RBC Report Analyzes Current State of Film Studio Business

EQUITYRESEARCH RBC Capital Markets, LLC
David Bank (Analyst)
(212) 858-7333
david.bank@rbccm.com
Nicholas Caplan (Associate)
(212) 428-6412
nicholas.caplan@rbccm.com
Kristina Warmus (Associate)
(212) 428-6622
kristina.warmus@rbccm.com
September 13, 2013
Media Deep Dive: The Current State
of the Film Studio Business
An overview of the current landscape and a primer on
studio economics
We have prepared an exhaustive analysis of the competitive
environment and the economics of the film studio business. Some key
conclusions:
Secular Forces Favorable – While margins for the studio business tend
to trail those of other businesses in the Media Conglomerate mix
(e.g. Network Channel business), with the secular outlook for content
monetization (we hate to be cliché…but its true), content continues to be
king and we really like the outlook for the business.
The line between indies and slate financing providers has become
blurred as a new breed of studio is born, as demonstrated by Legendary
Pictures or Skydance – Financial players are playing a greater role in
creative development.
Studios with TV operations tend to have more consistent (and higher)
margins – TWX's Warner Brothers and FOXA's 20th Century Fox Studios
(and to a lesser extent Lionsgate) will likely continue to have steadier,
more predictable studio results than other "major" peers such as Disney
or Universal.
Front-loading of box office has intensified as films often make it or break
it in week one – The bulk of tent-pole releases are clustered around
summer and Christmas. With competition fierce, on average, more than
40% (and for some films more than 60%) of total box office is generated
in the first week.
First-run output is key to library monetization – Being able to bundle
hit first-run content will enable studios to sell content into the evolving
international pay-TV market. Mini-majors with strong library content, such
as Lionsgate, should benefit from blockbuster content production.
With Home Entertainment Contribution Now Trending Flat To Up,
Studios Are Positioned To Reap Benefit Of Favorable Digital Margins
And Opportunity For Continued International Growth Through Multiple
Distribution Windows – Digital momentum is finally starting to offset
negative trends in packaged goods Home Entertainment. Additionally,
studios will likely continue to benefit from big bets on culturally "neutral"
franchise action-adventure films to take advantage of increasing screens,
wealth and growing middle class in the developing markets and increasing
basic digital TV/SVOD penetration internationally, which should provide
further tailwinds to growth in both theatrical and TV/SVOD windows.
Priced as of prior trading day's market close, EST (unless otherwise noted).
All values in USD unless otherwise noted.
For Required Conflicts Disclosures, see Page 102.

Table of Contents
Table of Contents ............................................................2
Executive Summary .........................................................3
Studio Essentials..............................................................6
Majors, mini-majors, and independent studios..................6
Mini-majors.........................................................................7
Independent........................................................................7
Windows are the life cycle of a film....................................8
Seasonality..........................................................................9
Types of movies people watch..........................................10
Film ratings .......................................................................10
The importance of tentpoles ............................................13
Major franchises ...............................................................15
Profitability .......................................................................17
Box office trends in 2013...................................................17
What made money in 2012?.............................................18
Types of profitable films....................................................20
Profit records.....................................................................21
Profitability profile of individual studios ...........................24
Strategies of studios & major franchises........................25
Walt Disney Studios ..........................................................26
Twentieth Century Fox......................................................27
Warner Bros......................................................................28
Paramount ........................................................................29
Sony ..................................................................................30
Universal Studios ..............................................................30
Lionsgate...........................................................................31
MGM.................................................................................32
A brief history of film.....................................................36
How a movie gets made ................................................39
Development and production .......................................... 41
More about credits — real-life examples ......................... 45
The cost of development and production ......................... 46
What makes a hit and a bomb?........................................ 48
Financing........................................................................... 50
Studio/balance sheet financing ........................................ 51
Bank financing .................................................................. 52
Pre-sale financing (theatrical and other rights)................ 52
Tax credits and subsidy financing ..................................... 53
Product placement financing and promotional tie-ins ..... 54
Alternative investment & slate financing ......................... 54
Co-financing (traditional domestic/international split
and other)......................................................................... 56
Completion bonds............................................................. 56
Distribution costs and monetization ................................ 57
Revenue classification — Who’s entitled to a piece of
what?................................................................................ 58
The basics of distribution.................................................. 59
Theatrical.......................................................................... 61
Home entertainment (packaged media, electronic sell-
through and “traditional” VOD) ....................................... 72
Sale of film to TV and subscription VOD ........................... 81
Ancillary ............................................................................ 86
Putting it all together in one statement ........................... 87
Library – How much value is in the library?...................... 90
Summary of accounting................................................. 92
Recognition of revenue..................................................... 92
Recognition of expenses ................................................... 92
Impairment of capitalized film investment....................... 93
Film libraries and TV shows .............................................. 93
Appendix I: Additional data........................................... 95
September 13, 2013 2
Media Deep Dive: The Current State of the Film Studio Business

