How The Box Office REALLY Works | How Movies and Theaters Make Money | Financial Breakdown

how did the hollywood movies and the

theaters who exhibit them make their

money now if you've bought a 15 ticket

recently to go to a premium large format

screen to watch say top gun maverick or

maybe thor love and thunder perhaps

you've been wondering where that 15 goes

are the old rumors and wives tales out

there that have been around for years

that the theaters have to cough up 70 80

90

of that ticket sale back to the

hollywood studios like paramount walt

disney actually true or is there

something else is there some real

numbers that we can look at to gauge

if you've watched any of the videos here

on valiant renegade where we talk about

the box office you know the numbers are

quite a bit less but the question

becomes where do those numbers come from

well today we're going to go deeper down

the rabbit hole than i ever have here

before in a video on this channel

because i think there is still a lot of

confusion and misunderstanding out there

and there are far too many other sources

out there that are still doing a lot of

guesswork but the numbers that we use

here are the actual numbers and today

for the first time i'm going to show you

the very source of where they come from

so stay tuned

let's get into it

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well welcome back another great day here

at valiant renegade it's good to see

everybody out there once again and if

you are like one of the many folks out

there watching this video that are not

yet subscribed please take a moment hit

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leave a comment before you head out the

door today i have a feeling this is

going to be a video that hopefully like

top gun maverick will grow some legs uh

hopefully thanks to a lot of folks

watching this video who will indeed

share it i think this is something

that's going to be very educational that

i hope a lot of folks really enjoy

because i keep seeing this discussion

pop up time and time again every time i

release a box office video out there

which is typically about once a week

talking about what's going on this

weekend or last weekend and what the

halls were and how good or poorly a

movie is performing relative to its

production and marketing budget what the

chances are that a movie will break even

or make a profit at the box office

all of that oftentimes seems to engender

uh quite the response in the comment

section uh of the video and uh some

folks just you know who like movies

don't like me talking about the fact

that well it doesn't matter if you like

the movie or not or how well or what

kind of record or whatever a movie broke

on its opening weekend you know biggest

opening weekend ever of groundhog day or

something like that

it really doesn't matter it bears no

effect whatsoever on whether or not in

and of itself at least of whether or not

a movie is going to become profitable at

the box office and a lot of that is

determined by what's called rentals and

that is the figure or the factor that

movie theater exhibitioners like amc

regal cinemark marcus theaters or imax

so on and so forth who will base their

contracts upon their expectations of a

movie's performance to determine what

type of payout that they will return

from the ticket sales back to the movie

studio distributors there have been a

plethora of myths out there over the

years with some people thinking that

ninety percent of the ticket purchase

price that that somebody pays to go see

a film is going to be returned to a

studio and that theaters have to live

off of popcorn and twizzlers that's

simply not true what we know factually

for example is that ticket revenues are

the highest source of net income that

means after they pay rental fees and

exhibition costs back to the

distributors that those ticket sales the

shares the theaters keep are the largest

source of dollar income for any theater

out there

now granted their profit margins on

those are not as high as say a bucket of

popcorn or a bag of twizzlers however

those revenues dollar for dollar are

much lower than what they keep from

ticket sales and today i want to go

through some of this information because

if you've been watching valiant renegade

here long enough you know that when we

talk about box office and profitability

of a film there have been at least

recently two figures that we use one is

a domestic figure of 55

and the second is an international x

china meaning not including chinese box

office which is dwindling these days for

u.s markets

of 43

in other words we keep using the figures

and we keep reporting the figures that a

movie studio will receive roughly 55

percent of the box office back for its

domestic that's united states and canada

box office hall and they will receive

back on average roughly 43 percent of

the international markets not including

china china from what we know returns

about 20 to 25 of their gross box

offices back to the u.s studios but a

lot of folks keep wondering where do

these numbers come from or am i just

making them up and then i'm inventing

anything that i want to make the numbers

work in favor of me saying that a movie

