Movieball Discussions
By Jason Dean
June 9, 2004
BoxOfficeProphets.com

An accountant rolls Mel Gibson's earnings to Regal Cinemas' front door.
One of the questions from our readers in response to the excellent Movieball column by Walid Habboub is: How do the studios get paid, and just how much of the ticket gross goes back to the studios? For the purposes of this discussion, I have used the term distributor for those who are getting paid for the movie grosses, since despite the fact that all films are sent out by distributors, not every distributor is necessarily a studio these days even though the terms are pretty freely interchanged. For those showing the films, they would be the exhibitors. These are the terms that the two parties typically use in this exchange and the ones I’ve heard most associated with the following.

For most films, distributors and the exhibitors negotiate a contract for the film with terms that determine how the box office money will be split between the two. For the early weeks of a major film, this split can favor the distributor to an extreme of a 90/10 split but a more typical high split starts at 80+ for the distributor.

The contract will often show a tapering off pattern with something like 80/20 for the first two weeks, 70/30 for weeks three through six, and 55/45 thereafter. These numbers can change with each and every film as well as with distributors. Big studio releases can demand more, while small independent films might start at a high of 70/30 and go down from there. There can be room for negotiation, which is where a skilled film buyer can greatly help their chain.

Since Hollywood has always been "who you know" kind of place there are consultant-style film buyers/bookers who use their connections to book films for smaller chains where it may not make sense to have a full-time employee dedicated to this function. There are also times where it may be advantageous to take this approach due to the buyer's experience and relationships with the various distributors.

The buyer's job is not done after receiving the film, as it is not unheard of for film terms to be renegotiated during a film’s run if the grosses are to the extreme one way or another. Star Wars Episode I: The Phantom Menace was an example of a film that saw its contact negotiated after the fact with regards to some of the terms, including how many weeks the exhibitor was committed and on just which screens the movie needed to play. At other times, the percentages are adjusted so that parties seem to get a more equitable split of the grosses.

The exhibitor keeps track of the grosses for the film and usually sends the distributor a check on a monthly basis. This payment is typically referred to as film rental.

As an aside, revivals and special showing prints are often rented for a flat fee in the few hundred dollar range, depending on the specific type of print and the demand.

One complicating factor in the relatively straightforward split of the grosses is what is called a house allowance. The house allowance is a dollar value that has been assigned to each screen and has been negotiated between the exhibitor and each distributor. This value is typically settled upon and remains the same for an extended period of time - it could be a period of one year or it could extend over several years. The house allowance is based on the number of seats and might take into consideration the location of the theater. The house allowance is designed to represent a value that takes into account the operating costs associated with the screen and allows the exhibitor to make a small profit before having to share the majority of the ticket gross with the exhibitor. Once the exhibitors' share of the grosses exceed the house allowance, the remaining grosses are subject to a 90/10 split.

As an example if the house allowance on a screen is $2,000, the initial terms are 70/30 and the film does $12,000 in its first week, then instead of getting to keep $3,600, the exhibitor keeps $2,533.

Of the $12,000 gross, it takes $6,667 to reach the $2,000 house allowance. The balance of the gross, $5,333, is subject to the 90/10 and the exhibitor gets to keep $533 in contrast to the $1600 that would be indicated by a straight 70/30 split.

Due to the 90/10 kicking in above house allowances, it can be seen that ultrawide releases serve the distributors in a purely economic fashion in addition to beating bad word-of-mouth and the additional publicity for opening well. Films that fall off dramatically will further skew the film rental toward the distributor.

In the past, when films stayed in theaters for more extended periods, the ticket gross used to average to about a 50/50 split over the long run. Now, film rentals are creeping toward 60% and sometimes above that over the long term.

As a concluding statement, I'd like to note that because I no longer directly work in the theater business, I welcome any corrections or additions, as I do not claim to be a fully-versed expert on this subject.