Executive Summary
The line between indies and slate financing providers has blurred as a new breed of studio
is born. Not long ago, independent film producers were thought of as makers of quirky, art-
house pictures that were not commercially viable for wide release. They typically had
minimal financial resources, and usually did not need more, given the smaller scale of their
productions. Not long ago, the providers of film financing were thought of as bean-counting
money men: the silent, passive, financial partners of the major studios. Rarely were they
involved in the acquisition and development of intellectual property and almost never were
they involved in any creative decisions. We believe that is changing. While the six major
studios still dominate film production, the players once thought of as simply their financial
partners have morphed into true studios: the tail is wagging the dog. One-time purely
financial players such as Legendary Pictures, Skydance and Relativity are becoming major
stakeholders in intellectual property. In some cases, they are using their major studio
partners to co-finance and distribute their own content, rather than the other way around.
Studios with TV operations tend to have more consistent (and higher) margins. While the
rise of bankable branded franchises has contributed to the growth in global box office, and in
many cases, overall profitability, it is still impossible to take the risky nature of the hit-driven
movie business out of the operating paradigm. Movie studios’ results are volatile and even
the most disciplined management teams suffer big losses. On the other hand, television
production has lower risk and favorable reward characteristics. It tends to contribute to a
more consistent overall operation, stabilizing, and often enhancing studio profitability. The
first-run model often does have some profitability assured thanks to the international
market. Further, significant upside is generally possible given the off-network syndication
and digital distribution SVOD channel. Not surprisingly, major studios with strong TV
operations, such as Twentieth Century Fox and Warner Brothers, tend to have industry-
leading margins and consistency. While the parent companies of Disney and Universal also
have major television operations, they are not part of the “studio” divisions, but rather are
operated out of the network TV divisions (ABC and NBC). Lionsgate’s scaling television
business (through a combination of 10/90 properties as well as more traditionally produced
shows such as Mad Men or Weeds) should also help drive more consistent operating results
over time, in our opinion. In a "10/90" structure, a network commits to air an initial 10
episodes of a show while the producer agrees to provide those first 10 shows at virtually no
cost. If the show hits a minimum rating threshold, the network is then contractually
committed to ordering another 90 episodes of the show. Typically, a network will order only
~12–20 episodes per year, so the 10/90 structure offers a level of visibility in production
commitment rarely seen in TV.
International market continues to drive box office higher and drive profitability. A decade
ago, most industry sources would have expected a fairly even split between domestic and
international box office revenues, with the index of international to domestic performance at
1x. A few things have happened to alter the index (and the Hollywood production
landscape). First, the international marketplace has grown as a rising middle class in regions
such as China, Brazil, Russia and Eastern Europe experience substantial growth. Second, the
studios have adapted to more culturally neutral tastes, with an emphasis on action-
adventure movies as opposed to comedies, which tend to be more culturally biased. Finally,
even within the action-adventure genre, blockbuster films are now based more on globally
recognized franchises (as opposed to being more US-centric). The result is an average
international/domestic index of approximately 1.5x, with some films reaching 2x-3x and
higher (action-adventure genres typically index higher). This has been accompanied by
overall growth in box office for blockbusters, implying growth in the overall market

