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Movie industry references - or - 'What goes into making a movie'
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Since there is always talk of what may or may not be facts concerning what goes into making a movie - including how they make money - I figured this thread could help with such topic for anyone's reference.

 

First up:

 

How big is the international box office market?

 

MPAA 2013 Theatrical Market Analysis (to judge growth with 2014)

 

MPAA 2014 Theatrical Market Analysis (published March 2015)

 

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As of the 2014 summary report, the North American market value had dropped slightly while the International market had actually experienced continued growth.

 

This report is also a great reference when it comes to theater growth, division of different theater types, and even revenue realized for a given region for overall box office results.

 

 

Edited by Bosco685
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Hollywood Accounting: Isn't it as easy as reading a studio's prospectus to figure out profits?

 

How Hollywood Accounting Can Make a $450 Million Movie 'Unprofitable'

 

Here is an amazing glimpse into the dark side of the force that is Hollywood economics. The actor who played Darth Vader still has not received residuals from the 1983 film "Return of the Jedi" because the movie, which ranks 15th in U.S. box office history, still has no technical profits to distribute.

 

How can a movie that grossed $475 million on a $32 million budget not turn a profit? It comes down to Tinseltown accounting. As Planet Money explained in an interview with Edward Jay Epstein in 2010, studios typically set up a separate "corporation" for each movie they produce. Like any company, it calculates profits by subtracting expenses from revenues. Erase any possible profit, the studio charges this "movie corporation" a big fee that overshadows the film's revenue. For accounting purposes, the movie is a money "loser" and there are no profits to distribute.

 

Hollywood Accounting: How A $19 Million Movie Makes $150 Million... And Still Isn't Profitable

 

We've written about the wonders of Hollywood accounting before. It's a series of tricks pulled by Hollywood studios to make most of their movies look unprofitable, even when they're making a ton of money. The details can be complex, but a simplified version is that every studio sets up a new "shell" company for each movie -- and that company is specifically designed to lose money. The studio gives that company the production budget (the number you usually see) and then also agrees to pay for marketing and related expenses above and beyond that. Both of those numbers represent (mostly) actual cash outlays from the studio and are reasonable to count as expenses. Then comes the sneaky part: on top of all that, the studios charge the "movie company" a series of fees for other questionable things. Many of these fees involve no real direct expense for the studio, but basically pile a huge expense onto the income statement and ensure that the studio keeps getting all of the movie income -- rather than having to share the profits with key participants -- long after the movie would be considered profitable under regular accounting rules.

 

NPR: We See Angelina's Bottom Line

 

As a case study, he walks us through the numbers for "Gone In 60 Seconds." (It starred Angelina Jolie and Nicolas Cage. They stole cars. Don't pretend like you don't remember it.)

 

The movie grossed $240 million at the box office. And, after you take out all the costs and fees and everything associated with the movie, it lost $212 million.

 

This is the part of Hollywood accounting that is, essentially, fiction. Disney, which produced the movie, did not lose that money.

 

These are articles about how studios play with their individual movie balance sheets to claim expenses, actors claim salaries not received for negotiation power later on with other movies, or doing all they can to avoid paying royalties.

 

Fun times!

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Where do people find those studio financial results?

 

Box Office Mojo

 

A great source for identifying what budget went into a movie (when it is revealed), what they made overall and by region, and even historic analysis going back decades on most major studio films. It is owned by IMDb.

 

It does also provide adjusted USD results for films to assist with comparisons across time. But only for the Domestic Box Office most probably because older films treated North America as the only market to crack. So it would make it tough to compare true international results to these older films.

 

Boxoffice.com

 

Another fantastic reference site that delivers timely weekend results summaries, overall film results to include quicker details about international results over Box Office Mojo, and even better film budget details though it tries to guesstimate budget and marketing dollars together.

 

The Numbers

 

Slower than the other two analysis sites. But what it does bring to the table is DVD/Blu-Ray results for the first year.

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As part of an article analyzing why Wonder Woman is not exploding internationally like it is at the domestic box office, The Hollywood Reporter noted the common international take studios experience, depending on the country.

HOLLYWOOD REPORTER: Why 'Wonder Woman' Is Catching on More Slowly Overseas

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While the international marketplace is key, Hollywood studios get far more back from theaters in North America, or roughly 50% from every ticket sold, compared with approximately 40% from international cinema owners. The return in China is just 25%, although studios have minimal marketing costs there.

So where some articles in the past have assumed studios are only taking in 15% across all international markets, along with the expense of marketing across all, this would seem more realistic. Unfortunately, the heavy-hitter also is the slowest growth candidate for studios.

