Electronic Devices: How Movie Distribution Works

Profits always flow backwards in the movie industry, which is yet another way in which Hollywood is a world all its own.

Detailing the long and arduous process of making a movie could fill multiple books of its own, and the arcane science of distribution is no different. However, the broad strokes can be captured briefly, and understanding how a movie gets from the studio to the theatre might make that pricey ticket and popcorn a little more palatable.

For your standard Hollywood feature, the studio that funded the making of the movie (paying the director, the actors, the production crew, etc.,) make back some of their investment before the film ever makes it to screen by selling the license to distribute the movie to theatres everywhere.

Companies that specialize in distribution bid on the right to license a film (naturally, movies with more "buzz," or positive pre-premiere media coverage,) cost more to license; movies that don't have the benefit of buzz may be relegated to the studio's own distribution company.

Sometimes, the studio *is* the distribution company, and in many cases, the studio owns a distribution company. For example, Disney (the studio) owns Buena Vista (the distribution company.) It's almost guaranteed that a film made by Disney will be distributed by Buena Vista, though Buena Vista has the right to decline a project it feels doesn't reflect the corporate image of the company.

Whether a studio works with a completely separate distributor or with one that's part of the same corporate empire, the money details remain pretty much the same.

The studio is merely selling a license to the distribution company- the right to lease the film to theatres. The studio still owns the movie, and still has expenses to recoup, so the distribution company pays a flat fee for the licensing rights, but also agrees to share the box office profits- anywhere from 10 to 50 percent.



Of course, the distribution company needs to make money and they'd rather make more than mere box office proceeds. Consequently, once a distribution company gets the license for a particular film, it then works on obtaining all the merchandising rights.

Merchandise tie-ins like inserting film-related toys into kid's meals at fast food restaurants, or action figures based on the characters, represent a large portion of the distribution company's profit. Not only does the company take proceeds from the sale of these items, these promotions help advertise the movie. (A distribution company also makes deals to produce the DVD and video copies that will eventually be purchased by rental companies and individual consumers, but that happens well after the film premieres on the screen.)

Advertising might get people interested (and it certainly helps generate buzz,) but the film still isn't in a theatre yet. To get it from Hollywood to Hoboken, the distribution company hosts screenings for theatre representatives. These preview showings give the theatres a chance to decide whether they'd like to show a film or not (and it's a pretty big decision because a single print of a film can cost as much as three thousand dollars.)

Sometimes, theatres will agree to show a movie it doesn't really want because they know the distributor is going to be offering a potential blockbuster soon and they want a guarantee they'll get a chance to lease it. (That's how really horrible movies get released: there are so many favors floating around in Hollywood, it's not funny.)

Other times, theatres will agree to lease a movie, but only if they get special consideration. Having the right to show a sneak preview can generate a lot of revenue for a theatre. Because there's only one theatre in the city showing New Blockbuster, their profit from concession sales more than makes up for the free tickets they distributed.

Theatre buyers might also negotiate for exclusivity- a chain of theatres might want to cut out the competing theatre chains completely, and will pay to gain the sole rights to show a film. Limited engagements are another avenue they can exploit- those help generate ticket sales quickly because the potential audience knows the film will soon be gone.

These exclusives, sneak previews, and limited engagements happen because the theatre doesn't actually make money from selling tickets- they lease a movie and the vast majority of the box office sales (minus operating expenses,) goes to the distribution company. The theatre makes its profit from its concession sales. Without eight dollar popcorn and four dollar candy, a theatre would go out of business almost as soon as it opened.

The process is the same for second run movies (movies that have already been released in the theatre, but are being released again.) Buyers for discount and specialty theatres- for example, the one dollar ticket theatres or the specialty theatres that offer dinner and drinks with a film- attend screenings, make bids and take leases, just like their first run brethren. They, too, make their profits in concessions or specialty offerings- the movie itself is almost incidental to their business.

In an ideal distribution world, the studio makes money from the distribution company, the distribution company makes money from the theatres, and the theatres make money from the consumer. Profits always flow backwards in the movie industry, which is yet another way in which Hollywood is a world all its own.

© High Speed Ventures 2011