opportunity (and thus profitability) rather than just a re-cutting of the pie by geographic
boundaries.
Front-loading of box office has intensified. Hollywood clusters its blockbuster releases
around the December holidays and the summer season (which we assume begins in mid-May
and ends by early August). Because of this heavy clustering and the large amount of
marketing dollars surrounding these releases, each release receives intense focus during its
opening weekend, but gets very little time alone in the consumer spotlight thereafter.
Typically, roughly 30% of the total domestic box office run comes in during the first weekend
and more than 60% during the first two weeks. A good rule of thumb is a 50% drop-off in box
office in the first week after the initial release. As a result, films have a shorter window to
“make or break” their profitability. While much of the ultimate profitability of any film is
driven by non-theatrical windows (home video, pay-TV, free-TV, etc.), for the most part,
revenues in these windows tend to correlate with the theatrical window, so it’s hard to
recover after stumbling in the initial window, especially in TV output deals where revenues
tend to be tied directly to box office.
Global marketing budgets reflect the increasing risk/reward and compressing windows in
studio production. While direct production costs (referred to as negative costs) for
Hollywood blockbusters regularly exceed $100MM and can sometimes approach $200MM,
marketing costs (referred to as prints and advertising or P&A) can cost similar amounts.
Marketing costs are driven by the intense competition in the marketplace, the globalization
of that marketplace and, we believe, the compression of windowing between theatrical
releases, VOD, and home video. Money spent on the theatrical window also supports
consumer spend in other windows. In fact, some studios have even streamlined their
marketing departments to combined home video and theatrical, a trend we expect to
continue (potentially driving increased profitability).
First-run output is key to library monetization. One of the biggest assets a studio can have is
a quality library. Cash flow margins on these assets can exceed 70% as there is little marginal
cost to bear once a piece of content has been created. While we would argue that library
content in the domestic distribution chain has reached a level of maturity (albeit still
generating favorable margins), we see much greater growth on the international side,
particularly as basic pay-TV distribution increases. While TV channels need quality content to
drive demand and viewership, not all library content is equally monetizable (given its age,
etc.). Studios with premium original blockbuster content can package that new output with
legacy library content. Studios can bundle content so they are able to maximize both volume
and price across their content assets. Additionally, if library content is not continually
expanding to include new titles as older ones age, the library itself will decline in value. While
production of new blockbuster output might seem like a risky proposition versus simply
exploiting an existing library, the return on such a strategy can be highly favorable. We
believe that this strategy could be a high-value driver for studios like Lionsgate or MGM,
which have very large libraries and the ability, assuming the financing is in place, to produce
blockbuster content.
We think we have come up with a fairly accurate “quick and dirty” way for investors to
gauge the basic profitability (or loss) of a movie. With so much at stake given upfront
negative costs and marketing dollars, investors often focus on the profitability of any given
movie. As illustrated by our more detailed analysis later in this report, we think a good rule
of thumb for calculating the break-even point on any theatrical release is 50% total global
box office equal to 100% of negative costs (this assumes a typical P&A budget spend and
home video performance). Generally, box office performance below this level will result in

some losses (and potentially a write-off depending on the magnitude of losses and
recognition of revenues and expenses around quarterly reporting).
While the studio business model tends to underperform other businesses in the media
conglomerate portfolio, its secular outlook is among the best. Studio margins trail those of
most other businesses at the parent companies of the majors. Even with robust TV
operations smoothing the profitability of the theatrical business, the strongest studio
operations of the majors rarely have EBITDA margins exceeding the 10% range (compared to
the cable channel business’s typical margin in the 40% range). Additionally, in our opinion,
investors usually do not give much credit for individual wins, while they tend to punish
individual losses. That said, from a secular perspective, the outlook for the studio business
probably has the greatest visibility and least downside risk in the long term versus other
businesses in the conglomerate mix. We believe the old adage that “Content is King” will
remain true for our investable future.

Studio Essentials
Majors, mini-majors, and independent studios
There are three main types of film studios: majors, mini-majors, and independents. Major
studios have a long history of producing and distributing films, and consistently release a
substantial number of films each year. They have significant library assets, and usually have
property on which to produce films. There are six major film studios: Walt Disney Pictures,
Columbia, Paramount, Twentieth Century Fox, Warner Bros., and Universal. These majors
account for about 90% of gross domestic film rentals
1
.
The majors have multiple sub-labels, or banners. For example, Walt Disney Pictures also puts
out films under the Pixar, Marvel, and (soon) Lucasfilm banners. We outline the Big Six and
their major banners below.
Exhibit 1: Major film distributors
Parent Company 6 Majors Major Banners
Pixar
Marvel
Lucasfilm
Focus Features
Illumination
Fox 2000
Fox Searchlight Pictures
Twentieth Century Fox Animation
Fox International Productions
TriStar Pictures
Screen Gems
Sony Pictures Classics
Time Warner Inc. (TWX) Warner Bros. New Line Cinema
Paramount Vantage
Paramount Classics
Insurge Pictures
MTV Films
Nickelodeon Movies
The Walt Disney Company (DIS) Walt Disney Pictures
Universal PicturesComcast (CMCSA)
Twentieth Century FoxTwenty-First Century Fox (FOXA)
Viacom (VIAB) Paramount Pictures
Columbia PicturesSony (SNE)
The six major studios account
for an estimated 90% of gross
domestic film rentals
Source: Company reports, RBC Capital Markets; Entertainment Industry Economics, Vogel, Harold L..; industry sources
1
Vogel, page 73