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On 12/30/2015 at 2:28 PM, Bosco685 said:

Hollywood Accounting: Isn't it as easy as reading a studio's prospectus to figure out profits?

 

How Hollywood Accounting Can Make a $450 Million Movie 'Unprofitable'

 

 

 

Hollywood Accounting: How A $19 Million Movie Makes $150 Million... And Still Isn't Profitable

 

 

 

NPR: We See Angelina's Bottom Line

 

 

 

These are articles about how studios play with their individual movie balance sheets to claim expenses, actors claim salaries not received for negotiation power later on with other movies, or doing all they can to avoid paying royalties.

 

Fun times!

Hollywood is always looking for sucker investors that agree to a % of the net.  This is free money.

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MPAA updated its worldwide box office analysis, covering up to 2016. Amazing how the International Box Office has gone up $3.3B since 2012 compared to the Domestic Box Office at $600M.

Motion Picture Association of America (MPAA) 2016 Theatrical Market Statistics

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No shock the big player is Asia.

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Interesting details on the USA Movie and TV industry in the way of jobs and income.

The Economic Contribution of the  Motion Picture & Television Industry to the United States

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And now you understand why those end credits take so long to get through with all the people mentioned.

- 2.1M jobs

- $53B in wages

- $134B in USA sales

:whatthe:

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On 3/11/2018 at 9:50 AM, Bosco685 said:

And now you understand why those end credits take so long to get through with all the people mentioned.

:whatthe:

On a side note, what I've learned from my movie industry friends and acquaintances is that once you "Strike the Baby and Kill the Blonde," everyone on the project is effectively out of a job unless they have another film assignment lined up and scheduled to move on to.   Having your name listed in the credit crawl is industry guild and union proof that you actually contributed on the film and thus able to advance your career to secure future work on either the next movie bomb or the bigger and better Boffo Blockbuster.  :wink:

Edited by Mr.TawkyTawny
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Looking at the massive screen distribution for Endgame, what a difference ten years make to support a massive blockbuster. Even just considering the Domestic Box Office stats.

National Association of Theaters - Number of U.S. Movie Screens

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  • Indoor screens (2009-2018): +1,708
  • Drive-in screens (2009-2018): -104
  • Overall (2009-2018): +1,604
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Very interesting article on how studios use product placement to offset production and marketing costs. Including the history of how product placement came about.

Show Me The Money: The World of Product Placement

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The very first movie to win a Best Picture Oscar featured product placement. The film was entitled, Wings, starring Clara Bow. It showed a scene where a chocolate bar was eaten, followed by a long, lingering close-up of the Hershey's logo. That was 1927.

wings-hershey.png

 

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At the same time, struggling studios began allowing commercials – or "ad films" as they were then called – to be shown in theatres. But audiences loudly protested the cinema ads, and even formed "Booing Clubs" in many cities, forcing theatre owners to bring restraining orders against the groups. Yet, product placement didn't fuel the same negative response.

 

By the late 1930s, MGM said it was fielding over 100 requests per week from advertisers offering up their products for films. By the end of the 1930s, Business Week ran a story noting that product placement was on the increase in motion pictures. Advertising agencies started product placement departments. They also dangled a juicy carrot in front of studios, saying, "If you use our products in your movies, we'll promote your movies in our ads."

 

By the mid-50s, independent product placement companies started popping up. They formed relationships with Hollywood producers and prop managers. They would gain access to scripts before shooting began, look for opportunities for their client's products, and make suggestions to the studios.

But here is where the money comes into the picture, which folks have assumed previously is just free goods on the set versus payment for such obvious placement.

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As product placement became more nuanced, studios began offering structured rate cards. Disney, for example, charged $20k for a visual placement, $40k for a brand name mention, and $60k if an actor actually used the product in a scene.

disney-coca-cola.png

 

Steven Spielberg broke new ground again when his 1993 film Jurassic Park, which featured over 100 product placements at different price points.

 

The award for Product Placement Achievement In A Single Film went to Pain & Gain, starring Mark Wahlberg. It featured 39 different brands.

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And the award for Product Placement Production went to Smurfs 2 – the film covered the entire cost of its $105 million dollar budget with $150 million worth of product placement deals. Smurfs 2 made $45 million dollars in profit before it even hit theatres. 

smurfs-2.png

 

But more than any other film, it was the Bond franchise that kicked product placement into the stratosphere. In the 1995 film, Goldeneye, BMW spent $3 million to replace Bond's famous Aston Martin with its new Z3. BMW saw a $240 million dollar lift in sales.

