Industrial Business Model

How does the Film Industry Work and Earn Money?

How do movies make money
Written by kishan

People usually think that how does the film industry work and earn money. From a distance, the film industry looks very glamorous. Celebrities, Producers, Directors, Musicians, etc glide down the red carpet.

We all watch movies but have you ever wondered how do they make money? Does every movie earn money only by selling tickets? The economics of movie-making is really far from simple.

Let us know step by step, how does the Film industry work. Where does everyone working for the movie earn from?

Before understanding how does the film industry work and earn money, we first need to understand where does the movie makers invest their money. Every Film Making company works on a Business model as explained below.

BUSINESS MODEL OF FILM INDUSTRY:

In order to understand the business model of the film industry, let us first understand the bifurcation of the movie budget.
Movie Budget is decided in four steps:

  • Development
  • Pre-Production
  • Production
  • Post-Production

How does the film industry work and earn

DEVELOPMENT STAGE:

This is the first stage of filmmaking. The development phase includes scripting wherein the story of the movie as well as dialogues are scripted.
Once the parties have met and all the deals have been fixed, the film enters into the second phase of filmmaking which is known as the Pre Production Stage.

PRE PRODUCTION STAGE:

This is the second and important stage of filmmaking. During this phase, every individual who would be a part of that film is decided. Considering the Actors of the movie, Music Composers and singers, director and assistant director, Location of the movie etc. Hence during this stage, every step of creating the movie is planned and designed.

PRODUCTION STAGE:

This is considered to be the most crucial stage of filmmaking. Right from the start of the movie till it’s end, everything comes under the production stage. The movie is created and shot under this stage.
More staff or we can say crew members are recruited at this stage including the script supervisor, directors, still photographers, picture and sound editors. These roles are considered to be the most common ones in filmmaking.

POST-PRODUCTION STAGE:

As the name suggests, this stage includes all the procedures that are supposed to be carried out after the movie production. This stage includes visual effects, music editing, sound effects and video assembling.

After passing these 4 stages, the film is completely ready to launch. All the expenses that are required during these phases like payment of the actors, artists, technicians etc. are made by the Producer. Hence if you are willing to make a movie, you first need to find a producer who would choose your story to invest in.

How does the Producer Earn Money from the Movie?

The entire business of a producer works on a Supply Chain model. The producers after choosing a script and getting the movie file, sends the film to the distributors who promotes the movie on various platforms.

Say for example a movie was made spending ₹90 Crores while development and post production. Then the producer has to sell the movie at least for ₹90 Crore so as to get his money back. Here comes the role of distributors.

Every film distributor releases a film with a red carpet premiere launch or a launch party or Press Releases and Interviews. Also the film actors are sent to reality shows or TV serials for their movie promotions. Most of the films these days are promoted with their special website which is separate from the production company or the distributor.

There can be two cases here:

Case 1: Producer himself is a Distributor.

In this case, the producer gets a chance to earn even the distributors profit. The producer himself bears the cost of movie promotions and earns the profit from all the branches of movie release.

Case 2: Producer sells movie to the other Distributors

In this case the producer sells the movie to the distributor at a price greater than the one that was spent in making the money. This is how the producer earns his profit irrespective of the film performance.
Hence the movie is already a hit for the producer as he has already sold the movie keeping a profit margin. So even if the movie is a flop then the distributor has to bare the loss and not the producer.

How does the film Distributor work?

Once the distributors receive the movie, they spontaneously start working on the movie marketing and promotions. They invest a huge amount of money in the marketing phase and with this amount the overall budget of a movie is obtained.

Now the movie is ready to be released. Initially, the distributor sells the satellite and music rights in the market.
While selling the satellite rights, the TV Channels that will be showing the movie on their channel as premier after movie launch has to pay some amount to the distributor or the producer. Similarly while selling the music rights a good amount of money is earned by the distributor.
With this phase of selling rights, the distributor earns a handsome amount of money.

How does the movie reach to Theatres?

In order to sell the movie to respective theatres, the distributor sells the movie to its sub-distributors who are spread in several states of the country.
These sub-distributors then sells the movie to its nearby cinemas and multiplexes.
So this is how a movie reaches to your nearby theatres.

Now the movie is released in theatres and the amount that is received by the ticket selling is known as Gross income of a movie. After deducting the taxes from these tickets, the theatre owners share the net income with the distributors.

Sharing the Net Income:

The net income is usually shared in two types with some ratio as described below.

Single Screen Theatre:
For the single screen theatres, the ratio of sharing the net income is 25:75. So for instance, if the movie earns ₹100 Crore the the theatre earns ₹25 Crore and the Distributor earns ₹75 Crore.

Multiplexes:
Similarly for multiplexes, this ratio is a bit higher on a weekly basis. During the first week the ratio is 50:50, during the second week it is 60:40 and during the third week its 70:30 which then remain constant.

Hence ticket selling includes distributors share as well and hence the distributor also earns profit.

Now in last case if the tickets are not sold as expected then the theatres don’t earn anything and thus the distributors faces loss. In order to overcome this phase, these days the actors themselves become producers and distributors in order to save their money and invest them in the movie development.
So the profit is earned by themselves and not shared further.

So this is how the film industry work and earn. Still, if you have got any kind of queries regarding the working and money-making of the film industry, you can share your questions and views in the comment section below.

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kishan

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