Why Movies Cost So Much to Make

The movie business is a big business, with global box office revenue reaching a record $42.5 billion in 2019. But this huge figure doesn’t mean that all movies are money makers; in fact, many movies end up being losing bets.

Indeed, although there are thousands of movies made every year, only a percentage of those become feature films with the big budgets we often associate with the Hollywood movie-making business. And though the occasional independent, low-budget film will break out and become a runaway hit, most blockbusters are on the high-budget end. (“Napoleon Dynamite,” “Super Size Me” and “Paranormal Activity” are all low-budget examples.)

The average cost to produce a major studio movie has been around $65 million. But the production costs don’t cover distribution and marketing, which adds another $35 million or so, on average, bringing the total cost to produce and market a major movie to right about $100 million. Those kinds of numbers are a long way from the lowly $400,000 it cost to make “Napoleon Dynamite.”

Key Takeaways

• Hollywood is a big business, raking in billions of dollars a year in revenues and profits.
• Movie budgets can average around $100 million for a big budget film, meaning a lot of tickets have to be sold to break even.
• Major costs include paying cast and all staff their salaries, CGI and special effects, and marketing.

Mega Movie Budgets

And $100 million is just an average. “The Lord of the Rings: The Return of the King” (2003) cost just over $100 million and made over $1 billion worldwide. Back in 1993, “Jurassic Park” was on the lower end of the average movie budget, costing $63 million. Over 10 years later, in 2004, “Shrek 2” had a similar budget of over $70 million. Both “Jurassic Park” and “Shrek 2” grossed over $900 million worldwide.

Then you’ve got the higher end of the movie budget spectrum. “Avatar” (2009) is a great example, with a mind-blowing budget of $237 million. The high investment paid off, though, with the movie grossing well over $2 billion.

$378.5 million

“Pirates of the Caribbean: On Stranger Tides” officially holds the record with a budget of $378.5 million

Those are high-budget examples of movies that made enough to justify the expense, but not all movies do. Some costly flops include 2002’s “The Adventures of Pluto Nash,” which had a $100 million budget and managed to gross just a bit over $7 million. Then there was “How Do You Know?” in 2010, with a $120 million dollar price tag and a return of just under $50 million. Ouch.

Whether a movie makes or loses money, though, one question that seems to reappear often is just why it costs so much to make a movie. What magic potion must be acquired that brings the cost so high?

The Costs of Making a Movie

According to an article by The Guardian, movie costs can be broken down into some broad categories, including script and development (around 5% of the budget), licensing, and salaries of the big-name players, which usually include the producer, the director, and the big-name actors or actresses. Then there are the actual production costs, which include the ongoing salaries of all the people needed to make production happen; production costs eat up a big chunk of the budget, easily taking 25% of the total.

And production isn’t the end of the story. Special effects, depending on the type of movie, can be an enormous cost, and music has to be composed and performed as well. Then, when the whole movie is made and ready to go, it’s time to start in on the work of marketing and distributing.

After all that money invested, you can be sure that marketing is not an overlooked part of the process. There’s no point in making a $100 or $200 million dollar movie if no one knows about it. “Spiderman 2,” which had a production cost of $200 million, racked up another $75 million in expenses for marketing.

The fact that marketing expense is not included in production cost figures is why studios may claim to have lost money on a movie that grossed more than its negative, or production, cost. If a movie cost $100 million to produce and grossed $130 million, then they’ve got a $30 million profit—unless there was also a $50 million dollar outlay in marketing and distribution, in which case the profit turns to a $20 million negative on the balance sheet.

The Bottom Line

Even with all those big numbers—and the potential for huge losses—the movies keep coming. There must be some sense in it, though. The average cost of a movie ticket in the United States shooting up to almost $15 in 2022. The demand seems to cool off due to the alternative streaming services and sometimes the simultaneous launch of the movie in the movie theaters and in streaming.

After Covid-19 numbers declined, people started to go out again to watch movies in movie theaters but this could be only temporary due to the excitement to be out after a long period of lockdown. The film production industry will go on whether it will be mainly consumed in movie theaters or streaming. It is the delivery channels that are under disruption and shift now and might decide the cost of a movie depending on the price to pay to watch.

Read the original article on Investopedia.