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The Surprising “Numbers” Game
Folks,
A while ago I had published this write up on Return on Investment determining a “hit” or a “flop” as opposed to gross collections (the key word I have an issue with is “gross” as opposed to “net”). For anyone who has ever balanced their own checkbook for starters, it is KEY that unless you are making NET numbers, it really does not add up to anything.
So when I go to this site and it’s determination of a hit or flop, it surprises me that the Bollywood film industry “really does not behave like an industry,” despite many of it’s companies being publically held entities (hence accountable to the shareholder for the BOTTOM line, not the TOP line)
Now this gives some surprising “financial misstatements.”
A film like RACE is declared a SUPER HIT…….and the definition is……GROSS COLLECTIONS!!!
Ok, so may I add, what about the COST OF MAKING and the COST OF THE ACTORS/CREW/LOCATION/CARS BLOWING UP, ETC, ETC.
I’ll be surprised if (unless special deals were done), it is NOT in the region of Rs 35-40 crores (it is rumoured that actors such as Akshay Kumar charge Rs 17 crores, so based on that this film has at least 5 if not 6 in that category , so do the math).
Hell, what I am then interpreting is not “YESSSSS” but more of a “WHEW!!” after a two week run, it has just about recovered it’s cost and from what I learned in accounting….just about recovering it’s cost…does not correlate to a SUPER HIT!!! So can we have a redefinition please or should we be heading to Mumbai to teach these folks ACCOUNTING 101!!! Then again I always thought desis had a smart, inherent business sense…but what do I know.
Also add to the costs of the “super hit” film, the cost of showing it in the various theaters and the number of times per day (mind you each is a distinct and added cost, nothing comes free in this world) and the cost of shipping prints…anyone having LIFTED a 35 mm film knows that whether it is FEDEX/DHL/UPS they all charge by the wieght and a couple of cans of 35 mm film and you don’t need to hit the gym for a while.
Now compare this, in the same chart, to a film like MITHYA. I am only guessing, but let’s take a max of Rs 1 to Rs 1.5 crore for it’s making (possibily filmed in and around Mumbai and with super actors, not necessarily stars) and it has already made Rs 5.4 crores. Do the math! Do the accounting! All of you are capable of that. It correlates to a return on investment of approx 400%.
Oh and just by the way, it did not even do a theatrical in the US, had a very limited theatrical in India, straight to DVD from day one and release one in the US. Not sure what the situation was in Canada/Europe/Middle East.
Now if I take the sales from cable/dvd in india and foreign territories/netflix/blockbuster/airlines I can tell you that 400% will correlate to perhaps 700% since all of these sales can happen without shipping massive 35mm cans across the globe. That shipment will be the cost of the purchaser, once the sale has happened.
So after spending 10 plus years in accounting with all the Big 4 across 3 continents, what part of super, in the super hit, am I missing, accounting and finance wise.
Do let me know, cause I am at a loss here.
Also what about that whole concept of “per screen collection” vs “all screens and all the related costs of all the screens,” again the same argument of “gross” vs “net”
Sincerely,
Vivek “but what do I know I am just an outsider looking in” Kumar
14 Responses to “The Surprising “Numbers” Game”
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Vivek Bhai, I like the way you think. You’d be the perfect guy to head the financing of an independant production.
The one area of your argument with which I don’t agree is your inference that these GROSS collections and SUPERHIT tags have anything at all to do with the accounting/business side of film.
These people are not ignorant to the figures at all. It’s all MARKETING my friend. Its simple man, a SUPERHIT film is a much much more enticing, exciting viewing proposition, especially in the Cinemahall, than a “modestly budgeting good film is”. We know different, of course. But everyone wants to see what everyone else SEEMS to be talking about. Unless the film in question is total bakwas, this is bound to be the case more often than not. Sad, I know.
The other end of it, and I’m sure you aware of this, is that films like RACE and JODHA AKBAR and OM SHANTI OM and all of these big star attraction films actually recover their costs, and then some, before the film ever hits the theatres. Domestic/Overseas Distribution rights, Music Rights, Satellite and Cable Rights, DVD Rights are all, for the most part, sold before the films release. Box office collections are for the exhibitors, the distributors, and people like you and I to think about.
For a film like MITHYA though, this may not be the case. And the films success, financially speaking, may indeed depend on box office.
A film is always judged on gross receipts coz there are too many factors to take into account to judge it on net receipts.
The problems with films like Mithya is that exhibitors don’t wanna buy it from the distributor to play in their screens coz NRI audience wants to see glitz and glamor.
Bear in mind that the shipping and distribution costs are the same for each film regardless of budget so even distributors are wary of releasing films here with no face value coz they won’t even recover their print cost.
Tony agree with a lot of what you have said, but have one disagreement. The marketing part I understand, all filmmakers should and will market, THE PROBLEM IS THE “SUPERHIT” LABEL IS GIVEN BY AN ALLEGEDLY INDEPENDENT BODY- AKA- THE NUMBERCRUNCHERS, these are supposed to be finance and accounting folks and they show none of that skill here.
Mitch - “Too many factors,” is hardly a reason not to judge a film on it’s TRUE PROFIT. A lot of films are released in Bolly and Hollywood by PUBLIC LISTED COMPANIES and they are supposed to have the COST OF MAKING A FILM or THEY WILL NOT PASS ANY AUDIT and AUDIT THEY DO PASS YEAR AFTER YEAR, or they WILL CEASE TO BE LISTED ON THE STOCK EXCHANGE …..aka Sarbanes Oxley…remeber ENRON …that is what pays by bills and that is what makes company shell out $300 an hour to consultants like me.A FILM IS A PRODUCT OF A PUBLIC LIMITED COMPANY AND THE PRODUCT COST HAS TO BE AVAIALABLE.
