A movie lobby card (an old form of promotion) via: Retrospace
Most people believe that the cost of a film is whatever the studio says it is. It might well be, but as I learned in my managerial accounting class, what counts towards that cost can be hard to determine.
For example, what about the people processing the payroll for the set designers, does that count as a cost? The answer is no, it doesn’t because it is considered overhead, in other words, those people processing payroll would be doing it even if the film wasn’t being made.
How about the actors? Well clearly they are a large part of the cost of a film and if the project didn’t exist, they wouldn’t be paid. So, yes, they are a cost to the film.
What about promotion of a film?
You would figure that into the equation, right? I mean, if you make a movie, you have to sell it somehow, and you can’t turn a corner without seeing an advertisement for a film these days. Besides, if the film wasn’t made the cost wouldn’t be there, right? Yes, that’s right. So it would make sense to include the cost of promotion into the cost of a movie, wouldn’t it? Again, yes it would. Except herein lies one of the tricks of the movie business that the public at large is not familiar with or aware of.
For you see, promotion isn’t handled by the studio, it’s handled by the distributor. Never mind that they are usually one and the same (think Disney and Buena Vista), the fact is, for the vast majority of mainstream releases, the cost of promotion is handed off to the books of the distributor, for which they normally receive a 35% cut of the box office gross.
What is the effect of all this? To make costs appear lower of course! Most large movies have a promotional budget in the range of half to three times the film’s cost (how it makes sense to spend more promoting the film than it did to make it is beyond me). So basically, a $100 million movie could cost anywhere between $50 million and $300 million in promotion by the end of its theatrical run.
So when you hear about a film raking in more than it’s cost at the box office, that just covers the studio’s cost, not the promotion. The end result? Films appear much more successful than they really are. Huge box office grosses are often a facade that masks the real cost of a film.
The truth never hurts, and I believe that if studios were more upfront and honest about the cost of a film, i.e. acknowledging the promotion costs more clearly, then they would be in a better position to operate effectively. Sadly, in Hollywood, everyone wants their share of the pie, and will engage in shady tactics like those mentioned above to make themselves appear stronger than they really are. In the end though, the emperor isn’t wearing any clothes, and he always get’s called out in the end.