did great or a movie did poorly no

that's not at all it

we're always into the math and the

science here on this channel at valiant

renegade and like i said before our

motto is putting hollywood through the

business and financial ends of reality

well i think it's high time we start

talking about what that reality is and

what the source of it is when it comes

to the numbers of 55 and 43

for the box office those numbers do

change quite frequently from year to

year depending on the performance

overall of the box office and how the

movies are being released and we've seen

a lot of changes in the last couple of

years with more movies going to

streaming much more quickly than they

had in previous years before the

pandemic what this boils down to is that

we have a constantly moving target from

year to year and the two largest factors

that impact what the rental agreements

would be for any given hollywood new

release are number one what is the

expectation of box office returns a

figure that is usually agreed upon

between both the exhibitioner and the

hollywood distributor so say for example

amc and paramount would come to an

agreement on what they felt like top gun

maverick would perform at and would

arrive at at least a base level rate of

rental for that film as a percentage of

box office sales of course the second

factor is how long the theaters have

exclusivity to that new release meaning

if you're going to drop a movie into a

theater a new release a

never-before-seen film into a theater

and give it a four-month free run or a

six-month free run in theaters before it

winds up on say physical media or

streaming service or maybe on a premium

cable channel then it's going to get a

much higher rate of payout from the

cinema a much higher rate of rental

commission if you will than a movie that

is going to go day and date release onto

a proprietary streaming service think of

what warner brothers did all through

2021 think of what disney did in 2021

with a shortened 45-day window which

they have since continued into 2022

along with many other film studios and

film distributors all of these things

have a direct impact on what a theater

like amc cinemark regal imax and marcus

and so on as we keep saying

all of this has an impact on what they

are willing to pay out based on the

ticket sales back to that distributor

and that is something that i cannot

overstate enough the question becomes

how can we then determine

where these numbers come from how can we

figure out year to year what the average

box office new release is taking home to

the distributor and studio

now the best thing to do is to look at

the largest sample size possible with

actual financial data that breaks down

exactly those figures for that we have

this

this is the 2019 amc entertainment

holdings form 10k on file with the

securities and exchange commission this

is an annual report that every publicly

traded company in the united states has

to file by law with the sec and in this

175

page amount of bedlam lies all of the

legal and financial data that one could

hope for for a company to release about

what they did over the course of a year

and in this document and the document

that amc produces each and every year

just like it it tells us how much money

they took in in terms of box office

admissions and how much money they paid

out

in rentals

so here's a copy of the cover page of

the december 31st 2019 year in report

for amc entertainment holdings the

largest theatrical film exhibition

company in the u.s with branches out in

many international markets so i want to

read from some of the primer of this

report to give you some detailed

information on how amc works and what

represents the largest sources of

revenue for a company like this

box office admissions are our largest

source of revenue we predominantly

licensed quote first run films from

distributors owned by major film

production companies and from

independent distributors on a film by

film and theater by theater basis

film exhibition costs are accrued based

on the applicable admissions revenues

and the estimates of final settlements

pursuant to our film licenses these

licenses typically state that rental

fees are based on aggregate terms

established prior to the opening of the

picture in certain circumstances and

less frequently our rental fees are

based on mutually agreed settlement upon

the conclusion of the picture in other

words most movies that are commissioned

by places like amc regal and cinemark to

be put into theaters to have first run

exclusive viewings of these movies like

most recently things like thor love and

thunder or top gun maverick they agree

upfront with studios and distributors

like disney and paramount on their

expectations of box office performance

and at what rate of rental or percentage

of the box office they will come to for

a theater to pay back to the film

distributor in less frequent cases when

there is more obscurity and lack of

expectations for a film's final haul at

the box office a company like amc or

regal cinemark were engaged in a

settlement type contract where once the

picture reaches the end of its run and

they see how much money a film has made

