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I noticed that there're more than 500 movies released every year in US. But very few of them can be really successful. How do those worse ones make money? What is their business model?

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Not sure if this can be answered in a specific capacity because you have many different markets of movies like mainstream and indie for example have 2 completely different business models and both can be successful, and that's still extremely top-level. –  TylerShads Jul 5 '13 at 15:11
    
By product placement, selling rights to cable networks etc etc can be the cases. –  Ankit Sharma Jul 5 '13 at 17:33

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The vast majority of those 500 movies have much smaller budgets. In general, the budget is relative to the expected profitability of a given project. A superhero movie that can hopefully gross a billion dollars can be made for $250 million and still earn a profit; whereas a small indie film with no stars can’t be expected to earn very much, and will therefore be made for as little as possible. An entire parallel distribution network exists for these smaller films, in “art house” movie theaters and indie TV channels. The margins are lower but profit is possible, or else none of these smaller films would get made.

But the bigger point is that it’s not like each film that’s released is a separate company with its own business model that either profits or goes bankrupt. A better metaphor would be that movies are products, and studios/production companies/investors are the company that produces those products. The business model of the company is to have enough profit across all of its products such that overall the company is profitable. McDonald’s doesn’t need its salads to be individually profitable, as long as it sells enough Big Macs to cover the salads’ losses.

Movies in general are a terrible investment; many if not most of the movies released every year will lose money. The flip side to that, though, is that the few films that make money often make a lot of money. The big Hollywood studios have the best batting average in terms of profitability, but even they have years where one or more of the studios will come out net negative for the year across all of their films. Smaller companies and investors try to release “slates” of films to better their odds that one will be so profitable as to cover the losses of the others. Unfortunately (for the companies, at least) there’s no way to know ahead of time whether a movie will be profitable or not, so many get made in the hope that a few will be loved.

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RE: your last point, that's where your market research firms come in. They predict based on surveys and trends that 'zombies' or 'ancient egypt' or "80s action reboots" etc are "in" this year, and so the studios release movies to cater that "demand". It doesn't always pay off, but it's a far better chance that it will than blindly making movies and hoping audiences like them. –  Robotnik Jul 6 '13 at 8:06

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