Breakeven or Next Level Costs?

Breaking Down Breakeven and Revenue in the Movie Industry

By: Kimberly Grant

Understanding the numbers of your business can feel overwhelming.  How much is the revenue?  Did you make a profit or suffer a loss?  How many units did you sell?  Did you make enough money to keep the lights on?

Breaking Down the Breakeven

There are different costs that factor into analyzing the end of a fiscal month.  Making money from your sales is good.  Knowing if that dollar amount was a profit or loss is a process that must be calculated correctly.   A calculation to find out if you made any money at all would be to multiply your selling price for each product by your unit sales using this formula:

            Total revenues = selling price x unit sales

Once you have your total revenues, you can subtract what it costs to make the product.  The amount you have leftover is considered your contribution margin (or profit).  The formula for this would be:

            Contribution margin = total revenue – total variable costs

Unfinished Business

Once you know your contribution margin ($$), it’s time to calculate whether or not your profit will be a true profit.  There are a set of fixed costs that a business must pay each month; whether they gained or lost revenue.  These fixed costs are usually monthly expenses like office rental space and salaries for your employees.  This last calculation is called breakeven:

            Breakeven (revenue) = breakeven units x sell price

Bottom Breakeven Line

Breakeven is basically what you must sell each month to cover your fixed costs.  If your contribution margin doesn’t cover your monthly fixed cost, you have a true loss.  You may also lose the electricity. 

Doomsday scenario aside, let’s take a look at a movie example to get a better feel for what breakeven truly means.

Next Level Hollywood

Let’s use 2019’s Jumanji: Next Level.  According to IMDb, this film was released before the COVID-19 pandemic so we can truly get a sense of a normal film industry breakeven scenario.  Next Level was distributed by Sony Pictures Entertainment.  According to Rotten Tomatoes, the film was produced (manufactured) by Matt Tolmach Productions, The Detective Agency, and Seven Bucks Productions.  Between these three production companies and Sony Pictures Entertainment, the film’s overall budget was $125 million. 

In order for Next Level to be considered a box office success, it would need to make more than its overall budget.  Therefore, the film would need to sell enough movie theater tickets to generate a revenue of more than $125 million.  If the film only made $125 million, then the production companies and Sony would breakeven in their money spent.

Un-breakeven Scenario

In the movie industry, a film that has revenue in the breakeven-only category is considered a failure.  We won’t even discuss a film that doesn’t make its own budget.  Luckily for Next Level it generated enough movie tickets to go beyond breakeven for the production companies and Sony.  According to Box Office Mojo, the film’s total domestic (US) gross was $320,314,960.

For a deeper analysis, the fixed costs and variable costs would need to be factored in.  In this scenario, the fixed costs would be the film’s $125 million budget.  However, the variable costs can be generated after the film is produced and released.  In Hollywood, major actors/actresses can take a pay cut in their upfront salary for a film using the points on the back end option.  It’s a fancy way of saying, the actor/actress will get paid a salary for the film while it’s in production and will receive a percentage of the box office gross after the film hits theaters.

Secret Variables

Without giving away too much of the industry’s secrets, we could make believe that Dwayne Johnson requested 5% of the film’s domestic gross.  His points on the back end would generate $16 million in additional pay for his wallet and would create a variable cost for the production companies and Sony Entertainment.  For this scenario, Next Level’s contribution margin would be:

            ($320,314,960 – $125,000,000) – 16,000,000 = $179,314,960

Yes, the movie industry truly is nice work if you can get it; so is figuring out your breakeven.

Interested in more movie industry numbers?  You can see my last post here.