 

1999's The World Is Not Enough broke all records for selling $100 million dollars worth of product placements. And in Skyfall, Heineken paid a reported $45 million to replace the seemingly irreplaceable – as 007 skips his usual vodka martini for the Dutch beer.

 

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How the British government film incentive is utilized by companies like Disney to offset production costs, yet leads to greater details on its production budgets due to required reporting.

Disney Reveals Guardians Of The Galaxy Was Over Budget At $232 Million

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Media giant Walt Disney has revealed that the production cost of last summer’s blockbuster comic book movie Guardians of the Galaxy came to $232.3 million which was “slightly over the agreed budget.”

 

The attraction of filming in Britain isn’t just a ready supply of skilled staff but also the government’s film tax credit scheme. It entitles movies with expenditure of more than $31.8 million (£20 million) to claim back up to 20% of their production costs. The costs of movies qualifying for the rebate are consolidated in a single company which makes it easier to work out their entitlement. It also gives an insight into their finances because publicly available financial statements need to be filed by the companies.

 

They usually have colourful code names so that they don’t blow their cover when filing for permits to film off-site. Guardians of the Galaxy was mainly filmed at Britain’s Shepperton Studios but also shot scenes on location in central London and southern England. The Disney company behind the movie is named Infinity Works Productions after the object at the heart of the film. Last week it released financial statements for the 10 months to 31 August 2014 which show that costs came to $87.4 million bringing the total to $232.3 million.

 

The budget is higher than estimated with Box Office Mojo claiming that it was due to come in at $170 million. It is also higher than Marvel expected as the financial statements say that “the estimated final cost of the motion picture was slightly over the agreed budget.”

 

One of the biggest areas of expense was spending on the production staff which peaked at 441 in 2013. They were paid a total of $21.5 million and the tax credit scheme helps to keep them in work.

Why the number difference came out is although Disney doesn't have to report the actual details, the British Film Institute (BFI) does have to publish such details to justify the tax incentive plan it offers studios to attract filming locally. And what is more interesting is the $232.3M was after the tax incentives, as the actual costs before rebates was higher.

Disney Reveals Financial Muscle Of 'Avengers: Infinity War'

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Production for seven of the movies based on Marvel Comics superhero characters has taken place in Britain, and as the table below shows, the cost so far of Infinity War is surpassed only by the $495.2 million (£306.1 million) spent on its prequel, 2015 blockbuster Avengers: Age of Ultron. There is good reason Disney has thrown its weight behind it.

 

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Figures released by the British Film Institute (BFI) show that $2.6 billion (£1.9 billion) was spent on the production of movies in Britain last year, with $2.4 billion (£1.7 billion) of it coming from foreign firms. They include Paramount’s Mission Impossible 6 and the latest installment in the Warner Bros. Harry Potter saga, Fantastic Beasts and Where to Find Them 2.

 

The total spend was a 23% increase on the previous year and the highest since the BFI began collecting records more than 20 years ago. The surge has even prompted Disney to open a new London base for Industrial Light and Magic (ILM), its post-production studio responsible for special effects.

 

Disney has figured out a great plan with London to cut down its costs massively. It's a smart move on its part.

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British Film Commission - Film Tax Relief

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The UK’s film and high-end television tax reliefs are widely recognised as the most transparent, inclusive and reliable production incentives in the world.

 

Value

  • For all British qualifying films of any budget level, the Film Production Company (FPC) can claim a payable cash rebate of up to 25% on UK qualifying expenditure.
  • The Tax Relief is capped at 80% of the core expenditure i.e. even if you have 100% UK-qualifying expenditure, tax relief is only payable on up to 80%.
  • There is no limit on the budget of the film or the amount of relief payable within the 80% cap.

Film Production Company (FPC)

  • The FPC responsible for the film must be within the UK corporation tax net.
  • Must make the arrangements for pre-production, principal photography, VFX, post & delivery.
  • It is best to incorporate sooner rather than later so costs can be included towards Tax Relief claim
  • Can be a UK ‘off-the-shelf’ company set up on behalf of an international parent company.
  • Work can be sub-contracted as long as this is reflected in the FPC’s accounts.
  • Loan-out companies can be used as long as this is reflected in the FPC’s accounts

Case Studies

VFX/Post case study: A -script that has been developed in the US needs to shoot in a location with sand dunes or tundra for its principal photography, but the studio/producer wants to bring VFX, post, and the soundtrack recording to the UK.

