These days, it seems like it is all about the small screen. More and more people are gathering around to binge watch shows like “Orange Is the New Black” and “Game of Thrones,” while less and less people are heading out to movie theaters to plunk down a hefty fee for two hours of entertainment.
First, The Movies
For many people, it is tough to justify spending forty or fifty bucks to see a movie, when you factor in popcorn and drinks with the hefty ticket price. Hollywood studios have been churning out more big budget tentpole films (films whose earnings are expected to bolster the company financially), 3D movies and action-adventure tales, since audiences are more likely to splurge on a flashy, explosion-heavy movie than they are on a small, intimate drama. Filmmaking is also a very risky investment, since most movies, even those small, intimate dramas, take several million dollars to make. Still, it’s definitely a hugely profitable business—if you hit the jackpot (aka the target audience).
According to Deadline Hollywood, the most profitable studio films of 2014 were “Transformers: Age of Extinction” with $250.155 million, “American Sniper” with $242.58 million, “The Lego Movie” with $229.008 million and “The Hunger Games: Mockingjay Part I” with $211.609 million. Those numbers take into account factors such as domestic and overseas box office, merchandise and domestic and foreign TV rights. Not a bad payday, all things considered.
Most of the films on the list, predictably, were big budget studio films (“Guardians of the Galaxy,” “Maleficent” and “Big Hero 6” were also huge moneymakers), but it is not just Paramount and Walt Disney Company (DIS) and Warner Bros. that are putting out hits. It is important to take a look at independent films as well. In that same year, Fox Searchlight’s Academy Award-nominated Wes Anderson film “The Grand Budapest Hotel” took in over $59 million, The Weinstein Company’s Bill Murray dramedy “St. Vincent” earned over $43 million and Open Road’s surprise sleeper hit “Chef” earned over $31 million (all figures are North American grosses). Those numbers might not be close to what a big studio movie makes, but it’s still a healthy profit. Obviously, though, not all indie films are moneymakers.
Going back to studio numbers, as far as overall profits, Disney netted $1.7 billion on revenues of $7.2 billion in 2014. NBCUniversal celebrated its most profitable year to date that year, earning $711 million in profit on $5 billion in revenue. A movie that isn’t considered a huge box office hit in the U.S. can still be wildly profitable, when you factor in overseas earnings and TV.
When the theatrical run of a film ends, studios earn money from home video, streaming and video on demand (VOD). In 2014, Rupert Murdoch’s 21st Century Fox Inc. (FOX) saw the second highest profit of the publicly traded studios, earning $1.5 billion. It measured revenue of $10.3 billion, thanks in large part to huge bestselling books-turned-films like “Gone Girl” and “The Fault in Our Stars.” Similarly, sequels like “Dawn of the Planet of the Apes,” “X-Men: Days of Future Past” and “Rio 2” were big earners. Warner Bros.’ movies grossed $4 billion in 2014, but the studio got $1.2 billion in profit from $12.5 billion in revenue, up 23% from the previous year. These studios deal with box office bombs, but a few wild successes mean huge profits, despite the flops.
Next Up, Television
So which medium is more profitable, movies or TV? One of cable’s most successful brands, HBO, saw enormous profit margins with now classic shows like “The Sopranos” and “Sex and the City.” When those shows came to an end, the cable network experienced a bit of a drop in viewers and earnings. Then along came “Game of Thrones,” “Last Week Tonight With John Oliver” and the critical darling “Girls,” and HBO saw profits soaring again. Competition with Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN) inspired HBO to roll out its standalone subscription service HBO Now because many people were choosing to cut the cable cord due to rising cable prices. HBO is one of the most recognizable, stable and respected brands in entertainment. It is consistently earning Emmy nominations and Golden Globe nods for the shows they produce. But are they as financially successful as a Disney or Paramount?
HBO’s parent company Time Warner Inc. (TWX) reported that second quarter net income rose 14% to $971 million, as all major business avenues, including Turner and HBO, reported revenue gains in the second quarter of 2015. HBO Now is still in the red because of marketing and development/technology costs, and many people got a free month before their pay subscription would start, so time will tell how the service impacts profits. The company did not disclose how many HBO Now subscribers it has gained, but it is estimated that they have as many as 1.9 million customers.
Netflix reported that domestic subscribers soared 900,000 to 42.3 million in the second quarter of 2015. The company reported a second-quarter profit of $26.3 million, down 63% from $71 million a year earlier. The decrease was in large part due to the costs of buying and creating content and the value of the dollar on revenue generated outside of the U.S.
As far as broadcast networks, let’s first look at ABC’s hit show “Modern Family,” which reportedly sees advertising revenue per half an hour at $2.13 million. A reality show like “Dancing With the Stars” sees advertising revenue per half an hour at $ 2.72 million, and CBS’s megahit “Big Bang Theory” sees advertising revenue per half an hour at $2.75 million. Over time, such hit shows can bring in enormous profits for a network or studio, but not every show turns out to be “Modern Family.” Each year, networks pay millions of dollars on pilots and new shows that are canceled after only a quick run, so for every “Big Bang Theory,” there could be four or more flops.
The Bottom Line
Major Hollywood studios can bring in $250 million in profits from a single film, while a respected cable network like HBO can make money off a huge hit like “Game of Thrones,” which costs millions to shoot. Since unsuccessful projects and financial flops are par for the course in both film and TV, there is no guarantee which shows or potential franchise will be the year’s great moneymaker. When it comes to who makes the most money, it’s tough to compete with a company like Disney, which can earn tens of billions—not millions—in a fiscal year.