“Hollywood math” is a black box. Tax credits, back-end profit deals, distribution costs, licensing fees, ancillary revenues and a dozen other line items make it impossible for the layperson to comprehend how much a studio actually earns — or loses — on each of their films. This is not accidental.
Studios have no incentive to clarify the calculations because this intentional obfuscation works in their favor. Spin masters can position commercial bombs like Battleship as hits because how could a movie that made $303 million worldwide not be profitable? Or they can oversell a film’s success to make it seem more impressive than it really is. Amazing Spider-Man 2 made $708 million! Isn’t that, uh, amazing? Sure…until you factor in expenditures, which, according to Deadline, totaled a mind-boggling $540 million. Sony’s second Spider-Man was such a raging success that within a year the studio scrapped its plans for two sequels and effectively sold the character rights to Marvel.
The information void around Hollywood balance sheets has created a world where we’re forced to accept any statement on the subject as fact when even a cursory examination reveals logic gaps wider than yo momma’s vagina. For instance, that Suicide Squad needs to make $800 million dollars at the box office just to avoid losing money.
Nearly every entertainment outlet in the country has regurgitated The Hollywood Reporter’s claim that David Ayer’s disaster will put Warner Bros. in the red if it doesn’t make close to a billion goddamn dollars worldwide. One anonymously sourced quote in a 1,000-word expose about the film’s treacherous development history became accepted fact within hours of its publication. Suicide Squad, the concluding chapter in Warner Bros.’ Superhero Disappointment Trilogy, will inevitably put its financial backers in serious financial jeopardy.
Except, contrary to their name, The Hollywood Reporter didn’t actually report anything about Hollywood. The trade pub quoted an anonymous insider who said “The movie’s got to do $750 million, $800 million to break even. If they get anywhere close to that, they’ll consider it a win.”
That’s not reporting. That’s passing along a throwaway line from someone who could very well being speaking directly out of their asshole. Think a less successful Ace Ventura with a bigger coke habit. Who is this insider? What are his or her qualifications? How do they know the movie needs to make three-quarters of a billion dollars just to avoid Warners taking a loss? While it’s always amusing when entertainment reporters bestow background status to Hollywood suits, it seems particularly questionable to grant anonymity here given the quote’s innocuous nature. The finances for a film about possessed witches and a croc man isn’t exactly the Pentagon Papers. If the estimate is correct and Suicide Squad won’t recoup its costs unless it rakes in fuck you money, why not go on the record? Simple: Either you’re afraid you’re wrong and you want to protect your rep, or you work for an entity with a vested interest in how the entertainment community perceives the film.
We’ll circle back to motivations in a minute. Before we proceed, think about what the anonymous source said. A movie will not make any money unless it earns $800 million dollars in theaters. Does this sound believable? What industry could survive with success thresholds this outrageous?
In case you’re curious, exactly seven movies earned more than $800 million globally last year — Star Wars, Jurassic World, Furious 7, Age of Ultron, Minions, Spectre, and Inside Out. Sorry, every other film released in 2015 (694, in case you’re curious). You are drains on the system and must make your way to the salt mines for readjustment therapy.
So either $800 million in global box office is the benchmark for profitability in 2016, or Suicide Squad’s stakeholders blew money like a Wall Street trader at a cocaine outlet. It’s neither. Suicide Squad’s budget came in at a relatively reasonable $175 million. Not bad for a summer tentpole. For comparison, Jurassic World, Ultron, and Furious 7 each spent $250 million before marketing costs. And those films all netted their studios at least $350 million in net profit according to Deadline’s examination of the 2015 box office.
You can learn a lot from this chart. For instance, despite the increasing emphasis on international receipts, a film’s domestic box office revenue correlates pretty strongly with its eventual profitability.
Here are last year’s top 10 domestic grossers:
And here are the 10 most profitable films according to Deadline’s metrics:
The two lists are practically identical. Eight of the 10 highest grossing domestic films also claimed spots on the most profitable list. The two films from the domestic top 10 that didn’t earn similar placement on the profit list — Hunger Games and Spectre — finished 12th and 16th, respectively. The two combined for over $230 million in net revenue. You may think the global box office dramatically skews the profitability numbers. Understandable. Swap Cinderella for Rogue Nation. The domestic and international top 10s now contain the same 10 films.
The following statements are oversimplifications, but mild ones:
1. Movies that make a lot of money domestically make a lot of money overseas
2. Movies that makes a lot of money domestically are almost always profitable
Suicide Squad is already the ninth highest grossing film of the year. It will likely finish its domestic run with somewhere between $275 and $300 million to its name. Even if the film doesn’t open in China — and it looks like it won’t — add in another $225-$275M from all other international territories. Conservatively, Warners is looking at $500 million in global box office against a $175 million budget. Not one film with a half-billion total gross last year failed to earn a profit.
Still, budgets are a black box, right? Even Deadline’s experts have to estimate. So I reached out to Edward Jay Epstein, the author of The Hollywood Economist and The Big Picture, to get his read on the Suicide Squad figure. His response: “It’s too high.”
“If film grosses $500 million [domestic], the distributor gets $275 million minus advertising and other distribution,” Epstein said via email. “[Those costs are] about $75 million. So it has at least $200 million foreign plus a back end (which will be huge). Ergo, it will be very profitable.”
Epstein used $500 million domestic as a nice round number. Studios get a little more than half the domestic box office grosses after theaters snag their percentage. Subtract another $75 million for marketing and distribution. Whatever’s left over, plus the foreign grosses, equals studio profit.
If Suicide Squad finishes with $300 million in US box office, the studio gets roughly $165 million. Again, the budget is $175 million. So WB is $10 million in the hole right there. Figure another $125 million for marketing and distribution (I upped Epstein’s estimate just to be safe). Damn, they’re $135 million short. Nine-figure losses may be SOP for Donald Trump, but Hollywood studios are a whole different class. Remember, though, there’s still foreign grosses to consider. As of Monday evening, the film already earned $133 million overseas. Warner Bros. just drew even. Every foreign dollar the film earns from here on out goes directly into studio coffers. Television rights and international/domestic video sales easily could add another $100-$150 million to the bottom line.
Holy shit stop with the numbers, Pythagorasshat. We get it. Super. I’m as sick of writing about this as you are of reading it. But I promised I’d return to motivations. DC manboys (get it? Like “fanboys,” but instead of using “fan” I used “man” because they’re grown adults acting like teething infants in three-day-old Pampers. I am hilarious) got significant undeserved mileage out of their ridiculous accusations about critical bias toward DC Comics properties. The notion that film critics operate as a monolithic entity free from independent thought is absurd enough. Claiming they’ve conspired to bring down a studio for no apparent gain places them squarely in Alex Jones’ rectum.
However, like Kevin Costner said in JFK, “I never understood why being a prostitute automatically means you have bad eyesight.” Acting like irrational petulant children doesn’t automatically invalidate their every claim. Many critics do seem to relish savaging DC properties. Anonymous sources didn’t offer ludicrous, objectively incorrect success thresholds when Civil War or Ultron hit theaters. If they had, those claims wouldn’t go unchallenged.
Warner Bros. deserves flak for its failure to deliver a competently made alternative to the MCU. Inventing additional slights isn’t just unnecessary. It’s irresponsible.