Mini-majors
Mini-majors are smaller studios that generally have either
2
:
I. Production capabilities only: No financing or distribution exists at the studio, so it must
be found elsewhere; or
II. Production capability with some limited financing and distribution capability.
While mini-majors often have some domestic distribution capability, they almost always
outsource international distribution to major studio partners. They may also share in the
ownership of an underlying production and enter into co-financing arrangements with major
studios. The two primary mini-majors are Lionsgate and MGM. Many of our industry contacts
believe that Lionsgate is on the cusp of being considered a major studio, particularly after the
purchase of Summit Entertainment.
Independent
Independent (“indie”) studios lack in-house production, distribution or financing capabilities
(they may have one or two, but not all three). Traditionally, these labels produced more
niche/art house-type films where the majors or mini-majors didn’t see commercial
opportunity. These films would not command a wide release across the globe, but were
more suitable for limited release on fewer screens and in more limited geographies. As a
result, these films would tend not to optimize the distribution scale of the majors.
Films produced by the independents can be “picked up” by a studio (often after having been
shown at independent film festivals such as Sundance) with an established distribution
platform. The major studios have “independent” labels that they use to distribute these films
as well as to create smaller, niche movies of their own. Indie studios owned by Hollywood
conglomerates include Sony Pictures Classics, Paramount Vantage, Focus Features, and
Warner Independent Pictures. Some of the indies do have small distribution platforms of
their own. In some cases, the independent studio will finance and produce a film and then
“rent”
3
the major’s distribution pipeline.
The “independent” landscape is dominated increasingly by studios that have access to
financing and own a major stake in the underlying intellectual property or film they are
producing, but rely on a major studio for distribution. These labels include The Weinstein
Company, Miramax, or Relativity Studios.
However, the most significant impact is being caused by the “independents” that in the past
acted more as banks in co-financings but are now becoming more active on the production
side. They tend to have pacts with one or two major studios; examples include Legendary
Pictures (historically aligned with Warner Bros. soon to be Universal), DreamWorks SKG (with
Disney), New Regency Pictures (with Fox), and Skydance Productions (with Paramount). We
will discuss these deals in further detail later in this report, but as an example, Warner Bros.
signed a deal with Legendary Pictures in 2005 to produce and co-finance some of its movies
until the end of 2013. This has been one of the industry’s most successful co-financing
arrangements: WB has distributed more than two dozen films, including some of the biggest
blockbusters like the Batman and Superman franchises, 300, Clash Of The Titans, and The
Hangover series, for Legendary Pictures. In July, after months of unsuccessful negotiations
with WB, Legendary signed a new multi-year deal with Universal Pictures, which will
2
http://www.law.usc.edu/centers/cleo/working-papers/cleo/documents/C12_9_paper.pdf
3
Vogel

