2009 was an irregular year for the film industry . The $ 100 million Will Ferrell fomite " Land of the Lost , " brought in a scrimpy $ 65 million in worldwide loge office receipts , while the sleeper attain " Paranormal Activity , " made for $ 10,000 in comparative pocket change , broke the $ 100 million sucker . Meanwhile , James Cameron ’s latest movie " Avatar " is get more media attention over its bloated budget – a projected $ 500 million – than its groundbreaking special effect .

If a moving-picture show ’s price tag has little or no correlation to its profitability , then why the heck do film be so much – an average of over $ 100 million at last enumeration [ source : MPAA ] ? The light answer : because they can .

It all comes down to a financial conception have a go at it as Parkinson ’s Law , which explain , among other things , that plastic film budget will always expand to " fully ingest the capital available , " whether or not that extra immediate payment result in a better or better - selling product [ author : Vogel ] .

During the economic boom of the mid-2000s , Hollywood was flush withcash– other people ’s cash , that is . Wall Street hedge funds partnered with big investmentbankslike Lehman Brothers and Goldman Sachs to pump $ 15 billion into Hollywood photographic film between 2005 and 2008 [ source : Zeidler ] .

external investors festinate to Hollywood for the most part because of a new defrayment structure that gave them a gash of a flick ’s total profits over its merchandise lifetime . These profits let in box office sale , as well as video on requirement , DVDs , domestic and foreignTVlicensing , in - flight of stairs movies , product placement and toy licensing [ source : Epstein ] . In the other 2000s , the median rate of proceeds on a studio apartment motion-picture show was a whopping 15 percentage . Breakout hits repaid 23 to 28 percent .

Wall Street treated Hollywood movies the same way it treat mortgage plus during the real estate boom . Firms box software system , orslates , of studio apartment flick into securities that they resold to investors . When mortgage - endorse plus begin to lose value in the mid-2000s , hedge funds funneled even more money into moving picture [ source : Galloway ] .

With so much money come in from external investor , studios could spend less of their own John Cash on each photographic film , while still taking a 10 percent " distribution fee " off the top – a perquisite they do n’t share with the banks [ seed : Epstein ] .

agree to Parkinson ’s Law , more money means more ( and more expensive ) movies .

The half - billion - dollar " Avatar " received 60 percent of its backing from non - studio reservoir , which makes it much less of a gamble for the flighty accountants at 20th Century Fox , but still one very pricey popcorn flick [ source : Cieply ] .

Now that we know where the money come from , get ’s take a look at how it ’s spent .

How a Movie Budget is Spent

Before we break down movie budget , we should emphasize that Hollywood account is fishy at good . Studio head always low - ball the toll of their moving picture to make them appear more profitable while privileged author cite exorbitant unreported costs . The dependable stake ? Assume everyone is lying [ source : Goldstein ] .

Even though specific identification number are hard to nail down , we have a undecomposed musical theme where studio apartment drop theirmoney . A film ’s production budget includes all monetary value incur during pre - production , filming , post - production and advancement . That includes buying the rightfulness to the script , actor ’s earnings , production staff salaries , set construction , limited effect , wardrobe , trade service , marketing , dogtraining – everything ! How much does " everything " price ? The middling yield budget of a major studio apartment film in 2007 was $ 106 million [ rootage : MPAA ] .

Marketingmakes up a huge ball of modern movie budget – $ 35.9 million on fair – for the most part because the fates of many Hollywood releases are sealed in the first workweek . braggy money is spent on trailers , TVads , hoarding , and Web sites to pack people in on opening weekend . That strategy seems to work : " Spiderman 3 " made 45 percent of its entire gross tag sales in its gap workweek , while " ex - man : The Last Stand " made 52 percentage of its money in its first week of sacking [ source : Box Office Guru ]

When calculating a marketing budget , the linguistic rule of thumb is to pass 50 percent of the rest of the production costs ( pre - production , filming and post - output ) [ source : Vogel ] . So if a movie costs $ 100 million to make , you ’ll need an additional $ 50 million to trade it .

For studio plastic film , the traditional " safe bet " is to spend major money on a freehanded - name role player . The rationale is dim-witted : Stars betray more tickets and are more recognisable or merchantable to external audiences . Once a adept has a few mega - hits under his or her rap , they ’re unremarkably receive into the exclusive $ 20 million per movie club – although rank is n’t a womb-to-tomb privilege .

After a serial publication of comparatively star - complimentary hits like " transformer , " " Star Trek , " and " The Hangover , " – plus a growing list of wiz flops like Will Farrell ’s " Land of the Lost " and Julia Roberts ' " fraudulence " – studios are startle to see the light [ source : Dobuzinskis ] . Icons like Denzel Washington and Tom Cruise are claim pay cuts up front in telephone exchange for a liberal slice ofDVDsales and distribution good deal on the back close .

Not surprisingly , the most expensive movies of the past 20 years have had the biggest special effects budgets : " Spiderman 3 " ( $ 258 million ) , " Harry Potter and the Half - Blood Prince " ( $ 250 million ) , and " Superman counter " ( $ 232 million ) top the tilt [ source : The Numbers ] . For " Transformers 2 " ( $ 225 million ) , special effects powerhouse Industrial Light and Magic used 40 full - time animator [ source : Tucker ] . James Cameron , who more or less invented the ace - budget exceptional effects genre with " Titanic , " educate his own 3D technology for " Avatar " – and paid $ 14 million of his own money to do it [ reservoir : Cieply ] .

With all that money flying around , you ’d remember that studio could at least blemish a possible smash . Not in the least . Every film is a unique product ( even sequels ) that accede an ever - exchange market [ source : Vogel ] . The next braggy thing could be a downcast - budget comedy or a $ 250 million extra effects extravaganza . You never make love – and that ’s entertainment !

For mess more entropy on the movie industry , take a look at the links on the next page .

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