then amc will make a settlement offer

based on that run

that will have to be agreed to by the

distributor

during the 2019 calendar year films

licensed from our six largest

distributors based on revenues accounted

for approximately 80 percent of our u.s

admissions revenues which consisted of

disney warner brothers universal sony

lionsgate and paramount

and for those wondering about where the

largest sources of revenues come from

for these types of theaters like amc

here it is from their own report food

and beverage sales are our second

largest source of revenue after box

office admissions now again we're

talking about gross revenue sources

we're not talking about profit margins

while indeed as we'll show in a minute

the profit margins on a bucket of

popcorn or bag of twizzlers are much

higher than those of an average movie

ticket

the actual source of gross revenues

dollar for dollar on the movie tickets

much bigger than the concession stands

if math and numbers are a little bit

daunting to you on financial sheets like

this fear not that's what we're here for

at valiant renegade to break this down

to a base level so everybody can

understand what's going on

what we're looking at is page 43 of the

form 10k on file with the securities and

exchange commission from amc

entertainment holdings that's amc

theaters

and what this report shows is all of the

sources of revenue and expenses for the

fiscal years of 2019 and 2018 and as you

can see they have it broken down by u.s

markets

international markets and the

consolidated report which is a

combination of both u.s and

international so if we look at the first

line of admissions and the number next

to it

2.38

billion because just to remind everybody

on financial reports as you can see here

as i've just highlighted these figures

are stated in millions so one number

with a comma followed by a second set of

three digits in a decimal place we're

talking about the billions here so

2.388 billion

is what amc theaters took in in 2019 for

the entire fiscal year

that tells us what the total ticket sale

revenue was for amc theaters across the

board in the u.s

if we go a few lines down under

operating costs and expenses amc

graciously breaks this out as a single

line item

film exhibition costs these are the

rentals that we've been talking about

this is the figure this is the expense

paid back to hollywood studio

distributors for the films that amz has

exhibited in their properties and that

figure was 1.311

billion dollars

if we go back across the board to the

international markets here under this

header same two line items admissions

913 million dollars in admissions and

387.6 million dollars in rental fees by

the way people still wondering about

twizzlers and popcorn look at food and

beverage if we go back to u.s markets in

that line item just under admissions

you'll see food and beverage at 1.348

billion dollars with a food and beverage

cost under operating costs and expenses

you'll see

193.8 million so as you can already tell

without even pulling out a calculator

the profit margin on that bucket of

popcorn that coke

that bag of twizzlers

far far higher than the average ticket

sale the concession stand is still a

crucial part of operating for these

theaters because those profit margins is

what goes to pay things like salaries

and rent expense and other things that

the box office ticket sales alone could

not by themselves cover so that is why

they're there and that's why theaters

charge as much as they do so overall

in 2019

when several massive blockbusters came

out including avengers in-game the

average take-home for the hollywood

studio and distributor from amc theaters

the largest exhibitioner in the u.s

was about

54.9 percent of the domestic box office

and 42.6

of the international box office now many

people wonder why is the international

box office so much lower than the

domestic us and canada box office and

it's a very simple issue of a far

different tax and regulatory environment

across 50 60 plus different

international markets meaning that

studios aren't able to just distribute

those films as easily or as

cost-effectively as they are here in the

united states you have international

distributors and third parties you have

to go to you have regulatory

environments like theaters have to

retain so much by law in a certain

country

and other things like taxes think of the

vat or the value added tax that's out

there in certain foreign countries all

of these things have a direct impact on

the gross ticket sale prices before

anything even makes it back to the

theaters themselves and then in turn

makes it back to the international

distributor and then in turn makes it

back to places like disney or paramount

all of these things have added costs so

to simply say that a movie makes 50 or

55 or 60 percent across the board on its

global hall is simply false because

those international figures are indeed

unequivocally by the numbers

far less than what they are in the

united states

but of course things changed in the last

couple of years and this kind of data i

have all the way back to 2015. before we

get into the more recent years let's

talk about some of the other years