I don’t understand the shipping costs part when i am saying that we have to consider PER THEATER AVERAGE HENCE IF IT RELEASES IN FEW THEATERS IT WILL HAVE FEWER SHIPPING COSTS NOT AS MUCH AS SHIPPING COSTS TO MANY THEATERS, again bottom line
I do agree wiht you on exhibitors being shy to play movies like MItya, but partly it is the distributors fault for not pushing hard enough, but I see your point there.
Yeah ok I get what you’re saying now. But you see that’s why YOUR the finance guy. Apun ko khali-peeli 1-2-4-6 gin ke kya karne ka? Apun ko to bas mast picture dekhne ka, kya? :d/
Agreed Tony boss and that is the point of the above, which you see and now more and more people, at least in Mumbai (where I was a couple of weeks back) are seeing……a MITHYA is and can be as MAST :d as a RACE, despite the lack of assistance from the “INDEPENDENT” “BOX OFFICE.” Ultimately, all the critics can go to hell, all the festivals and Oscars be dammned, it is YOU THE AUDIENCE WHO ARE KING AND QUEENS, and IF YOU SAY A FILM IS MAST, irrespective of any BOX OFFICE “RESULTS” then that is what most filmmakers want to hear:) The FESTIVAL AND CRITICS ARE DEAD….LONG LIVE THE AUDIENCE….MAYBE A SELECT AUDIENCE…BUT AN AUDIENCE….EVERY FILMMAKERS DREAM..:)
I think you are oversimplifying the issue and I’m not even a numbers guy but taking the example of the typical Hollywood film, very few films will make back it’s cost on theatrical receipts alone. It’s the ancillary revenues which make the film profitable.
The reason for this being that the average mktg cost of any film is twice that of it’s production budget. So if a studio acquires a film at 10 million dollars and spends another 20 to market it then just the break even is 30 big ones. Each print costs around 1500 dollars approximately.
Now the studio has two choices. Open limited and gradually go wide if there is enough buzz. Or go wide and hope for the best but risk a hell of a lot of money in case the film tanks.
So ROI is completely dependent on the number of screens being played coz all the mainstream American Theatre Chains operate on commission and not MG. Last year Juno was the only breakout hit whose production cost was below 10 million.
Product cost is a vague concept coz it has 3 divisions.
Acquisition / Production Cost + Mktg Cost + Distribution Cost.
Have you heard of the famous Hollywood accounting practice where studio overhead is charged to the cost of the film. The author of Forrest Gump had net profit participation and not gross points. Till about 2 years ago he hadn’t gotten a dime in return coz the studio had successfully proven that it hadn’t recovered costs on the film yet.
In such a scenario Gross Box Office receipts are the only legitimate barometer on whether to judge if the film can be deemed a hit.
Mitch - absolutly and that is why i have mentioned cable/dvd/etc in my R o I theory analysis for MITHYA. Also having a very close buddy who is SVP in Warner in Burbank and being a CPA myself, who has been on assignements to “audit” profit participation and the Studios “convoluted theory of above the line,” I totally agree with what you have said and I also in the same token stand by my assessment of NET PROFIT AND RETURN ON INVESTMENT, cause that at the end of the day, even keeps the INVESTING STUDIO IN THE BUSINESS or else if they only depended on GROSS TOO, like the box office reports, THEY TOO WOULD BE OUT OF BUSINESS VERY FAST…actually many did go out of business cause they got burnt by the GROSS THEORY, over time.
Of course the Net Profits is what they go by when the studios do the book coz that’s both the law and common sense.
My point was that for the trade papers to classify a hit or flop they can only go by grosses coz they don’t have access to the studio’s internal data until the books have been audited and closed which may be 6 months after the film’s release.
The production budget of a film is easily available but other data is not so easy to come by coz it’s jealously guarded. That’s why Peter Jackson went to war with New Line’s Bob Shaye when he refused to open the books to him.
True, but that is Hollywood and Hollywood box office does give rankings based on “PER SCREEN AVERAGE” so even they are looking at what EACH screen gave, as opposed to what ALL SCREENS gave, for which they do the headlines “XYZ net’s $xxxmill this weekend.”
But in Bollywood, many filmmakers are willing to give cost numbers to people who are interested in printing about it, but nobody seems to be doing any “cost numbers,” nor does anybody seem to be doing “per screen average,” although they have given the number of screens.
I can also say that Bollywood is definitely aware of their costs and shout from the rooftops even before a film is released, as “wise” Sanjay Gupta did when he releasee KAANTE and called it “THE MOST EXPENSIVE FILM EVER MADE,” even before it was released…..problem is, no journo worth his or her salt asked……AND HOW EXPENSIVE IS THAT? but instead jumped straight to gross box.:)
I wouldn’t trust Bollywood numbers an inch. OSO weekend gross was widely reported to be 70cr which isn’t humanly possible.
Recently the distribution company for a flop hindi film over reported their US collections some 300% to maintain their market equity and goodwill.
Both the woods (Bolly and Holly) are bad when it comes to numbers. Bolly misrepresents gross and Holly starts doing it’s financial shenaniagens once the gross has been recorded and the “net” has to be paid out to the producer/filmmaker/back end, etc
Yeah so since they both suck shall we move to Lollywood instead ? :d
Hi Viveck
A very Useful post and definatly thought provoking.
Must say Thanks to Mitch also who kept it going good!!!
Keep it up Guys!!
i might as well have read something in latin… or do the work am supposed to…