Core expenditure is allocated as follows:

Activities:

  • Preparing costings and shooting schedule- Non-UK
  • Rehearsals-  Non-UK
  • Principal Photography- Non-UK
  • VFX/Post-production/Soundtrack recording- UK

As the project has satisfied all qualifying criteria i.e. the UK FPC is incorporated in the UK during early prep, the VFX/post/soundtrack recording is then carried out in the UK and the costs of which exceed the minimum UK-qualifying spend of 10%; then the VFX/post/soundtrack recording costs will qualify for the UK Film Tax Relief. In addition to VFX/post/soundtrack recording costs qualifying for the UK Film Tax Relief, the prorated ‘neutral’ costs (qualifying costs which are spread throughout the production process, including senior producers, writers, director, insurances) will also qualify whilst activity is based in the UK i.e. if VFX/post/soundtrack recording costs amount to 20% of the total core expenditure, 20% of ‘neutral’ costs will also qualify whilst activity is based in the UK. This same structure would also apply to any other element of the production process ‘used or consumed’ in UK, e.g. principal photography, as long as the minimum UK-qualifying spend, and all other qualifying criteria are satisfied.

 

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MPAA has published its 2019 analysis for the domestic theater market.

MPAA THEME Report 2019

DC_MCU_Demographics200311.thumb.png.b7b404f49e75f03e11c72e218dc9c30c.png

MPAA identifies the larger films for demographic analysis. So it looks like Wonder Woman remains the lone DC or Marvel film where the overall audience was dominated by female movie-goers. Captain Marvel was the normal MCU solo film audience.

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A very detailed and interesting article concerning what analytics hint to a film being profitable.

What Every Box Office Fan Should Know

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By Israel Luna (@drisraelluna)

 

Box office analysis is by no means an exact science. There are many variables to consider, and in the vast majority of cases those variables are not public, so as amateurs we have very few parameters to work with. How then do we know how much a movie needs to make a profit?

 

If you don't have much patience, then all you really need to know is that a movie needs to get a global box office around 2x to 2.5x its production budget to be "on track to be profitable." Now if you're really interested in getting a better idea of how the box office really works, then read on…

 

What does the famous "2x Budget = Profitable Movie" rule REALLY means

 

Anyone who has paid attention to reports and articles on the box office will have run into a famous rule on some occasions where a film that gets 2x or 2.5x its budget worldwide, is a profitable film. However, if you look, in the first paragraph we use the term "on the way to being profitable." The difference is simple: "profitable" means that, as soon as the film manages to get 2x or 2.5x its budget at the box office, it is already in blue numbers, and the reality is that this is not true. 

 

What the formula really means is that, if a movie manages to raise a box office equivalent to 2x to 2.5x its budget, then it is “on track” to eventually become profitable after all possible sources of income have been considered, which include the box office (which is obtained during the first months), the profits generated by the sale of DVD / Bluray (most of which are presented during the first and second year), and the profits derived from the services of " video on demand ”, pay TV services, streaming, etc. The income of a film can extend for at least 10 years, which is the amortization schedule used by the films, and it is at some point during this period that a film will now enter blue numbers.

 

With this in mind, experts have concluded that if a movie gets a 2x (in some cases) or 2.5x (in others) box office, then it will probably pay off eventually.

 

Where did that famous rule come from?

 

Well, the rule comes from the BFI (British Film Institute) who did an analysis of English films. They established a "finger rule" in which movies that raised 2x their budget were highly likely to make a profit (again, make a profit "eventually").

 

However, the studio limited only productions in the UK, so I personally wanted to see if this rule applied to Hollywood productions as well. Thus, and based on the notion that a movie that generates a sequel is because it was profitable (since it would be absurd to make a sequel to a movie that generates losses), I reviewed all the movie sequels from 2010 to 2019, a total of 340 movies (according to Wikipedia). We exclude all those that were not Hollywood productions. Subsequently, we searched Boxofficemojo.com for information on the "original" movies, and we excluded all those without budget information. We were left with a sample of 165 movies, with multipliers ranging from 0.64x (I Spit On Your Grave) to 12,890x (Paranormal Activity). The mean was 4.

 

Apparently, the BFI was right, out of all these "profitable" movies, only 5 movies (3%) had multipliers less than 2x. However, only 7% of the films had multipliers of 2 to 2.4x, while the remaining 90% had multipliers of 2.5x or more.

 

Therefore, it could be said that a Hollywood movie that reaches at least 2.5x its budget at the box office, will eventually make enough profits (it may take months or years), in one way or another, to merit a sequel, what which means it will be profitable at some point.

 

How much REAL profit does the box office studio earn (ie NET profit)?

 

Domestically (in the US and Canada), the box office during the opening weekend goes almost entirely into the studio's pockets, between 80% and 90%. But as time goes by, the percentage that the cinema takes away becomes more and more, so that eventually, by the end of the tour, 80% of the box office is kept by the cinema, and the studio only gets 20 %. To obviate these tedious calculations, the figure that is traditionally used is the study takes 50% of the box office at the domestic level.  

