How the Movie Box Office Works

While millions around the world flocked to see the fourth film in the "Transformers" franchise, the movie studio still felt the need to inflate its projections for box-office success.

Despite a generally disappointing year at the box office, 2014 produced one record-breaking blockbuster: "Transformers: Age of Extinction," the fourth installment in the toy-inspired Transformers series. That film alone brought in more than $1 billion in worldwide box office ticket sales.

The movie received generally terrible reviews, and it ranks embarrassingly low on Rotten Tomato's Tomatometer of positive critical response. And, as part of the series, "Transformers: Age of Extinction" did not live up to the popularity of its predecessors in the U.S. With a total box office of $241.2 million domestically (meaning in the U.S. and Canada), it had the lowest domestic gross in the "Transformers" franchise.


Any lack of interest in this part of the world, however, was more than made up for at the international box office, where gross revenues totaled $763.8 million. The film was tremendously popular in China, where it became the country's highest grossing film of all time, the first ever to gross more than $300 million there [source: McClintock].

If you want to learn how the Hollywood box office works, the fourth Transformers installment is an interesting case. Paramount, the studio backing the film, was accused of overestimating box office totals during the film's opening weekend. Paramount said the movie raked in $100.38 million, in line with expectations that it would exceed $100 million, but box-office watchers came up with a different tally — closer to $97.5 million [source: Busch].

Estimates are part of how the Hollywood box office works, but there is also a tracking system that provides more exact figures. So why do studios continue to report estimated weekend box office totals to the media on Sunday before providing accurate totals on Monday? One reason is that not every ticket sale is tracked automatically; there's a lag in reporting time for a chunk of North American theaters. The other and perhaps more important reason is that the box office has become part of the news, and the media reports weekend totals on Sunday. If estimates get slightly puffed up, it only helps a movie's reputation, and news outlets are unlikely to report updated numbers on Monday.

It's all part of the how the Hollywood box office works, and estimates are usually pretty accurate. In fact, "Transformers: Age of Extinction" is the first major example of number-fudging since 20th Century Fox was accused of inflating estimates for the 2002 release of "Minority Report," allegedly to avoid the embarrassment of being bested by its animated box-office competitor, "Lilo and Stitch" [source: Ackman].

When you consider that the fourth Transformers film already had the highest opening weekend of the year, before the controversy, and then went on to become the highest grossing film of 2014 after just two weeks of release, it doesn't seem worth it to lie about just $3 million (after all, we're talking Transformers money). For the studio, however, it could have been more about the perception of what it means to pass the $100 million mark.

Hollywood's bar for success changes, but these days hitting or missing $100 million on the opening weekend can mean the difference between a verifiable hit and an arguable flop. There was even said to be insider speculation that if Transformers 4 did not make $100 million its opening weekend, there would be layoffs at the studio [source: Busch]. That's a lot of pressure on one movie, but history has shown that the autobots can bear the weight. In fact, Transformers movies are expected to break records. As that audience grows in other countries, blockbuster success and enormous box office numbers during opening weekend have become part of a movie's promotional campaign. Bringing in less than estimated box office numbers during the first weekend could send the wrong signals to the media and, by extension, the audience.

Let's look at how — and why — Hollywood continues to play fast and loose with box office numbers.


How Box Office Numbers Are Reported

Box office projections can carry weight with moviegoers who are on the fence about committing a chunk of change on the theater experience.

There was a time when the news didn't include weekend box office reports. Movie theater companies would total the numbers from their franchises and send them to the studios in due time rather than real time. The numbers were reported manually and therefore were not always accurate. In the 1970s, the studios eventually realized that by reporting numbers to the Hollywood press, they could generate free publicity for the most popular movies. This motivated theaters to report accurate numbers more quickly [source: Bialik].

Today, box office numbers are widely reported in national media, and ticket sales at the theaters are tracked by media measurement and analysis serviceRentrak. Each ticket sold and dollar collected at theaters around the world is reported directly to Rentrak and put into a database accessible not to the media, but to a small number of studio execs. Rentrak's numbers are generally reported up-to-the-minute, but, as we mentioned earlier, there are some 10 percent of North American theaters (and a greater percentage internationally) that still track box office numbers manually (think: small towns or rural areas without computerized ticketing.)


The Sunday morning of a film's opening weekend, studio executives will tally up the dollars earned up to that point and use those totals to estimate what the grosses will look like Monday morning. These estimates are reported to the media on Sunday and revised on Monday once the actual numbers have been received.