before 2019 just to see how much

variance there is in these rentals both

internationally and domestically

from previous amc theater form 10k

filings with the sec we can see here

more breakdowns u.s international and

consolidated returns now these are

covering years from 2015

2016 all the way through 2017

and not to belabor the numbers again as

we just did in the previous segment

let's just cut to the chase

in 2015

the domestic return averaged 54 of the

box office internationally there really

wasn't much there because at that time

amc itself had not branched down

into the international markets same

thing with 2016 however in 2016 the

domestic rentals amounted to about 53.5

of the overall box office

very little change between those two

years in 2017 this is when amc really

started opening up international markets

52.5

domestically

42.2

international rentals in 2018

54.2 domestic rentals and 41

international now what this boils down

to is a relatively small standard

deviation in terms of what the overall

rentals were paid back to distributors

year over year we didn't see any really

wild swings and if you go back to that

previous section where we just showed

the slide of the sec report and pause

really look over some of those gross

figures they varied almost 20 to 25

over that course of time even all the

way up through 2019 where it exploded

and in 2018 and 2017 in the three

billion dollar range well the rentals

usually stayed in the same ballpark of

around the low to mid 50 of rentals this

gives us a good average return of say a

100 million domestic box office would

yield back somewhere between 52 and 54

million to the distributor and on the

international box office it was about

the same very little standard deviation

where we can roughly assume a 100

million dollar international box office

would yield 41 to 43 million back to the

studio and film distributor what about

2020 and 2021

do the 55

and 43

historical metrics at least as they were

in 2019 roughly speaking do they still

hold water today well of course like i

mentioned before two of the largest

factors in terms of what rentals are for

a theater exhibition or like amc comes

down to whether or not a movie is

exclusive to theaters how long it is

exclusive in those theaters

and what the expected or end result of

the box office performance actually is

and as we've been discussing here on

valiant renegade for some time we've

seen a lot of changes in actual releases

they're no longer given a 120-day

theatrical exclusive like they had

traditionally up through 2019.

very few of them are

with exception to most recently

spider-man no way home it did not

actually get a physical media release

until four months a full 120 days after

it was released in the box office and it

was another 90 days after that until

mid-july when it was released for

streaming or viewing on a premium cable

channel in this case stars so of course

spider-man no way home looks to have

gotten a more traditional theatrical

rental contract floating in 55

or perhaps a little bit above that

margin but most of the other releases of

2021

didn't and we know that because we now

have the 2021 annual 10k report

also from amc theaters clearly showing

that indeed film studios and

distributors were heavily penalized for

going day and date release like warner

brothers with hbo max in their entire

2021 slate and even the distributors

that only gave theaters

30 days or 45 days of exclusivity like

certain universal releases or virtually

every release from the walt disney

company in last year's time frame

let's look at the numbers

here's the form 10k from december 31st

2021 filed with the sec just about three

months ago at the time we're recording

this and we can go down to the same

financial reporting within this 175 page

report to see exactly what amc paid out

so between the fiscal years of 2015 and

2019 pre-pandemic when we still had a

standard run of theatrical exhibition

with movies getting a four plus month

theatrical exclusive window before

hitting secondary and tertiary markets

that domestic average stood for those

years combined of around

53.82 percent

however

in 2021

the domestic average fell

to

45.3

of total grosses and the international

rental average fell to

38.9 that is a sharp decline almost 20

percent in the domestic market and

around 14 to 15 percent in the

international markets from the 2019

averages this just goes to show

what i've been talking about for the

last year or so here on valiant renegade

that theaters were in fact

penalizing studios pretty heavily for

going day and date or having shortened

windows of 30 to 45 days and if you

don't believe that let's look at what

the amc financial report actually states

in plain language

film exhibition costs increased

106.5 or 237.6

million dollars during the year ended

december 31st 2021

compared to the year ended december 31st

2020

due to the increase in admissions

revenues partially offset by a decrease

in film exhibition costs as a percentage

of admission revenues as a percentage of

admission revenues film exhibition costs

were

45.3 percent for the year ended december

31 2021 and 49

for the year ended december 31st 2020.

