Study: big budget, big profit

Study: big budget, big profit

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A new study offers reassurance for studio heads worried about runaway budgets.

Films boasting production pricetags of more than $100 million actually generate higher returns than mid-range pics, averaging $247 million in net profits per release, according to the study by SNL Kagan, which analyzed all films released on 1,000 or more screens from 2004-08.

Pics that cost $90 million-$100 million earned an average of $118 million.

When it comes to specific genres, animated films performed most strongly, averaging $221 million in net profits per toon. Sci-fi and fantasy films follow at $125 million.

The least profitable of the 10 genres listed in the study were horror pics, with an average domestic gross of $33 million and an average net profit of $17.9 million, and thrillers, with an average domestic gross of $40 million and an average net profit of $13.7 million.

The study, "Economics of Motion Pictures," analyzed 764 films. Net profits were based on a typical distribution fee scenario at major studios. SNL Kagan tallied 83 films with budgets of more than $100 million during the four-year period. (The study did not factor in marketing expenditures, however.)

The results support what many in Hollywood have long believed: That mid-range pics, with budgets of around $50 million, are riskier bets.

But the success of pricier pics is also due to the fact that studios have been more careful in choosing projects in which to invest considerable coin and launch expensive marketing campaigns around -- more recently, f/x-filled tentpoles have featured well-known superheroes or have been sequels to well-established franchises. Such projects have proved safer bets because they lure a large number of moviegoers and result in the minting of more coin from other areas like homevid and consumer products, as well.

The study also found that the box office has thrived during the recession.

Through August, admissions this year were up 5.1% to 938 million and total domestic gross rose 7.3% to $6.9 billion, SNL Kagan said.

But it warned that the DVD biz, Hollywood's "largest revenue source," is taking a hit, with sales down 6.8% last year to $14.8 billion. (Figures are Kagan's and may not agree with other industry sources.)

"Consumers are increasingly turning to Redbox's $1 kiosk rentals and Netflix's all-you-can-watch DVD and streaming services," said SNL Kagan analyst Wade Holden. "Going forward, we expect 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."