A margin of 10 percent can make a difference in a film's perceived success, especially if it's a blockbuster designed to draw massive audiences and break box office records. Rather than wait, studio executives prefer to estimate instead. And they are usually pretty accurate, but there have been surprises. Clint Eastwood's "American Sniper" took in twice as much as predicted over its opening weekend in January 2015, breaking a January box office record by earning $90.2 million during its three-day opening period and $105.2 million for the extended Martin Luther King Jr. Day holiday weekend [source: McClintock]. When Transformers estimates were reported the Sunday after its release, they already seemed too high to reporters. Come Monday, the studio stuck with its story, reporting that the movie had brought in $100.38 million.

After opening weekend, a film's box office success will continue to be tracked on the basis of daily, weekly, weekend, monthly, quarterly, seasonal, yearly and total ticket sales. The Motion Picture Association of America (MPAA) records box office numbers for all of the year's movies. A film's actual revenue will be determined over time and will include factors like merchandising, product placement fees, television rights and DVD sales.

Box office sales from outside North America will also be included in a film's total gross. While not typically included in opening weekend estimates or reports, these days, foreign box office numbers play a larger role in a movie's overall profits.


The Increasingly Important Foreign Box Office

The international moviegoing market is a lucrative one, and Paramount Studios made every effort to attract Chinese fans, including giving Chinese star Li Bingbing a prominent role.
Gareth Cattermole/Getty Images Entertainment/Thinkstock

There was a time when other countries had to wait to see a Hollywood movie; films would be open domestically for several weeks or more before they hit international markets. As international audiences have grown and the release of new movies in foreign markets has become more lucrative, it's now more typical for a movie to enjoy a wide release across the globe in a single weekend. It's becoming increasingly popular for Hollywood blockbusters to open in international markets first and come to the U.S. a couple of weeks later [source: Susman].

Foreign sales now represent about 70 percent of total revenue for Hollywood movie studios, with most of the market growth coming from Russia and China. It's predicted that China's total box office revenues will outpace those in the U.S. domestic market by 2020 [source: Brook].


Not all numbers are equal, however. Even if a movie brings in the same box office totals in each country, the amount of revenue studios earn varies from country to country, with some far more lucrative than others. On top of box office revenue, total revenue can include things like DVD sales, TV and digital distribution rights, and other post-theatrical revenue, much of which doesn't exist in markets like China. In the U.S., $100 million in box office revenue can ultimately generate around $175 million in total revenue. That same $100 million in box office revenue generates about $27 million in revenue in China, $65 million in Russia, $83 million in Japan and $130 million in the United Kingdom. That's why domestic sales are still the most lucrative, although some expenses involved in moviemaking, such as marketing, may not be as costly overseas [source: Fritz].

Still, the growing international audience cannot be denied. It's the reason studio heads are more willing to take chances on big movies with broad themes (and, often, superhero costumes) than small films that may not translate across the map. Paramount, the studio that made "Transformers: Age of Extinction," targeted the film for success in China because earlier movies in the series had played so well there. One promotion let Chinese fans compete to be extras in the film, and Chinese movie star Li Bingbing played a more significant role.

Even movies that underperform domestically can make up for it in foreign markets. The 2013 monster movie "Pacific Rim" made more than $400 million worldwide while just eking past the $100 million mark domestically [source: Mendelson]. That same year, director Ron Howard's story-driven car-racing picture, "Rush," brought in a lackluster $26.9 million domestically but more than $90 million when you take foreign ticket sales into account [source: Box Office Mojo].

Rentrak reports box office numbers in 35 countries, including Russia and China; however, China has been working on its own system as part of an effort to clamp down on box-office fraud. It's estimated that as much as 10 percent of gross box office profits are skimmed by corrupt theater owners fabricating box office receipts and viewership records [source: Coonan]. A new national ticketing system will upload data from every ticket sale to a social media news service [source: Coonan].


Is there a better way to track box office numbers?

With the variation in the price of movie tickets from theater to theater and city to city, the box office revenue might not be the most accurate measure of success.

Critics say there must be a better measure of box office success than total dollars earned. The average price for a movie ticket was $8.17 in 2014, but that takes into account both low-cost matinees and high-priced 3-D movies [source: Lang]. In New York City, tickets can cost nearly double the national average. If one ticket is clearly more valuable than another, wouldn't individual ticket sales be a better measure of success? What about including worldwide box office figures in the opening weekend numbers? Would that provide a more accurate view?

It's tricky in Hollywood, where perception is everything. With ticket sales on the decline in the U.S., reporting just those numbers could imply a negative trend — even in years that break revenue records. Including worldwide sales in opening weekend figures might inflate blockbusters' success, potentially leading to even fewer gambles taken on smaller, more thoughtful productions. Plus, because theaters in international markets are less likely to be equipped with box office software, it's more difficult for Rentrak to produce up-to-the-minute international figures [source: Bialik].


