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  • Writer's pictureFIC Hansraj

THE TINTIN OF SHOWBIZ: Finance Behind Films



Finished watching a new movie, and found yourself pondering how these movies mint money. From understanding how movies earn money to uncovering profit-sharing secrets, this journey is as engaging as a treasure hunt with Indiana Jones. Explore the world behind the silver screen, making it as enjoyable as a colourful Pixar animation and as thrilling as a classic Hollywood adventure.


Let’s understand this movie mania:

Now to begin, let’s first understand who are the various stakeholders associated with a movie so that we can better understand their financial interests. The major thing to understand is what each stakeholder expects from the film and how they will earn from the film. There are predominantly 3 key stakeholders that are involved in the making of a movie:-


Production Houses, Distributors, and Exhibitors.


Bringing a film to life is a thrilling, yet financially perilous journey. We can now delve into the cost borne by various stakeholders:


Cost Breakdown Of Various Stakeholders:


Production houses as you might have heard of Dharma, Yashraj Films, Red Chillies Entertainment, etc. bear the burden of creation, from nurturing the script to finalising the polished product. This includes talent and crew salaries (actors, directors, technicians), shooting expenses, editing fees, and post-production costs.


Distributors act as the bridge between production and exhibition, acquiring the rights to screen the film. They incur acquisition costs, invest heavily in marketing and advertising, and face distribution expenses like creating physical copies and managing the logistics of film copies.


Exhibitors, the final link in the chain, pay rental or screening fees to distributors for the right to showcase the film. They also bear operational costs like staff salaries, maintenance of theatres, and utility bills like electricity, water, etc.


Showbiz Profit: Profit-Sharing Model Between Producers and Distributors:

As we have understood the cost, let’s now unravel how these stakeholders earn. There are three common profit-sharing models between production houses (producers) and distributors: 


1. Minimum Guarantee (MG) & Royalty: Think of this as a pact with a guaranteed minimum wage. The distributor pays the producer a guaranteed minimum amount, known as the Minimum Guarantee (MG), regardless of the film's performance. But this deal comes with strings attached. If the film shines and surpasses the MG, the distributor takes back the MG first, then showers the producer with a percentage of the box office (the royalty). However, if the film flops, the distributor absorbs the punch, covering the MG, and they bear the loss up to the MG, leaving their pockets lighter.


2. Commission Basis: This model is all about shared skin in the game. The distributor receives a commission or percentage (e.g. 30%) of the film's box office revenue. They act as a sales agent, taking a commission on every ticket sold. The higher the box office, the fatter their cut, but along with this producers’ share grows too! It's a commission-based rollercoaster – you share the highs and lows. But remember, if the film underperforms, the distributor might not lose their commission as they do not bear the film's losses directly they will just end up getting less commission, however, the producer might be left holding the empty popcorn bucket.


3. Selling Distribution Rights: This option is for the bold. The producer sells the complete distribution rights of the film to a distributor for a lump sum amount. It's like selling your house – you get the money upfront, but any future profits (or losses) belong to the new owner. It's a high-risk, high-reward gamble. The film could become a cult classic, giving up the producer the juicy share. Or, it could sink without a trace, leaving the producer with just the memories ( and the lump sum, of course! ).


Profit-Sharing Dynamics: Distributors and Exhibitors


There are generally two types of exhibitors: Single Screen Theatres and Multiplexes


To begin, let's first explore the realm of single-screen theatres. The single-screen theatre pays a fixed percentage of the box office revenue to the distributor. Common ratios might range from 75-25 to 70-30, with the distributor retaining the larger share.


Next, let's examine the multiplexes' perspective. It’s like understanding a dynamic partnership that keeps on changing weekly: -


In the first week of a film's release, when audience turnout tends to be high, the revenue-sharing ratio is often set at an equal 50-50 split between the multiplex and the distributor.


In the following weeks, the revenue-sharing ratio may continue to evolve, gradually favouring the multiplex. This could mean a shift to a 75-25 or 80-20 split. This adjustment acknowledges that the film's major draw has likely occurred in the first week.


In the later stages of the film's run, especially when its box office performance has stabilised, the terms of the revenue-sharing model may become more negotiable based on specific agreements between the multiplex and the distributor.


