Do Award-winning Films Make Money? (Part I)
Updated: Jun 17, 2019
...or... How Do I Convince Investors to Finance my Independent Film?
Since the Cannes Film Festival recently named Parasite (directed by Bong Joon-ho) the winner of the 2019 Palme d'Or (Congratulations!), this seems like the perfect time to look at some of the economics of independent films.
You've probably heard the critique that there's a disconnect between the types of movies that win awards and the types of movies people actually want to see (especially when talking about independent film awards). To back this up, critics point to box office numbers. The movies with the highest box office numbers aren't the movies that win the most awards. Lord of the Rings: Return of the King was the most recent film to accomplish both, and that was 15 years ago. (I know, right?! How?!)
If this is true, then why do producers make these so-called "award bait" movies? And even if we assume the producers are doing it for artistic reasons, how do they convince investors to fund these films? At the end of the day, an investor's job is to make money. (To read more about what investors really want, download my free ebook.) So producers are convincing investors that these films will make money. And if they can do it, then you can do it. :)
To do this, let's look at how movies make money and what that means for independent films. Obviously, if you want to make money, it helps to make a good film. (Although I'm sure you can think of tons of exceptions to this.) To avoid a debate about which independent films are good, I'm going to use Palme d'Or winners as a proxy for good independent films*. So, how do the economics break down for good independent films?
(And yes, we will deal with the economics of the "award bump", but in a separate article.)
Revenue per Theater
The first thing to look at is the industry concept of revenue per theater. This is just the box office revenue divided by the number of theaters showing the film. It tells you how much money you made from each theater (on average).
Why does the industry care about this? Well, it goes to the way films are paid for and the different types of costs. The "cost" of a film can basically be broken down into two categories: production costs and P&A costs.
Production costs (Budget)
The production costs take into account everything you spent to make the film including pre-production, shooting, and post-production. This is what people mean when they talk about the budget of a film.
P&A costs (Marketing)
There are also the marketing costs or P&A Costs (Prints & Advertising). Marketing can often be more than the budget (all those billboards and commercials really add up), but you'll almost never hear producers talk about it publicly.
Marketing costs are directly related to the number of theaters showing the film. A film that's being shown in more theaters needs to advertise more often - and in more markets - to fill the seats in all those theaters.
So now that we've looked at the money coming in (Revenue) and the money going out (P&A costs), let's look at what this means for profit.
"Profit" per Theater
A film with higher revenue per theater is making more money with lower marketing costs, which means more "profit". (Yay!) Higher revenue per theater is basically the same thing as a higher profit margin, which is something investors love. (This isn't technically profit yet, but it does go towards paying back the budget.)
This is an area where good independent films do exceptionally well. The revenue per theater for good independent films is around $32,000. To put that into context, the average for most film genres is in the $8,000 - $15,000 range.
In other words, good independent films make more "profit" per theater. One way to interpret this is that while good independent films don't appeal to a wide market segment, they appeal to a very passionate subset of the market. This is how a film with a relatively low box office can still make money.
Now, you may be asking about the really tall bar on the right. Yes, blockbusters make ridiculous amounts of money (when done correctly). But not everyone has $350 million lying around to invest. And while Marvel seems to have the formula pretty well perfected, spending the money to make a blockbuster is a huge risk that sometimes ends with people losing ridiculous amounts of money.
The fact of the matter is that high quality independent films can be a solid investment. Because of the economics of the film business, you don't need to have mass market appeal to make healthy returns. So the next time an investor (or annoying family member) tells you that independent films don't make money, show them this article.
Now go win that Palme d'Or!
To learn more about how to get investors to fall in love with your independent film, check out Do Award-winning Films Make Money? (Part II), which looks at how independent films perform in the international market.
For a more comprehensive look at what investors really want, read The ONLY Number You Need to Attract Film Investors FREE at www.JourneyConsulting.tv.
*20 most recent Palme d'Or winners as listed by BoxOfficeMojo.com. Does not include winners from 2014 and 2018. Final numbers are still coming in for Shoplifters (2018), but you'll have to ask Box Office Mojo why they hate Kış Uykusu(2014). ;) (It was the only movie from the last 20 years left off the list.)
"average" was calculated using median to mitigate outliers
If you love spreadsheets as much as I do, you can look at the appendix here : Do Award-winning Films Make Money? (Appendix)