Do award-winning films make money? (Part III)
Updated: Jun 24, 2019
...or... How do I convince investors to back my independent film?
In our first installment, we saw how good independent films* have a higher revenue per theater, which means they are bringing in more money while spending less on advertising, which will eventually mean more profit. (Yay!) In the second installment, we saw that good independent films have a higher international multiplier than most films which means they make more money overseas on average. (Double yay!)
This week, we're going to look at what all this means for the actual profit to the investors.
The thing it's important to remember is that box office revenue (whether US or international) is not the most important number for film investors/producers. The number they actually care about is ROI or Return on Investment.
Return on Investment
Return on Investment is calculated by taking the total profit earned by the investors divided by the amount invested. Let's look at a film with a $10 million budget. If the investors get back $15 million, they made $5 million profit, which is a 50% return on investment. If the investors only get back $8 million, then they lost $2 million which is a (negative) -20% return on investment. (To read more about this, check out my ebook.)
So, the first thing we need to look at is how the box office numbers compare to the budgets. A film that made $100 million at the box office but cost $150 million to make is obviously not a success. But what about a film that made $62 million at the box office and only cost $35 million to make? That film will definitely make money, right? (I'm looking at you Tree of Life.) Well, let's see.
Box Office vs Budget
We can see on the chart that almost all the good independent films in the data set made more at the box office than their budget. (Poor Dheepan) :(
Unfortunately, investors don't get to keep all the money from the box office. In fact, typically less than 15% of box office revenue goes towards the profit after the exhibitor and distributor take their shares.
Fortunately, there is also the ancillary market where films can make a lot of money: iTunes, Amazon, Blu-ray, etc. Typically, films that make more money at the box office will also make more money in the ancillary market.
I will spare you the detailed spreadsheets, but I've gone through and estimated the revenue and expenses from all of the different sources to come up with estimated profit and ROI for each of these films. I didn't have access to the actual accounts for these films, so estimates are based on industry trends. The results are summarized in the chart below. (Don't get overwhelmed. I'll explain below.)
There are two things in this chart that are worth noting. The first is the amount of money a film needs to earn to make a profit. In general, a film needs to double its budget at the box office in order to make money after all the other additions and subtractions. This is a general rule of thumb that holds true for most films. This means that Tree of Life would have needed to make $70 million at the box office to break even. (It's possible that Tree of Life did make money depending on the specific deals that were negotiated.)
ROI vs Budget
The second noteworthy trend in the chart is that the films that made money had smaller budgets. In fact, there is a clear trend with good independent films that ROI tends to go down as the budget goes up. You can see this really well in the graph below. Specifically, independent films need to have budgets under $10 million (and ideally under $5 million) in order to make money.
This is a really important point to consider when making your film. Independent films tend to have a smaller (albeit more passionate) fan base, which makes it more difficult to have a massive box office. If you want to make a profit, you need to keep your budget under control. This is the reason that the Line Producer is one of the most important people on set. (Make friends with your Line Producer!)
So to return to the original question, yes, award-winning films do make money... if they can leverage these 3 factors. 1) Take advantage of higher revenue per theater numbers to keep advertising costs low. 2) Maximize international box office and ancillary revenues where independent films tend to perform better. 3) Keep production costs under control. Making a high-quality, artistic film with a relatively modest budget can be a very smart financial decision.
Now go win that Palme d'Or!
Congratulations again to Parasite and Bong Joon-ho!
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).