Will The Lone Ranger Really Lose $150 Million?

ws_The_Lone_Ranger_Movie_Poster_1280x800 (1)

This week, anyone interested in the goings on of the American box office can’t have missed the story, first published in the Hollywood Reporter, that The Lone Ranger is set to lose $150 Million. This figure is quoted after one week of release in the U.S., and before it has been released in many markets worldwide (including the U.K.)

So is it actually correct?

I decided to do some digging into where a movie’s revenue comes from, and why it might suit studios to have a perceived ‘flop’.

How does a movie make its money?

According to this article in the Economist, a movie can expect to make 25% of its profits from the U.S. box office, 25% from the rest of the world and 50% from DVD sales, television rights, etc. Also, according to this article by the BBC of its worldwide box office sales, a studio can expect to take home roughly 50%.

So with that in mind, let’s look at the figure quoted in the Hollywood Reporter Article. It expects a worldwide gross of $275 million, against a production budget of $250 million, and a marketing budget of $175 million. Add those two figures together and the total cost in $425 million. Subtract the worldwide gross and you get the $150 million loss.

Obviously the first problem with these figures is Disney will only take home half of its $275 million box office takings, $137.5 million. However, as we have seen that makes up half of its overall takings. So after we factor in DVD sales, television rights, and so on we land back at roughly $275 million again.

So the figures are correct then? Disney will lose money?

Well, yes if we believe they really did spend $175 million on marketing. It suits studios for this figure to be as high as possible, as we will see.

Why it suits studios to say they lost money

This point is well illustrated by this story in 2010. According to that report, Harry Potter and the Order of the Phoenix‘s accountants said it lost $167 million. This is despite almost $1 billion worldwide at the box office. (The image from their accounts is below since I think it makes fascinating reading.):

Harry potter net profits

Due to practices like this, there’s a whole wikipedia article devoted to Hollywood accounting. Essentially it boils down to companies using subsidiaries to spiral costs for services like marketing and distribution. This avoids studios having to pay actors any share of the profits if they have “net points” written into their contracts. (Something no actor in their right mind would expect to make any money from). Of course creative accounting like this in common in virtually every industry, as recent stories regarding Starbucks, Amazon and Google highlight.

Last year Disney said Lone Ranger‘s spiritual predecessor, John Carter, lost $200 million. As we can see from the example of Harry Potter, it suits Disney to say this, so why should we believe it? Other analysts have say John Carter would have made a $50 million loss, or even a profit.

The sad thing about all of this is that it highlights the fact it suits both the press and the industry for a movie to lose money. The press (and the public) seem to get a kick out of reading about box office bombs. The studios need to do less ‘creative accounting’ to ensure the movie never looks like it makes money.

The reality is movies rarely lose money. Waterworld made its money back easily for example. Will the Lone Ranger really lose $150 million? Probably not, but because it suits everyone for that number to be true, if and when it does make money no one will report it.

About these ads

4 responses to “Will The Lone Ranger Really Lose $150 Million?

  1. Very interesting read. I had no idea companies reported losses even if it’s not true. It seems to me like this “creative” accounting should be illegal.

  2. As mentioned in the article it happens in every industry. You set up a company (e.g. Starbucks), then set up another company in a tax haven country (e.g. Starbucks International). Starbucks International will sell Starbucks its coffee at very high prices, so that Starbucks makes as little money as possible, and Starbucks International then pays its tax at a much lower rate than its parent company ever would.

    There may be different reasons for doing this in the movie industry, but the principle is the same. Set up a subsidiary (e.g. Warner Marketing, or Warner Investment) to make sure the parent company appears to make as little money as possible. That way the person at the top makes as much money as possible at the expense of someone else.

  3. Really interesting article but can anything Hollywood does really surprise us? The Lone Ranger does look like a stinker though.

  4. aloha my brian yonezaki I like the lone ranger movie
    By disney

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s