Another option would be to measure success based on the amount it cost the studio to make the movie, or cost per ticket sold. This can make smaller-budget successes look even more profitable than costly adventure fare.

There are no signs of Hollywood changing anytime soon. During years like 2013, Hollywood's highest grossing year ever, the status quo works just fine. Then again, ticket sales hit a 19-year low in 2014. Moviegoers bought 1.26 billion tickets, which brought in a total of $10.35 billion — down more than 5 percent from 2013 [source: Lang]. As box office systems become more efficient and success increasingly depends on global transparency, the industry may not be in a position to insist on an outdated reporting style.


Lots More Information

Author's Note: How the Movie Box Office Works

I remember a time in my life when a box-office record changed everything. It was in May 1990, when the movie "Pretty Woman" crossed the $100 million mark in gross box office revenues. It didn't do it in a single weekend of course (that particular record was not reached until 2002 with the Sam Raimi-directed "Spider-Man" [source: Jacobs]). By comparison, "Pretty Woman" had an $11 million opening weekend and was still No. 1 at the box office. The movie had the kind of staying power you don't see in today's movies: It hung out at No. 1 for four non-consecutive weeks and was in the top ten for 16 weeks. It crossed the $100 million mark at week eight, which was a big story in entertainment media. It ended up grossing a total of more than $463 million in revenues [source: Box Office Mojo]. And it changed the way Hollywood looked at romcoms and their stars (including top earners like Julia Roberts, Meg Ryan and Sandra Bullock). Twenty-five years later, romantic comedies are out and action franchises rule. Not being the biggest fan of superhero fare, I find it comforting to remember that Hollywood, much like its beloved Transformers, is ever changing. You never know what will hit next.

Related Articles

  • Ackman, Dan. "A Minority Reports to Minority Report." Forbes. June 24, 2002. (Feb. 11, 2015)
  • Bialik, Carl. "How Hollywood Box Office Records Are Made." The Wall Street Journal. Jan. 29, 2010. (Feb. 8, 2015)
  • Box Office Mogo. "Pretty Woman." (Feb. 11, 2015)
  • Box Office Mojo. "Rush (2013)." (Feb. 6, 2015)
  • Brook, Tom. "How the global box office is changing Hollywood." BBC. June 20, 2013. (Feb. 6, 2015)
  • Busch, Anita. "'Transformers: Age of Extinction': Will It Get Summer Box Office Out of Its Funk?" June 26, 2014. (Feb. 6, 2015)
  • Busch, Anita. "Box Office: 'Transformers' Controversy Erupts as Paramount Stakes Claim to $100M Three-Day Gross, No One's Buying It." June 30, 2014. (Feb. 6, 2015)
  • Coonan, Clifford. "China to Report Box-Office Data Via Social Media." Hollywood Reporter. Oct. 14, 2014. (Feb. 6, 2015)
  • Coonan, Clifford. "Chinese Regulators Escalate Crackdown on Box Office Fraud." Hollywood Reporter. May 27, 2014. (Feb. 6, 2015)
  • Frankel, Daniel. "The Rise and Fall of Movie Futures Trading." The Wrap. Aug. 15, 2010. (Feb. 8, 2015)
  • Fritz, Ben. "For Hollywood, Not All Box Office Dollars Are Equal." The Wall Street Journal. Aug. 29, 2014. (Feb. 6, 2015)
  • Jacobs, Matthew. "Movie Milestones: 'Spider-Man' Tops $100 Million in First Weekend, and 14 Others." The Huffington Post. May 7, 2013. (Feb. 11, 2015)
  • Lang, Brent. "Average Movie Ticket Prices Increase to $8.17 for 2014." Variety. Jan. 20, 2015. (Feb. 6, 2015)
  • McClintock, Pamela. "Box Office Milestone: 'Transformers: Age of Extinction' Hits $1 Billion Worldwide." Hollywood Reporter. Aug. 3, 2014. (Feb. 6, 2015)
  • McClintock, Pamela. "Box Office Shocker: 'American Sniper' Now Targeting $105M Debut." Hollywood Reporter. Jan. 16, 2015. (Feb. 6, 2015)
  • Mendelson, Scott. "'Pacific Rim' and More Domestic 'Flops' That Became Global Hits." Forbes. Sept. 2, 2013. (Feb. 6, 2015)
  • Susman, Gary. "Box Office: Why Do Hollywood Blockbusters Like 'Iron Man 3' Open in the Rest of the World First?" May 5, 2013. (Feb. 6, 2015)
  • Veronese, Keith. "The Way We Measure Box Office Success Is Completely Broken." Feb. 7, 2012. (Feb. 6, 2015)