Profit Sharing or Marketing Strategy!

By Anant Mathur (October 22, 2010)

On several occasions, I have been asked how the collections of a film are shared among the exhibitor, distributor and producer. Some things to remember before we begin:

               Gross Collection: The total amount generated at the ticket counter
               (ticket price x number of tickets sold).
 

               Nett Collection: The amount left after the deduction of the 

               entertainment tax. This is the amount that will be available to exhibitors.

               On an average, entertainment tax across India is assumed to be 40%.
               Nett collection is not the profit of a film.
 
               Share: The amount an exhibitor forwards to the distributor after 

               deducting their cut (as rent) from the nett.

Although there are various scenarios for who gets what percentage of the nett collections - on average, most exhibitors-distributors-producers follow this breakdown for each film:

Exhibitors' Cut = 45% of nett (single screen and multiplex combined average)
Distributor's Share = 55 % of nett (divided equally with producer after distributor's expenses are deducted).
Producer's Share = 50 % of distributor's profit from nett collections.
 

So, let’s assume a film with a budget of 25 crores costs the distributor 30 crores (with prints and publicity) and does a business of 100 crores nett. The exhibitors' cut is 45 crores, the distributor subtracts 30 crores from his 55 crores and splits the remaining 25 crores 50:50 with the producer (12.5 crores to the distributor and 12.5 crores to producer). The producer sold the film to the distributor for 30 crores and also earned a share of 12.5 crores from nett collections for a total income of 42.5 crores if we subtract the 25 crores cost of production (budget) we get the producer's profit which is = 17.5 crores.

That being said – It’s the distributor who assumes the risk of every film. Let's say a film has a budget of 50 crores. Upon completion of the film, the distributor buys the film for 55 crores from the producer and pays for the prints and promotion out of his own pocket. So if he spends 10 crores on prints and promotion, the distributors cost is 65 crores and he needs to earn 65 crores to break even. Following the above mentioned scenario, if this film goes on to collect 100 crores nett, it may be declared a hit, but the distributor loses 10 crores (earning 55 crores of nett collections - 65 crores cost). The exhibitors earns 45 crores nett and the producer earns 5 crores (55 crores from distributor + 0 from the nett collections - 50 crores budget). Because the distributor earned a loss producer doesn’t receive any profits from nett collections and yet makes 5 crores profit because he sold it for 5 crores more than the cost of the budget. Similarly, the exhibitor earns a huge income of 45 crores, while the distributor is the only one who earned a loss.
 

In most cases when a film flops, it's the distributor who looses, the producer and exhibitors are rarely affected. Also, most of the time it's the producers who sell satellite rights, so any money made from satellite rights goes to the producer and the distributor doesn't get a penny from it. 

So, again in the above scenario if the satellite rights of the film are sold for 25 crores, the producer earns 30 crores (55 crores from distributor + 25 crores Satellite - 50 crores budget), while the distributor loses 10 crores.
 

In some cases, the distributor owns the satellite rights of the film, in that scenario, our distributor would’ve earned 15 crores profit (earning 55 crores from theatrical release + 25 crores from satellite rights - 65 crores cost).

Now let’s put our formula to work on some recent hits and see what happens.

Dabangg – at a cost of 40 crores – has, thus far, collected 140 crores nett. Arbaaz Khan (producer) kept some of the distribution territories of the film, so the distribution cost was approximately 30 crores for the territories the distributor held.

Out of the 140 crores nett:
Exhibitors’ cut = 63 crores (45%)
Distributor’s share = 77 crores (55%) – 30 crores cost = 47 crores/2 = 23.5 crores profit
Producer’s share = 50% of 47 crores = 23.5 crores + 30 crores (sale to distributor) + 20 crores (revenue from self-distribution) + 10 crores (satellite rights) - 40 crores (budget) = 43.5 crores profit

Another recent hit, 3 idiots was sold for 35 crores. It collected 202 crores nett.
Exhibitors' cut = 91 crores
Distributor's share = 111 crores - 40 crores cost = 71 crores/2 = 35.5 crores profit
Producer's share = 35.5 crores + 35 crores (sale to distributor) + 35 crores (satellite rights) – 30 crores (budget) = 75.5 crores profit
 

The latest blockbuster Enthiran, was sold for 160 crores. Enthiran is being made out to be one of the biggest hits ever. But the numbers tell a different story. The first weeks collections of Enthiran were 105 crores nett (probably because the average ticket price was Rs. 500, while the average ticket price of Dabangg and 3 idiots were Rs. 100). The total nett collections for Enthiran for week 1 and 2 were approximately 125 crores nett. At most the life time business of Enthiran will be 150 crores nett.

This means:
Exhibitors' cut = 67.5 crores
Distributor's Share = 82.5 Crores - 170 crores cost = -87.5 crores loss
Producer's share = 0 crores (from nett collections) + 160 crores (from distributor) – 150 crores (budget) = 10 crores profit

So, when a distributor makes a loss of 87.5 crores, it’s hardly correct to declare the film a hit. 

In order for Enthiran to be declared a hit, it has to collect over 310 crores nett. It needs to collect 310 crores nett just for the distributor to break even. This is where Indian filmmakers/ distributors make their mistakes. 

If a film costs 170 crores it has to earn twice that amount in order for the distributor to make a profit and since no film has ever done that much business in India, it boggles the mind to think how filmmakers can make films at such high budgets. Indian films should not be made for more than 30-35 crores if they intend to make a substantial profit for their distributors and producers. At budgets over 100 crores the only one with any hope of making money is the exhibitor, everyone else loses out.

© Anant Mathur. All Rights Reserved.