Tuesday, April 17, 2012

The Theatrical Movie Business is Dying

Let's talk movies. Specifically movies released in the theaters. Critics of file-sharing have several reasons for why online piracy is bad. Inevitably, you can trace their complaints back to one of these reasons:

1. It's wrong to steal/copy.
2. The creator/publisher should get to control formats, price, release dates, etc.
3. Piracy is killing the movie business.

I look forward to debating the first two points in the future, but right now, I want to kill off point number three once and for all. Movies are a business. Let's not try to spin a politically correct position either. The number one reason for making a movie is to profit. It doesn't matter how many tickets were sold, it doesn't matter if domestic gross is larger than foreign gross and it doesn't matter what the gross per theater is. The basic, simple answer is you want to receive more money in ticket sales than it cost to make the movie*. This isn't even a debatable point.

The logic of the anti-piracy crowd is that with all these movies available for free online, movie studios can't make any money and they will soon have to stop making movies. That's why we need new laws to punish those who copy things without paying for them. If we assume that logic to be valid, then that same logic tells us that the most heavily pirated movies should also be the biggest losers at the box office. How else can you come to the 'online piracy is killing the movie business' conclusion?

* (Yes, it's possible to have a profitable movie when ticket revenues are less than the budget, but that only helps my argument, and I wanted to keep it simple.)

What if I were to tell you that of the 50 most pirated movies over the last five years, only one of them lost money? You read that right, just one movie out of 50. Would you even believe me? Would you agree that it defies the conventional logic? With enough data, could I convince you to stop trying to argue that file-sharing is killing the movie business?

Let's start small and then work our way up to larger numbers. In October of 2011, TorrentFreak put out a list of the top10 pirated movies of all-time. Keep in mind that this list only tracks downloads through BitTorrent and does not include file-lockers, newsgroups or streaming, so the actual amount of piracy is larger than what is represented in their chart. I looked up each movie's theatrical gross and budget on Box Office Mojo and IMDB.

Each of those 10 movies made money. See for yourself:

Raw CSV data.
RT, IMDB, MC = Ratings from Rotten Tomatoes, IMDB and Meta Critic.
Profit/Loss = Total gross minus budget in millions.
P/B Ratio = Profit to budget ratio. 100% means profits were the same amount as the budget.
Margin = What percentage of the gross is profit.

The worst performing movie in straight dollars was Kick-Ass which grossed $96.1 million with a $30 million budget. But Kick-Ass was only third-worst in terms of profit to budget ratio. The Incredible Hulk could be considered the worst performer of the group because they generated profits ($113.4 million) that were only 75% of the budget ($150 million.)

Now the critics might be looking at this data and saying, "Well of course these movies made money, they are some of the most popular movies." But that doesn't make any sense, who cares how popular the movies were, these are literally the most pirated movies of all time so your anti-piracy logic tells us they should have struggled heavily to make money.

But something else the critics should be pointing out is that this is too small of a sample size to be that meaningful. I agree, so let's expand things. Each year since 2007, Torrent Freak has put out an end of year list ranking the top 10 most pirated movies on BitTorrent (2007, 2008, 2009, 2010, 2011.)

Those 50 movies include 9 from the previous list so there are 41 newcomers. Surprisingly, things still look very good for the movie business:

Raw CSV data.

These are the 50 most pirated movies over the last five years, and 49 of them (98%) turned a profit. The only movie to come up short was Green Zone which had a $100 million dollar budget but only brought in $94.8 million in tickets. Collectively, these 50 movies grossed $21.2 billion and profited $16.2 billion. 47 of them (94%) had profits that were at least 30% of their budget. Just look at all that financial harm.

And don't think these are critically acclaimed movies either. Sucker Punch got ratings of 23 and 33 yet still profited $7.7 million. Clash of the Titans was rated 28 and 39 and its profits ($368 million) were almost three times higher than its $125 million budget. Nor are all these AAA big budget movies. Juno had a $7.5 million budget and grossed $231 million. The King's Speech had a budget of $15 million and profited nearly $400 million.

Some of these movies didn't even have a wide theatrical release and made excellent returns. The Hurt Locker was the 9th most downloaded movie in 2010 and it was only released in 535 theaters. It profited $34.2 million over its $15 million budget. RocknRolla only played in 826 theaters and profited $7.7 million. But I'm not done yet...

Next post: An even wider net.

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