I'm supplementing this post with a couple of comments I have received from email subscribers to the newsletter:
1) The CFO of a major cinema chain writes:
"I really enjoyed reading this as the topic is also one of my pet peeves! However the economics may be even worse if your first chart is GBOR (gross) rather than NBOR (net) to remove VAT and sales taxes. Most third party sources quote GBOR so I thought I’d mention it to you. You may have the same issue with the physical home video sales element. I would expect other revenue and all costs to be net of sales taxes."
It is a great point and the source data from Deadline is not explicit in how is treats VAT and sales taxes. My working assumption was that these figures were Net, but if they are Gross, these taxes will indeed still need to be accounted for.
2) A senior film & TV distributor asks:
"Is the reason you are not seeing much production cost inflation simply a function that you are measuring most profitable movies? If you measured biggest movies or indeed even overall average movies in a year, wouldn’t we see that production cost inflation ? From my perspective I see inflation both in production costs and in growing participations and as such in examining most profitable movies we are by definition not looking at average movie performance, just those with highest revenue and lowest cost - which tend to be the surprise/most difficult to forecast movies?"
He is completely correct - this is a self-selecting data-set of the most profitable movies. The cost inflation that is undoubtedly happening is likely occurring with other movies outside this data-set (and is probably part of the reason they do not reach 'most profitable' status!). I will aim do a separate post on this at some point, looking at all movies rather than most profitable.
As someone who is really new to the industry, this was really insightful
Thank you Will, I can see the amount of effort that went into this!
I'm supplementing this post with a couple of comments I have received from email subscribers to the newsletter:
1) The CFO of a major cinema chain writes:
"I really enjoyed reading this as the topic is also one of my pet peeves! However the economics may be even worse if your first chart is GBOR (gross) rather than NBOR (net) to remove VAT and sales taxes. Most third party sources quote GBOR so I thought I’d mention it to you. You may have the same issue with the physical home video sales element. I would expect other revenue and all costs to be net of sales taxes."
It is a great point and the source data from Deadline is not explicit in how is treats VAT and sales taxes. My working assumption was that these figures were Net, but if they are Gross, these taxes will indeed still need to be accounted for.
2) A senior film & TV distributor asks:
"Is the reason you are not seeing much production cost inflation simply a function that you are measuring most profitable movies? If you measured biggest movies or indeed even overall average movies in a year, wouldn’t we see that production cost inflation ? From my perspective I see inflation both in production costs and in growing participations and as such in examining most profitable movies we are by definition not looking at average movie performance, just those with highest revenue and lowest cost - which tend to be the surprise/most difficult to forecast movies?"
He is completely correct - this is a self-selecting data-set of the most profitable movies. The cost inflation that is undoubtedly happening is likely occurring with other movies outside this data-set (and is probably part of the reason they do not reach 'most profitable' status!). I will aim do a separate post on this at some point, looking at all movies rather than most profitable.