com.Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+. The Motley Fool recommends and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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