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August 9, 2005
Where Does Hollywood Make Its Money?
Edward Jay Epstein has a nice piece on Slate (audio broadcast on NPR) explaining some of where Hollywood makes its money. Turns out most of it comes from what Epstein calls the "El Dorado" that is television licensing. Ninety percent of the licensing revenue from TV is profit, versus about 2/3 of revenue as profit from DVD sales. Actual theatrical showings are money losers, as even the vastly increased ticket prices and ads stuffed before showings don't cover the studios' publicity and marketing budgets for major films. It costs studios about USD 1.4 for each $1 in ticket revenue generated.
The article also includes other financial tidbits, such as the assertion that the wholesale price of a DVD is around $5, meaning that retail mark-up is 100-400%. Finally, Epstein delves into the way that this revenue arrangement has led television to drive the studios and how that hurts independent movie producers, who don't have the huge television revenue stream on which to rely.
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