How do movie studios evaluate the success of a film?

Question

First a bit of a explanation-- if you are a Star Wars fan, then you've likely heard the news over the past month of "just how bad Solo has done" at the box office. Certainly, it's not done as well as many other Star Wars films but has it really been a flop? I'm curious about the nature of what's considered a box office success versus a failure for movie studios.

Consider this information-- ScreenRant.com estimates that Solo cost somewhere in the neighborhood of $250 million dollars, but just in case there were other hidden expenses, lets assume $300 million. As of today (June 21, 2018) BoxOfficeMojo.com is estimating gross box office revenue of $343,297,558.

I could have a naive perspective on this but even with these numbers Solo has already earned a rough profit of $43 million dollars. Furthermore, it's still in theaters raking in millions of dollars each week and lets not forget that additional revenue will be earned through DVD/Blu-Ray sales and streaming licensing.

I'm not going to argue that this is an extremely successful film. However, I'd be hard pressed to define this as a studio "flop" since it's already earned modest profits with more revenue still to come in from the project.

That said, Collider is reporting that "[s]ources with knowledge of the situation tell Collider that Lucasfilm has decided to put plans for more A Star Wars Story spinoff movies on hold".

Apparently, Disney considers future spin-offs of the franchise to great a risk for further investment and are now planing to just double-down on the mainline story rather than explore additional film opportunities.

My question is less about Star Wars movies and the film Solo but it does serve as a good example. When evaluating the success of a film, what do film studios consider successes versus failures? By all accounts, if Solo makes even a 20% profit, that's not awful results. Even if they hoped to double their earnings, I wouldn't consider it bad enough for them to put the franchise expansion on hiatus.

What am I'm missing that's part of the studios evaluation process of whether a film is a success or not?

Answer 1

Some of this comes from the confusing world of movie budgeting. Most frequently the reported cost of a movie is the amount of money spent on:

• Preproduction activities. Obtaining story rights, screenplay development, casting, identifying locations and building sets and other production planning activities.

• Production activities. Activities around the shooting of the film.

• Post-production activities. Activities such as editing, music and visual effects. While of course many of these run in parallel to production, they continue and complete after shooting.

Most importantly the production budget that is often referred does not include marketing of the movie (sometimes referred to as "prints and advertising" budget or P&A). Costs in this area have been spiraling

A good rule of thumb is that a movie takes about 50% of its production costs in additional P&A spend. The article linked above states that the budget per movie is averages $200m - however I am assuming they are only referring to big budget movies.

(why is P&A not included ... I don't have a definitive sourced answer for this but it is likely to be budgeted separately from the movie, the company will have a marketing team for all their movies. The spend is spread over many countries plus the spend comes significantly later than the spend on the development and production cost itself, so an accurate spend on P&A may not be available when a movie is released)

So taking the 50% and $200m estimate, this puts the marketing budget of Solo to be between $125 and $200m, which puts the real cost of the movie including all expenses to be around $375m to $450m.

This means that there is some way to go before the movie breaks even. Movie companies are really looking to make a significant return on their investment of hundreds of millions of dollars. A profit of a few tens of millions does not really justify the risk.