How do Major Film Studios Generate Revenue?

An Introduction to world of Film Studios.

From a distance, the film business might look very glitzy and glamorous. Celebrities and producers glide down red carpets, get their filmfare awards and vacation in ultra luxurious places like Cyprus, Greece just because they can. While there’s a lot of cash to be made in any film industry, the economics of making films are far from it. If you ask anyone they would tend to say it’s simple, do this, this and this but the reality is far from it.

If you ever talk to any film buff or studio staff, you’ll often hear them saying that “nobody knows anything.” And that’s actually true! The audience can be fickle, and the industry is always in a flux of some kind or the other. Just about any film is deemed as an extremely risky investment, even if it has big actors in it.

To understand the functioning of a film studio and how they make their bucks we first need to understand what they actually do, in terms of their identity.

According to Wikipedia, “A film studio is a major entertainment company or motion picture company that has its own studio facility which are then used to make long length feature films, ad films, etc. Most firms in the entertainment industry have never owned their own studios but sometimes also rent space from other companies.”

A few Key Differences between Film Studios and Film Production Companies

In truth a major film studio differs from a film production company. Although, a video production company and a studio are pretty much the same concepts. However, the reality of the matter is that both can share the same market and be involved in mostly similar activities. But, again there are a few fundamental differences that separate one from another which are as follows:

• Video or film production tends to have smaller teams as compared to the staffing of major film studios.
• A film studio produces films for the general public whereas, production companies work for other companies to help them make desired content.
• In general, film studios are much larger in size and often acquire a corporate business setup style.
• It is more likely that a major film studio hires a film or video production company to support or oversee them during the production or filming process.

• Studio productions are usually on the more expensive side of the fence and involve high paying actors, whereas production companies often have a tight or very limited budget to work with.
• A film studio possesses extensive filming facilities and buildings where films can be shot without any disturbances in contrast to film production companies which have limited space and can face many hurdles.

Setting Film Budgets and their Costs

In general, major film studios rarely ever disclose the full budgets for their films, which includes production, development, marketing, and advertising. It’s just the market estimates that we ever get to hear. This kind of secrecy always looms large over the film industry because it costs far more to make and market a movie than most people actually expect.

For many films, print and advertising (P&A) costs alone can be so high that they are unable to focus elsewhere. A ₹25 crore masala film, which is considered a small-budget movie in Bollywood, might have a promotional budget that is much higher than its actual budget. Let’s assume that a movie is budgeted between ₹40 and ₹75 crore. It’s P&A budget alone might exceed ₹20 crore which is obviously too much for any unestablished or indie filmmaker, producer or distributor to bear.

For any type of film, whether a big studio production or an indie production, things like tax breaks and revenues from product placements can definitely make or break a project and help pay the bills. But, sadly there are no incentives granted by the government which makes it hard for new film directors or producers to generate money at first.

Going back to the “nobody knows anything” saying and treating it as a mantra is very useful to understand the film money market. There are some surprise hits like the movie “Kahaani”, which was made under ₹60 crores and turned a huge profit of ₹140 crore. At the same place a film with superstar cast power like “Zero” which was budgeted at over ₹200 crore made on a fraction of the investments. So there’s no sure-shot path for a film to turn a profit and at the same time be loved by the audiences since factors like brand awareness, P&A budgets, and the desires of the public come into play. Still, industry leaders use these few tried and tested ways and hope to make money from films.

Methods of Getting that ROI back…

Ticket Price Revenue
The footfall of people attending theaters has been the most challenging thing in the past few years especially during this pandemic, thus making it even harder for film studios and distributors getting the left-over money. Until a few years back, a bigger lump-sum chunk went to the studios on the 1st weekend of the film opening which doesn’t happen anymore. The percentage of revenues an exhibitor used to get depended upon the contract for each film which is not the case today due to streaming services whose business model is another mystery to be uncovered in due time.

Major Film Studios and distributors generally generate more from domestic revenue than from overseas sales because they get a larger percentage share. Despite this, foreign ticket sales became more important in the early 21st century to build an authentic audience for the future which is part of the reason why you see more sci-fi and superhero movies. Action and special effects require no translations or any language, they are easy to understand, whether you’re in Mumbai or Malaysia. However, it is much harder to build an audience for a serious niche film.

Merchandising
This concept began back in 1977 with the Hollywood blockbuster ‘Star Wars’ series. It made billions of dollars from toys alone, not to mention licensing money from third party companies and continues to do so even till this date.

But, in all transparency this strategy doesn’t add up for every film. Have you ever seen an action figure for ‘DDLJ’ or any other masala Bollywood flicks? However, merchandising can be classified as a cash cow for big studio production films that appeal to kids and teenagers. On the other hand, a few analysts have suggested that younger generations these days are more attracted to newer and shorter types of entertainment, such as video games and YouTube videos.

Foreign Sales
When a producer from a major movie studio puts together a budget for a film, selling the distribution rights in foreign countries becomes very crucial. It helps imperatively to cover some part of the film’s budget and hopefully bring in revenue for the future. Independent film-makers tend to make money when they sign on with a foreign sales agent who understands the overseas market and can sell them easily.

T.V. Rights, OTT and On-Demand Streaming Services
Remember the time when it all used to be about DVD sales? Well, that time is long gone now. It’s far more about television rights, on-demand services, and streaming for OTT’s nowadays. For some producers and film-makers, selling TV and international rights is the most important source of making money because they don’t have to pay for marketing and P&A costs. Films have to exit the cinema hall at some point or the other, but they can remain evergreen on TV.

As for on-demand services, money from these deals should add hundreds of crores. Streaming videos via “over-the-top” platforms like Netflix is a new source of revenue for movies all around the world. On-demand might dry up in a few years, but movie studios can still make money from older films by licensing them to OTT platforms like Netflix or Amazon Prime.

Conclusion

As mentioned many times in this article itself that “nobody knows anything in Bollywood/Hollywood or any film industry”. The film industry is as unstable and ticket sales alone don’t push the bill anymore. There’s merchandising, video on demand, streaming services via OTT platforms, foreign sales, and a plethora of other mediums that can help film-makers, producers, and major film studios turn a profit. So who knows, the little indie that you invest in could just be the next big thing!