6 - Profits out of the Picture: Research Issues and Revenue Sources Beyond the North American Box Office

Summary

Disney's The Lion King released in 1994 earned North American box revenues of $250 million, approximately a third of its total worldwide box office. Within 2 years, more than 50 million videos were sold, and retail merchandise sales exceeded $1.5 billion. The Lion King “isn't a movie. It's an industry.”

(Hawkins, 1995)

Is a movie the primary product of Hollywood studios, or a “loss leader” for a stream of products that produces more than half the total revenue earned from each new Motion Picture Association of America (MPAA) release? According to data from the 2002 MPAA Economic Report (www.mpaa.org), the domestic box office totaled $9.5 billion, and the international box office gross was $9.6 billion, but the VHS and DVD rental and sales market totaled more than $20 billion. Viewed alternatively, the average MPAA-released film in 2002 earned domestic box-office revenues of $32.5 million but cost $59 million to produce and another $31 million for distribution and marketing (Table 6.1). Although Hollywood studios acting as distributors earn profits from distribution, ancillary products are crucial by design for the success of Hollywood.

This chapter has three objectives. The first is to establish the magnitude of the major ancillary products. The second is to examine the nature of the relationships among these markets. The third, and most important, is to raise a set of challenging research issues that is important from the standpoint of both academic researchers and industry professionals.