distribute its movies, including big-budget releases like Warcraft, Godzilla, and 300: Rise of
an Empire.
We outline some of the recent deals between studios in the following exhibit. We note that
these are ever-evolving agreements that can change frequently.
Exhibit 2: Summary of recent film pacts
Major Studio Major Studio
Avi Arad Prods. Mosaic Bad Hat Harry Prods. PC Film
Broken Road Prods. Original Film Davis Entertainment R&G Media
COTA Films Our Stories DreamWorks Animation Red Hour Films
Michael De Luca Overbrook Entertainment Feigco Entertainment Carlos Saldanha
Escape Artists Red Wagon Entertainment Film Rites Scott Free
Frederator Scott Rudin Prods. Genre Films 21 Laps
Gotham Group Smoke House Giant Pictures Walden Media
Will Gluck Taylor Swift Prods. Wyck Godfrey and Marty Bowen Sunswept Entertainment2
Happy Madison Syco Invention Films Ad Hominem3
Hey Eddie TDJ Enterprises Lightstorm Borderline Films3
Maguire Entertainment Matt Tolmach Marc Entertainment Decibel Films3
Francine Maisler & Associates Trigger Street New Regency1
Laurence Mark Prods. Hutch Parker Entertainment
Bad Robot Indian Paintbrush Boxing Cat Films Mandeville Films
Di Bonaventura Michaels-Goldwyn Jerry Bruckheimer Films Mayhem Pictures
Ian Bryce Prods. Plan B Mark Gordon Co. Gil Netter Prods.
Disruption Platinum Dunes Gunn Films Panay Films
Robert Evans Co. Protozoa Mario Iscovich POW! Entertainment
Fake Empire Sikelia Prods. Junction Entertainment Secret Machine
Four By Two Films Skydance Lucamar Prods. Whitaker Entertainment
Alcon4
Life’s Too Short Aggregate Laguna Ridge
Appian Way Lin Pictures Angle Films4
Lava Bear
Berlanti Prods. Malpaso Apatow Prods. Mandalay
Branded Films Ninjas Runnin’ Wild Barnstorm Media Rights Capital4
Carousel Prods. Pearl Street Bluegrass Chris Morgan Prods.
Cruel and Unusual Polymorphic Blumhouse Prods. Morgan Creek Prods.4
De Line Pictures Revelations Captivate Entertainment One Race Films
Di Novi Guy Ritchie Cross Creek Pictures4
Marc Platt Prods.
Executive Options RL Films 2 de Passe Jones Entertainment Silver Pictures Entertainment4
Gerber Roserock Films Global Produce The Tomante Co.4
Green Hat Films Team Downey Gold Circle4
Wild West Picture Show Prods.
Gulfstream 22nd & Indiana Hurwitz & Schlossberg Prods. Working Title Films
Heyday Village Roadshow Illumination Entertainment Completion5
KatzSmith Weed Road ImageMovers Random House5,6
J.W. Prods. Wigram Prods. Imagine Entertainment Cattleya7
Langley Park Wychwood Josephson Entertainment
Legendary8
K/O Paper Products
Partner Studios
Sony
Fox/Fox 2000/Fox
Searchlight
Paramount Disney
Warner Bros.
Universal/Focus
Features/Universal
Pictures Intl.
Partner Studios
1) Equity partner with all Fox divisions; 2) Pact with Fox 2000; 3) Pact with Fox Searchlight; 4) Distribution only; 5) Pact with Focus Features; 6) Co-financing and co-production pact;
7) Production and distribution pact with Universal Pictures Intl; 8) Legendary's deal with Warner Bros. runs until 2013. Legendary has signed a new five-year deal with Universal starting from Jan 2014.
Source: Variety, RBC Capital Markets
Windows are the life cycle of a film
With the initial release of a film, the biggest focus is on box office results, particularly
domestic results. And while a substantial portion of film revenue is generated at the box
office, monetization continues through multiple subsequent windows, including home
entertainment (DVDs, Blu-rays), rentals (Blockbuster, Redbox, Netflix), pay-per-view (PPV)
and video-on-demand (VOD), as well as television windows (premium and free). We provide
more detail on individual studios in their respective sections below.

Exhibit 3: Sample of film monetization flow chart
Box Office Release
Home
Entertainment
Rentals PPV/VOD Pay TV Free TV Pay TV2/Free
TV2/Int'l TV
Source: Walt Disney Company Reports, RBC Capital Markets
Seasonality
The film industry is highly seasonal. Box office releases revolve largely around holidays and
vacations: Easter, Thanksgiving, and Christmas are all popular times for moviegoers as
students and adults have more free time, although leading into Christmas vacation many
people are busy shopping for gifts, which may be why we see a slump in film revenues during
December.
We can see an inverse relationship emerging between the number of films playing during the
period (both new and holdover) and the total dollars grossed, as few films are released at the
same time as so-called tentpoles. A few tent-pole films are released during a few specific
weeks of the year, while many smaller films are released outside this period.
Exhibit 4: Seasonality of film releases and revenues ($MM)
gross&chart=byyear&yr=2012&sort=month&order=ASC&p=.htm
100
120
140
160
180
200
220
240
260
280
300
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$300
$500
$700
$900
$1,100
$1,300
$1,500
# of Movies (LHS) Total Domestic Gross Revenue (RHS)
Film Business is highly seasonal collections are
the highest during summers and holidays
With the major tentpoles releasing in the summers and Thanksgiving, a large
number of small movies release during rest of the year.
Easter
Memorial Day
4th of July
Thanksgiving
Source: Boxofficemojo.com, RBC Capital Markets