the decrease in film exhibition cost

percentage is primarily due

to the concentration of box office

revenues in lower grossing films and

library content that is to say content

that was not a first run release but

borrowed from existing libraries think

of the movie theaters that play things

like jaws and goonies and aliens a few

times during the year that's what the

library content makes up

this typically results the library

content in lower film exhibition costs

additionally

lower film exhibition costs were paid on

films with shorter exclusive theatrical

windows

now i want to make something very very

clear

library content like i just described

makes up an incredibly small percentage

of the total box office grosses we're

talking about a couple of percent here

still even in years like 2021

the lion's share 95

of that box office haul

is coming in from first run new releases

so overwhelmingly without question those

radically lower rental averages paid

back to film distributors and their

respective studios came

from not only lower box office results

than average

but it also came primarily from

shortened theatrical windows going day

and date release on hbo max for

companies like warner brothers and

making shortened windows of 30 days for

movies like encanto with the walt disney

company and 45 day shortened windows for

disney with everything else and

paramount and universal and other film

distributors are certainly not excluded

from that metric but those two were the

biggest ones of 2021 and they brought

the averages down quite sharply now just

to give you a good idea of how big the

deviation or the disparity was between

these types of releases this is the

fourth quarter report for amc theaters

just the fourth quarter

of 2021

and of course what came out at the very

end of the fourth quarter and racked up

darn near 500 million dollars

domestically overall in the us well that

was spiderman no way home look at the

admissions revenues of amc theaters in

the fourth quarter of 21.

464.3 million with film exhibition costs

at 229.5

that's right the rentals going back to

studios in that quarter outperformed by

a wide margin the overall average of the

year the average domestic rentals in

that quarter for amc theaters was 49.43

a full 5

or 500 basis points higher than the

overall annual average and that can only

be attributed to spider-man no way home

with its 120-day theatrical exclusive

release and its stellar box office

performance that's how big of an impact

that that traditional release with a

massive blockbuster haul

had on the overall numbers

pegging down any one individual film's

actual rental agreement or their net

returns from the theaters back to the

film distributors and studios is a very

difficult task if not impossible because

these films as we've discussed are all

negotiated on a film-by-film basis with

theatrical exhibitioners there's no way

to really know what a single film really

brought home because contracts like this

are all typically sealed under an nda or

a non-disclosure agreement but the

overall aggregate returns

from exhibitioners like amc

give us a very very close

tight picture of what it should be

and that of course is based on the fact

that a film might fall in a typical box

office window for a first release if you

look back at 2019 the top 50 films

grossed roughly 50 million dollars or

above

and those top 50 films were the top 50

out of several hundred that were

released in theaters that year and those

films represented darn near 80 percent

of the total box office so that

54.9 percent figure that we talked about

returning domestically in 2019 from the

box office to film distributors is

heavily weighted in their favor with the

exceptions of some big outliers like

avengers in game that may have pulled in

closer to 60 percent

but valiant what about the big movies

like that wouldn't they have pulled in

65 or 70 percent like we've heard from

other sources or things like this well

no as we've seen over the course of time

we looked at the numbers back to 2015.

