How much money does a movie need to make to be profitable?

If you really liked a particular movie, and you're hoping it made enough money to warrant a sequel, then the wealth of box-office news can be confusing. How can you tell when a movie's a hit? We asked the experts.

If you even pay a little attention to what's going on in the entertainment industry, it's easy to get snowed in with box office information that seems meaningful, but is hard to interpret. If a movie's number one in its opening weekend, does that mean it's automatically a hit? Or is the percentage drop between the first and second weekends the important number? And so on. News outlets tend to report lots of box-office data without giving that much context.

As Phil Contrino, editor of BoxOffice.com, says, "The mainstream media is guilty of this. They look at the opening weekend — and instantly a movie is a success or a failure." But the truth is way more complicated than that. Sometimes, a film can do well in its first weekend and then stumble in later weekends. Or a film can develop "legs," like Christopher Nolan's Inception, and win a few weekends in a row.

How much money does a movie need to make to be profitable?S

And of course, profit and loss are in the eye of the beholder — a lot of people were shocked when leaked financial statements showed that Harry Potter and the Order of the Phoenix had allegedly lost $167 million, despite $967 million in global revenues. Studio accounting, designed to make sure people don't collect on back-end deals, is a marvel.

So how do you know if the box-office gods have smiled enough on your favorite movie that studios are likely to greenlight similar films?

The short answer is, it depends on a number of factors, but a rule of thumb seems to be that the film needs to make twice its production budget globally. For the longer answer, read on.

So does a movie just have to make back its production budget, or is there more involved?

There's a lot more, although studios are loath to give out numbers. The studios seldom release accurate production budgets — and they're even more leery of revealing how much they spend on other stuff, like promotion.

According to Contrino, the Print & Advertising (P&A) costs of a movie can be incredibly high — for a small $20 million film, the promotional budget can be higher than the production budget. That's because those films are often romantic comedies or kids' movies, which are cheap to make but still need a lot of promotion. For a film which cost between $35 and $75 million to make, the P&A budget will most likely be at least half the production budget. And the numbers only go up with bigger films. "If the studio spends a lot on the budget, they're going to want to protect that investment by advertising it heavily," says Contrino.

Case in point: Megamind cost between $130 million and $145 to make (depending on what source you believe.) But the P&A budget, or the cost of promoting the film, is estimated to be an additional $65 million, according to Contrino.

How much money does a movie need to make to be profitable?S

Of course, the promotional expenses are different for each film — Contrino points out that Fox didn't seem to waste much money promoting Gulliver's Travels, once it was clear they had a dud on their hands. You didn't see that many TV ads for Jack Black's Swiftian odyssey. So Gulliver didn't lose as much money as it could have.

And in some cases, a studio will actually have less money at stake than the film's production budget — sometimes, the distributor will just acquire an already-made film for a small fee, plus marketing costs, says Gitesh Pandya with BoxOfficeGuru.com. In those cases, the studio can make a profit even if the film doesn't make back its production budget.

Is it true that studios get a bigger cut of the revenue from the opening weekend?

You might have noticed that studios are pushing a lot harder lately to make a film as big a hit as possible in its opening weekend. And films tend to open on more screens right away — a typical big film will open on 4,000 screens, instead of the hundreds of screens it would have opened on in the 1980s.

And it used to be true across the board that the opening weekend was when the biggest percentage of profits went to the studios. In the past, studios "strong-armed exhibitors into these front-loaded deals, wherein the overwhelming majority of the opening weekend take goes to the studio," says David Mumpower with Box Office Prophets. "As much as 90% of that revenue is theirs." The theaters only make money by selling "overpriced snacks" to audiences during that first week — but in the following weeks, the theater's cut goes up. Eventually, by the fourth week, the studio's cut has fallen to around 52 percent in most cases.

How much money does a movie need to make to be profitable?S

But after a bunch of theater chains declared bankruptcy in the early 2000s, these frontloaded deals started to fall out of fashion, says Doug Stone with BoxOfficeAnalyst.com.

Nowadays, with many of the bigger Hollywood blockbusters, the theater chains just get a standard cut of the whole revenue, regardless of which weekend it comes in.

So generally, how much of the domestic box office revenue goes to the studios?

The percentage of revenues that the exhibitor takes in depends on the individual contract for that film — which in turn depends on how much muscle the distributor has, according to Stone.