Types of movies people watch
There are several movie production formats, but the most widely employed are live action
(83%), animation/live action (8%), and digital animation (7%). More than 8,000 live-action
films were produced from 1995 to 2012, with an average gross of $20 million. For the 105
animation/live-action films made during the same period, average gross revenues were $137
million. For the 145 digital-animation films produced, the average gross was $89 million.
While live-action films are by far the most popular format, they tend, on average, to gross far
less than those films employing animation.
The large disparity between the average gross for live action, animation/live action, and
digital animation is interesting. While the animation genre accounts for far fewer of the films
released, they gross far more dollars at the box office. This is likely due to less competition
given the lower volume of animation films released, as well as a higher number of attendees
(most children do not go to see an animated film alone, but go with a parent or two, as well
as possibly a sibling or friend).
Exhibit 5: Top grossing movie production methods 1995-2012 ($MM)
Movies Total Gross Average Gross Market Share
Live Action 8,036 158,174 20 83%
Animation/Live Action 105 14,434 137 8%
Digital Animation 145 12,838 89 7%
Hand Animation 112 4,196 37 2%
Stop-Motion Animation 20 482 24 0%
Rotoscoping 3 11 4 0%
Multiple Production Methods 13 6 0 0% 83%
8%
7%
2% 0%
Live Action
Animation/Live Action
Digital Animation
Hand Animation
Stop-Motion Animation
Source: the-numbers.com , RBC Capital Markets
Film ratings
Upon a voluntary submission from filmmakers
4
, the Classification and Rating Administration
(CARA) assigns G, PG, PG-13, R, NC-17 ratings to movies. G-rated films are open to all
audience ages. While no parental guidance is required for films rated PG and PG-13, parents
are “strongly suggested” (PG) and “strongly cautioned” for PG-13.
R-rated films are specifically restricted, and persons under age 17 require adult
accompaniment. No one aged 17 or under is permitted to attend a film with an NC-17 rating.
4
According to the MPAA

Exhibit 6: Film ratings
G
General
Audiences.
All ages.
PG
Parental
Guidance
Strongly
Suggested.
Some
material not
suitable for
children.
R
Restricted.
Children<17
require
parent or
adult
guardian to
accompany
them.
NC-17
No one age
17 or under
is permitted.
Rating
PG-13
Parents
Strongly
Cautioned.
Some
material
inappropriate
for children
under 13.
Source: MPAA, RBC Capital Markets
These ratings are designed to help parents make decisions about what movies their children
can attend. They are not intended to indicate whether a movie is good or bad; however, the
rating can have an impact on how much a film can earn.
While there are typically more R-rated films released per year, these tend to bring in a lower
gross than PG-13 or G-rated films. For example, in 2012 there were more R-rated releases
(187) than PG-13 (123). There were more unrated films than any other (286) and fewer NC-
17 films than any other rating (2).
Exhibit 7: Number of films released per MPAA rating (2012)
2
65
123
187
286
0
50
100
150
200
250
300
350
NC-17 G/PG PG-13 R Unrated
NumberofMoviesReleased
Source: boxofficemojo.com , RBC Capital Markets,
However, PG-13-rated movies grossed almost twice as much as R-rated movies. At an
average of $46 million per movie, PG-13 was the highest grossing film rating. Next is G-rated
at $35 million.

Exhibit 8: Top grossing movie rating (2012)
2
2,305
5,625
2,970
56
$1
$35
$46
$16
$0.2
$17
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
NC-17 G/PG PG-13 R Unrated
Avggrosspermovie($mm)
TotalGross($mm)
Gross (LHS) Avg per movie (mm) Total avg per movie (mm)
Source: RBC Capital Markets, boxofficemojo.com

The importance of tentpoles
Tentpoles are wide-release, big-budget films that are expected to be very profitable. For the
studios, the earnings of these films often compensate for the losses from less successful
films. The term “tentpole” was first used in 1987
5
for the summer release Beverly Hills Cop 2.
As there is no official benchmark to term a movie a “tentpole”, we define it as a film that has
made (or is expected to make) at least $85 million at the domestic box office during its run.
In this note, we use estimates for films not yet released or still running in the theaters.
Looking at the biggest tentpoles shown in the following exhibit, we see that Gone with the
Wind had the highest domestic box office gross (adjusted for ticket price inflation) in history
at $1.65 billion.
Exhibit 9: All-time highest domestic gross (adjusted for ticket price inflation)
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800
The JungleBook
The Dark Knight
Thunderball
Marvel's The Avengers
Grease
Mary Poppins
Forrest Gump
The Godfather
Fantasia
The Graduate
Raiders of the Lost Ark
The Sting
The Lion King
Star Wars: Episode I - The Phantom Menace
Jurassic Park
Return ofthe Jedi
Avatar
Ben-Hur
The Empire Strikes Back
101 Dalmatians
Snow White and the Seven Dwarfs
The Exorcist
Doctor Zhivago
Jaws
The Ten Commandments
Titanic
E.T.: The Extra-Terrestrial
The Sound of Music
Star Wars
Gone with theWind
Millions of Box OfficeGross $s
Source: Boxofficemojo.com , RBC Capital Markets
5
http://www.thecredits.org/2013/05/looking-back-at-iconic-tentpole-movies-and-imagining-their-2013-versions/