those standard deviations year over year

are relatively tight

all falling within a range of a couple

of two or three percent

year over year even in the international

markets if that's not enough how about a

november 1st 2017 article from the wall

street journal entitled disney lays down

the law for theaters on star wars the

last jedi you see after the 2 billion

global success of star wars the force

awakens disney got cocky and decided to

stick theaters with a 65 rental

agreement in a take it or leave it

scenario almost

for star wars the last jedi now of

course the promise to theaters was if

you thought the two billion dollar haul

of the force awakens was great wait till

you see the return of luke skywalker in

the last jedi this one's gonna do 2.5

billion and we want more promises on

this one

theaters many of them reluctantly agreed

to these terms calling it quote the most

onerous terms they have ever had to

agree to in other words theaters kind of

let the cat out of the bag here that a

rental agreement where the first digit

started with six was something they had

never seen before it further goes as a

spate of evidence that shows that these

ranges the standard deviations from the

averages of 53 to 55 percent don't go

all that much in one direction or the

other provided that it is again a

first-run release with a traditionally

theatrically exclusive window now of

course theaters really ate it on this

movie uh because let's face it the last

jedi performed very poorly compared to

what theaters were promised almost a

billion plus dollars less than what

theaters were promised but that's the

way it goes and the point is is that i

can assure you that theaters have not

engaged in this same mistake

since and what i think is very simple if

i were running the business at amc and

coming up with these contract

stipulations there's very easy very

common legal practices to put into place

things like performance triggers for

example think of your favorite nfl or

major league baseball player or maybe

your favorite basketball player you know

they promise certain salaries to them

but if they over perform if they get the

team to a championship if they score

more touchdowns or goals or hit more

home runs or so on and so forth they

usually get bonused i think this is

where theaters have gone at this point

and i think it's a brilliant idea and i

wouldn't be surprised at all to see some

formal announcement of this from

theaters over the next couple of years

to say that well

we're going to assume that your movie is

going to perform at x rate but if it

over performs we'll pay a bonus of one

percent or two percent of the grosses

from that standpoint or if it

underperforms you're going to cough up

one or two percent also at the same time

i wouldn't be surprised to see penalty

clauses like we've talked about

like not just up front where okay disney

is going to tell amc theaters that this

is going on to disney plus in 45 days

disney has kind of pulled back from that

in the last couple of movies they're not

pre-announcing these disney plus

releases anymore but if you notice

usually around the 30-day mark they pull

that cat out of the bag

and i think that's because they're

putting this in the contracts in other

words they're telling theaters well

if we leave it in here and we have a

good enough run and we reach x amount of

performance then we're going to leave it

in the theaters and we're going to get

the original terms of the contract say

50

however disney has an option or warner

brothers or universal or paramount has

an option that they can exercise within

the exhibition contract with companies

like amc and cinemark to where if they

feel like well the movie fell apart

after the first week

like most of the marvel movies are doing

right now like light year well light

year fell apart in the first week fell

apart on the first day the point is that

disney can then back out of that

contract with a claw stipulation saying

okay if it doesn't do this we're going

to move it to disney plus after 45 days

in return companies like amc and regal

cinemark will then strike disney with a

penalty against the rental agreement so

hey we agreed in principle that we would

pay you 50 percent of the box offices

for example but if you decide to pull

this movie and exercise the clause and

move it to disney plus on day 45 or day

46 then we're going to go ahead and

we're going to pull back that 50 rental

agreement and we're only going to pay

you 45 or 40 for example

that's kind of where things are right

now that's what the numbers seem to very

very strongly suggest

so the bottom line is this the

traditional metrics of 53 to 55 domestic

and maybe 41 to 43 international while

they have worked for a great number of

years don't appear as though they're

really working nowadays with the changes

in the way that film studios and their

related distributors are releasing these

films these shortened windows where

movies are dropping very quickly onto

proprietary streaming services of these

studios and distributors are indeed

having a seriously negative impact

without question

on their box office rental agreements

and these declines are very sharp and i

don't feel like in the long run that

this is a financially viable system

we're gonna have to get back to a more

traditional window and this is why

companies studios film distributors like

sony pictures for example with spiderman

no way home are showing the way this is

why more recent films like top gun

maverick where tom cruise had compelled

paramount into a 120 day theatrically

exclusive window for the film are

showing you

this is how it's done

movie studios and film distributors can

still have a very healthy and prosperous

long life with their proprietary

streaming services

but they should not be doing it at the

expense

of the theatrical windows where the real

money is made

it's good to see everybody out there

please like please subscribe please

share this sucker out on social medias

and do leave a comment before you head

out the door today it's good to see

everybody and until next time from

valiant renegade

take care y'all

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