These are just the basics covered that will help you gear yourself for the further journey as we unfold the different realms of this industry. Now let’s unravel the intricacies of a word you would have always heard since your childhood no matter if it was during the Classic Hindi cinema era or Dharma taking up in the industry.


“This movie made this much at the box office”. Always hear this, right? But have you ever found yourself wondering what it means? Allow me to decode this buzzword - 'Box Office Collection'.


Hold on to your seats, I mean your devices. In contemporary times, the term ‘box office collection’ means earnings generated from the film's ticket sales at movie theatres. It represents the total amount of money collected by a movie during its theatrical run, indicating its popularity and commercial success. The box office figures are a key metric in the film industry, reflecting audience turnout and the overall reception of a movie in cinemas. Hope we got you covered with this term!


As of now, you have understood the hidden game behind box office working. We would like to introduce you to another intriguing verse of this industry that would pique your interest.


THE HIDDEN VERACITY


Flop movies but high profits?

A film is made of so many elements that it's not just one power at gameplay,  there are production houses, distribution houses, streaming platforms, and financial houses that sponsor movies. It’s important to understand a movie is a product that entrepreneurs who give their money and put their stake in the film at the end of the day just want good returns right? As they say, the biggest risk is to make a film. The only trust can be in the idea, the execution, and the audience.


Some people believe that there's a "movie mafia" or a group of influential individuals who manipulate the box office numbers to make flop movies appear more successful than they are. The success or failure of a movie depends on various factors like marketing, audience reception, and overall quality. Sometimes a movie can resonate with audiences despite negative reviews. One possible explanation is that these movies have strong marketing campaigns that create a lot of buzz and attract a large audience, despite the negative reviews. Another theory is that these movies appeal to a specific niche audience that may not be well represented by critics. Additionally, some movies may have international success, making up for their underperformance domestically makes a huge difference.


Earlier there used to be individual financiers and then after some years came big production houses like Dharma, Yashraj productions and turned the movie industry into a systematic structure. Companies were formed so that the risk was equally divided between people and large amounts of money could be raised. New tactics were applied by different production houses to make their movies a hit.


New players, new plays

The economy of one movie here was replaced by the economy of portfolio movies making it a different ballgame. For the big production houses - Eros, UTV, Reliance Entertainment, and of course, the unlisted Yashraj Films, the game-changer was the emergence of a robust A2A aggregator to aggregator model. This led to the emergence of diversified revenue streams and so, naturally, they were less dependent on the box office. The systematic level of output was decided and that was:

  • 1) How many movies are to be acquired (outright purchase from independent producers), and how many are to be self-produced and co-produced? 

  • 2) How many big-budget, medium-budget, and small-budget movies to make? The portfolio works when there is an optimum mix of movies to get maximum returns.


Rights

A film is an intellectual property (framework of rights in law that protects “creation of the mind”), not a physical property. You can experience this but not sell it further. You can buy a ticket to go into the movie hall and experience the movie but that experience is only limited to you posting it online is simply illegal. So, production houses started giving their movie rights to television which resulted in high profits. The film industry not only started reaching every home but also maximised their popularity and profits.


Gushing money


Most movies these days are blockbusters! When multiplex came into India, production houses understood that they could make more money how? Simply by making tickets costly. Now what happened was an idea that even if fewer people see the movie more money could be made. Single screen crisis was seen earlier being 12000, but after the pandemic, they were left with only 6500. The only drawback was that the reach and their dependence on the hinterland audience were reduced. Flop movies started coming to OTT which benefited everyone. OTT platforms invested US 665 million dollars on content in 2021 leading this were Netflix, Amazon, and Hotstar. Ott platforms were earning money from more movies as the quality did not matter the quantity did.


Everything covered till now be it the basics of making, profit sharing model, the finance and the budget. The hidden and less seen behind the big flimsy curtain and the mystery behind flop movies and high profits were just the tip of an iceberg that is deeply submerged, with its blocks deeply rooted in an ocean that is not only ice cold but deeply complex. To survive in an industry and be a part of it is a different experience altogether. It is a topic that could never get old and will always be relevant not only for entertainment, fun, and relaxation but also for escapism. Humans and their love for escapism is evergreen and a topic for next time. Till then ciao! We’ll see you soon!


Authors: Sneha Sah and Kasvi Goel

Illustrations: Kkaatyanshive Singh


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