On an unadjusted-for-inflation basis, Avatar had the highest grossing worldwide box office
with $2.78 billion.
Exhibit 10: All-time highest worldwide gross (unadjusted for inflation)
$0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000
Harry Potter and the Chamber of Secrets
Ice Age: Dawn of the Dinosaurs
Spider-Man 3
Harry Potter and the Gobletof Fire
Shrek 2
Finding Nemo
The Lord of the Rings: TheTwo Towers
Harry Potter and the Half-Blood Prince
Harry Potter and the Order of the Phoenix
The Lion King
Harry Potter and the Deathly Hallows Part 1
Pirates of theCaribbean: At World's End
Harry Potter and the Sorcerer's Stone
The Dark Knight
The Hobbit: An Unexpected Journey
Jurassic Park
Alicein Wonderland (2010)
Star Wars: Episode I - The Phantom Menace
Pirates of theCaribbean: On Stranger Tides
Toy Story 3
Pirates of theCaribbean: Dead Man's Chest
The Dark Knight Rises
Skyfall
The Lord of the Rings: TheReturn of the King
Transformers: Dark oftheMoon
Iron Man 3
Harry Potter and the Deathly Hallows Part 2
Marvel's The Avengers
Titanic
Avatar
Millions of Box OfficeGross $s
Source: Boxofficemojo.com , RBC Capital Markets
Tentpoles that bring in more than $85 million at the domestic box office are expected to
have earnings that are substantial enough to offset a studio’s less profitable films
6
. These
films support the finances of the studio, similar to a pole helping to hold up a tent
7
.
Often, the hope in creating tentpoles is that they will become franchises for the studio.
6
Merriam-Webster
7
Macmillan Dictionary

Major franchises
A franchise is a film series related either by a common story/theme, or by a common
character. It may include prequels, sequels, remakes, or reboots. The success of an initial
original concept helps in selling the subsequent films in the series. Examples include Harry
Potter, Star Wars, Pirates of the Caribbean, and The Avengers.
The Harry Potter franchise has the highest gross to date of any franchise on record at $2.4
billion over eight films.
Exhibit 11: Major franchises with total domestic gross >$1 billion ($MM)
Franchise Studio # Movies Domestic Gross WW Gross
Harry Potter Warner Bros. 8 $2,390 $7,709
Star Wars Disney 7 $2,261 $4,486
Avengers Disney 7 $2,156 $5,014
James Bond Sony 24 $1,913 $6,198
Batman Warner Bros. 8 $1,898 $3,714
Shrek DWA 5 $1,420 $3,547
Spider-Man Sony 4 $1,376 $3,254
Twilight Summit 5 $1,366 $3,352
The Lord of the Rings Warner Bros. 4 $1,339 $3,953
Pirates of the Caribbean Disney 4 $1,279 $3,700
Star Trek Paramount 12 $1,243 $1,926
Transformers Paramount 3 $1,074 $2,339
X-Men Fox 6 $1,062 $2,255
Note: *Certain Star Wars films were not distributed by 20th Century Fox
Source: Company reports, Boxofficemojo.com, the-numbers.com, RBC Capital Markets Research
We compiled a list of the top 50 highest grossing movie franchises of all time. While the eight
Harry Potter films have the highest grossing worldwide box office of all time, the franchise’s
profitability (estimated by taking worldwide gross/production budget) is roughly 6.7x , well
above the 2.0x-2.5x required to break even. Despite having the highest gross, the franchise is
not the most profitable (given the high expenses associated with making the films).
Of the top 50 revenue-grossing franchises, we estimate Saw is the most profitable at 12.9x
worldwide gross/production budget. And, while it did not make the top 50, we cannot help
but note that Paranormal Activity’s five films rank in the top 65 highest grossing films, and
have a profitability ratio of 54.7x.

Exhibit 12: All-time box office top grossing film franchises
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
HarryPotter
JamesBond
TheAvengers
StarWars
LordoftheRings
Batman
PiratesoftheCaribbean
Shrek
Twilight
Spider-Man
IceAge
Transformers
IronMan
FastandtheFurious
X-Men
JurassicPark
Mission:Impossible
IndianaJones
ToyStory
StarTrek
Madagascar
MeninBlack
Matrix
ChroniclesofNarnia
Superman
DieHard
Alien
Hangover
Terminator
DespicableMe
KungFuPanda
Monsters,Inc.
DaVinciCode
Mummy
AlvinandtheChipmunks
MeettheParents
Rocky
Ocean'sEleven
SherlockHolmes
Cars
NightattheMuseum
BacktotheFuture
LethalWeapon
BourneIdentity
PlanetoftheApes
HannibalLecter
ResidentEvil
AmericanPie
HomeAlone
Saw
WorldwideBox/ProductionBudget
WorldwideFranchiseGrossBox(millionsof$s)
Total Worldwide Box Office WW Box/Budget
Source:the-numbers.com, imdb, HSX.com, RBC Capital Markets Estimates