These deals often protect the theaters from movies that bomb at the box office by giving the theaters a bigger cut of those films. So if a film only makes $10 million at the box office, the distributor will get only 45 percent of that money. But if a film makes $300 million at the box office, then the distributor gets up to 60 percent of that money.

You can actually look at the securities filings for the big theater chains, to look at how much of their ticket revenues go back to the studios, points out Stone. So for example, the latest quarterly filing by Cinemark Holdings, shows that 54.5 percent of its ticket revenues went to the distributors. So as a ballpark figure, studios generally take in around 50-55 percent of U.S. box office money.

Is it better if a movie makes more of its revenue in the U.S.?

How much money does a movie need to make to be profitable?S

The highest profile example of a film that bombed in the U.S. but made tons of money overseas was The Chronicles of Narnia: Voyage of the Dawn Treader, which made only about $100 million domestically but made about $270 million overseas. And a similar thing happened with the previous Narnia movie, Prince Caspian. Another big film that made way more money overseas than domestically was Terminator Salvation.

So if a film does incredibly well overseas but flops in the U.S., does that make it a hit? As with everything else to do with box office, the answer is "it depends." But generally, domestic revenue seems to be be better for studios than overseas revenue, because the studios take a bigger cut of domestic revenue.

According to the book The Hollywood Economist by Edward Jay Epstein, studios take in about 40 percent of the revenue from overseas release — and after expenses, they're lucky if they take in 15 percent of that number.

Domestic revenue just counts for a lot more than overseas revenue, says David Mumpower with Box Office Prophets:

The reason for this is simple. Collecting revenues abroad is a trickier proposition since the dollar fluctuates against foreign currencies. There are also tariffs from these governments in place in order to keep as much money as possible from leaving their countries and going abroad, which is an understandable practice. While the global conglomerates such as Fox, Disney and Time-Warner that run major Hollywood studios can secure sweetheart deals with various local governments, it doesn't happen for each film. As such, international box office revenue is much less reliable than in North America.

But still, overseas box office does matter, more and more. And stars who have a huge global following are more likely to open a movie than ones who are only famous in the U.S. — just look at the fact that the world-famous Tom Cruise is still starring in movies, despite his ongoing backlash in North America. Mumpower points out that Cruise's Knight and Day only made about $76 million in the U.S., against a production budget of $117 million. But since Knight and Day made $262 million overseas, chances are it will end up being profitable once home-video revenues are factored in.

Adds Mumpower:

A shocking number of 2010 releases did better abroad than in North America, which makes sense when we consider population numbers. It's just a relatively new phenomenon for the industry. Avatar's performance is a great demonstration of global expansion. It earned $760.5 million domestically, which is (almost) a drop in the bucket compared to the $2.02 billion it accrued in international box office. Only 27% (i.e. roughly a quarter) of Avatar's box office was earned in North America. That's how important the global picture has become to Hollywood studios.

Isn't it true that most of the money is in DVD sales and cable TV airings now?

"DVD rentals and sales can tack on up to $60-$100 mil for a big title and TV rights, merchandise, and many other avenues can generate income," says Chad Hartigan, a box office analyst with Exhibitor Relations.

How much money does a movie need to make to be profitable?S

And the studios get a much bigger cut of DVD revenues than they do of theatrical revenues, because the retailers aren't as "significant of a middle man" as the theater owners, according to Paul Dergarabedian, president of Hollywood.com's Box Office division. There are a lot of costs that go into running a movie theater, and showing movies is all the movie theater does — unlike most places where DVDs are sold.

There are some genres of film that do especially well on DVD — like horror films, which are often cheaper to make than other genres to begin with, says Dergarabedian. A horror movie might or might not break even at the theaters, but it's sure to make lots more money when it hits DVD.

But actually, the trend towards studios depending on DVD sales may have peaked already — in 2009, for the first time in a decade, theatrical box office revenue was bigger than home-video revenue, says BoxOfficeAnalysts' Stone. And this seems to be continuing into 2010. Perhaps because of piracy or the popularity of Netflix, DVD sales aren't keeping pace with ticket sales any more. Says Stone, "Studios can no longer rely on as robust an ancillary market to prop up a failure at the box office."

That's one reason why you're hearing so much about 3-D — those higher ticket prices are a way to plug the revenue hole from disappointing DVD sales. And studios are going to start investigating premium video-on-demand services more, as another way to shore up their earnings, says Stone.