Internationally, different sources give figures ranging from 40% to 45%. In my particular case, I prefer to go by an average and establish that the study keeps 43% of the international box office ... except in China, where the profit is much less, and the study only keeps 25% of the box office .

 

Taking an example, a movie that manages to raise $ 400M worldwide, could have a distribution of:

  • $ 130M in the US at 50% = $ 65M net
  • $ 40M in China at 25% = $ 10M net
  • $ 230M in the rest of the world at 43% = $ 99M net

With this, of those $ 400M at the box office, the studio is left with only $ 174M. Much less than it seemed at first, right?

 

Now suppose this is a relatively expensive movie… a Marvel or DC comic book movie. Let's give it a cost of $ 180M. With that $ 174M, you mean that the film is practically amortized, right? TRUE?

 

FALSE! And here we enter the next point ...

 

The terrible cost of marketing

 

The production budget is only enough for the film to be finished and ready to be shown in theaters. But what good would it do to make a movie and put it in theaters if nobody knows it exists? This is where the marketing campaign comes in. And since in this life nothing is free, promoting a film also costs ... and sometimes it costs A LOT. For a movie on a budget this size, a “standard” marketing campaign can go as high as $ 100M (or even more). Interestingly, a movie spends around 80% of its marketing budget by the time the movie opens, and the remaining 20% after the premiere. But let's go back to our calculated budget of $ 100M. In this way, we would have that the initial investment for the film is:

 

  • Production cost: $ 180M
  • Marketing: $ 100M
  • Total initial investment: $ 280M

 

Now those $ 174M that at first seemed almost enough to make the movie profitable, already seem a lot less, don't they? Now, with a deficit of just $ 6M, the movie turns out to be in the red with - $ 106M!

 

But hey, what is expected is that the film could recover that $ 106M and much more with the sale of DVD / Bluray and television services ... after all, in 2019 this type of income far exceeded the income derived from the box office in The USA. Surely the film will be profitable ... or not?

 

ETQf_wmXsAgQcqj.png

 

But what about "other expenses"?

 

Apparently, after considering budget, marketing and net box office, we still have $ 106M to recover. But we have forgotten about the famous "additional costs". What do we have to consider then?

 

Overhead: the so-called "OVERHEAD". The studios charge their own productions an overhead fee that covers the time that the studio staff lasts in the project, as well as the costs of the agreements (see below the section on "Residuals"), which apply to all films. Yes, you read correctly: the studio charges its own productions. It seems absurd, right? But is not. It is all part of the business. These costs are applied BEFORE the film's profit is calculated, indicating that a production paying an overheadit has less “official” earnings, and this means that the studio has to pay less to those who benefit from the signed PARTICIPATION agreements. Suppose the study in question charges 20% for this overhead. As we mentioned before, this cost is deducted before calculating the net profit. So… do you remember that $ 174M of net profit? Well, at a stroke, they just turned into just $ 139M

 

And it gets worse ...

 

Because also, within those additional costs, we have to consider:

 

RESIDUAL: The unions to which the actors and staff belong have agreements with Hollywood studios whereby they ensure that their members receive additional payments according to the profits generated by the film. Do you think if we put $ 10M in this section?

 

Financing: These may include costs involved with loans requested to produce the film, which obviously generate INTEREST and brokerage fees, as well as costs derived from currency exchange (for shots taken abroad). In the end it turns out that those $ 180M of budget, with the interest can become $ 190M, or $ 195M, depending on how long it takes the money to reach the hands that it must reach

 

So ... how is our formula?

 

Well, it would look like this:

 

$ 139M (net box office no longer overhead ) - $ 180M (budget) - $ 100M (marketing) - $ 10M (residual) - $ 10M (interest) = - $ 161M

 

That's right, our movie is in the red for a whopping $ 161M. This amount is what the film would have to collect, over time, in sales of DVD / bluray and television services to be able to “come out tables”, and obviously, any figure above this amount would put it in blue numbers.

 

Now, with $ 400M in revenue, it means that our movie grossed only 2.22x of its production cost ($ 180M) worldwide. It will be enough? Well, as we mentioned before, some movies can be profitable with 2x, although certainly Hollywood productions in general need a somewhat higher multiplier, so perhaps that $ 400M collection is not enough for it to even generate profits long-term. Or maybe it is… after all, we don't know how much our film will raise in subsequent sales.  

 

Well, this has been a "brief" summary of what every box office fan needs to know in order to get a better idea of how movies make (or lose) money. I hope you liked it. Until next time!

 

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