Home > screeNZ News > Big budget = big profit

Big budget = big profit

A new US study on film costs vs. film profits reaffirms that the more it costs, the more profitable it’s likely to be. Although the study is based on US data, it is not particluarly good news for low-budget and independent filmmakers anywhere.

According to SNL Kagan’s recent study Economics of Motion Pictures (EMP), films that cost more than $90 million to make generally produce the greatest profit.

EMP analyzes all films released on 1,000 or more screens from 2004 to 2008, providing 12-year financial models based on genre and budget range, with varying distribution structures. Included are detailed costs for action, animation, comedy, drama, family, horror, romance, sci-fi/fantasy and thriller films.

SNL Kagan found that the 83 films with budgets greater than $100 million averaged $247.3 million in net profit under a major-studio distribution fee structure, followed by the $90 million-to-$100 million range with a $117.9 million average net profit. The 764 films in the study averaged $50.5 million in net profit.

In terms of genre, animated films performed the best. The 50 animated films averaged $220.5 million in net profit under a major-studio deal scenario. Sci-fi/fantasy films were the runners-up at a $125.4 million average net profit.

Overall, the recession has been a boon for the US box office. Through August 9 of this year, admissions were up 5.1% to 938.0 million and total domestic gross rose 7.3% to $6.88 billion.

However, declining DVD sales could put the studios’ largest revenue source in jeopardy. Sell-through revenue fell 6.8% in 2008 to $14.84 billion.

SNL Kagan analyst Wade Holden expects the sell-through industry will continue to decline despite growth in high-definition. “We estimate video sell-through revenue will drop 13% to $12.86 billion in 2009 as VOD technologies begin to erode market share.”

Note: all figures are in USD.