Profitability
When starting production on a film, many studios “back into” the budget: by taking into
account estimated demographic appeal and expected revenues (including box office,
television, and ancillary) among other factors, management can arrive at an appropriate
budget.
It is difficult to measure the ultimate profitability of a film accurately based on box office
figures and production costs (factors such as pre-sold international distribution rights and
P&A spending complicate matters). As a rule of thumb, we think a film generally breaks even
if it makes 2.0x-2.5x its production budget at the global box office. Of course, this is more art
than science, and every film is different depending on financing arrangements, etc. (We note
it can be difficult to find consistent information between data sources, e.g.
boxofficemojo.com, IMDB, and the-numbers.com.)
This means that a movie will be profitable if it has collected at least double its production
budget in worldwide box office. After assuming a 50% theater owners’ cut and foreign box
office equal to domestic, this implies that the gross domestic collection should at least be
equal to the negative costs (essentially the production budget) to make the movie profitable.
This also assumes that the net profit from the ancillary revenues (DVD, pay TV, and free TV)
would be sufficient to cover the movie’s marketing costs.
Box office trends in 2013
This far in Q2/13, the big-budget Iron Man 3 (Disney) has enjoyed a 6.1x production revenue
in box office receipts. This is the result of more than $1.2 billion in global box office receipts
against a $200-million production budget.
The low-budget The Conjuring (Warner Bros.) has enjoyed the highest profitability ratio at
13x worldwide box to production budget.
The Lone Ranger (Disney) is still generating theatrical revenues; however, at just 1.1x today,
it appears unlikely to hit the 2.0x minimum threshold of worldwide box/production budget
to break even.
We assume a film breaks
even on costs when it
makes 2.0x-2.5x its
production budget at the
global box office

Exhibit 13: Global box office to production cost ratio and production cost for films released in 2013 (released by July 26, 2013)
5.0x
2.3x
4.3x
2.3x
2.9x 3.0x
2.4x
6.1x
3.3x
2.4x
3.4x
4.9x
2.6x
4.2x
3.7x
2.9x
3.6x
2.8x
5.1x
11.0x
1.1x
2.7x
2.1x
13.0x
3.0x
$0
$50
$100
$150
$200
$250
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
Global B.O./Prod'n Production Cost
Estimated "hurdle"
for profitability
Potential write-down
Includes films that generated or are expected to generate $85 million+ at the domestic box office
Source: Boxofficemojo.com, Hsx.com, RBC Capital Markets research
What made money in 2012?
Magic Mike (Warner Bros.), with 23.9x production revenue in box office receipts, was the
most profitable movie of 2012. This was the result of a $7-million budget being more than
offset by $167 million in global box office receipts. Also notable was Silver Linings Playbook
(The Weinstein Company) at 11.3x and Ted (Universal) at 11.0x production revenue in box
office receipts.
Ice Age: Continental Drift (Fox) had 9.2x production revenue in box office receipts on the
back of strong international box office receipts of about $877 million. This is a good example
of a film that may have had more dampened results domestically ($161 million domestic
gross) going on to perform well internationally ($716 million international gross).

Exhibit 14: Global box office to production cost ratio and production cost for films released in 2012
2.4x
6.5x
4.2x
5.0x 4.8x
8.9x
8.0x
6.9x
2.8x 2.3x
5.1x
3.1x 2.9x
11.0x
23.9x
3.3x
9.2x
4.3x
2.2x
3.0x
4.1x
8.4x
5.2x
2.9x
5.2x 5.5x
4.2x
6.9x
11.3x
5.1x
2.1x
4.1x
2.7x
4.2x
7.2x
$0
$50
$100
$150
$200
$250
$300
0.0x
2.5x
5.0x
7.5x
10.0x
12.5x
15.0x
17.5x
20.0x
22.5x
25.0x
Global B.O./Prod'n Production Cost
Estimated "hurdle"
for profitability
Includes films that generated or are expected to generate $85 million+ at the domestic box office
Source: Boxofficemojo.com, Hsx.com, RBC Capital Markets research
In the following exhibit, we list the biggest box office bombs in history. If a film needs at least
2.0x-2.5x worldwide box office gross/production budget to break even, these films didn’t
even come close. John Carter, for example, came in at 0.8x, and is considered by many to be
the biggest box office bomb in recent memory. We believe Disney wrote down $117 million
on the $250-million film.

Exhibit 15: Biggest box office bombs
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
WorldwideBox/Budget
Loss(millionsof$s)
Loss (mm) WW Box/Budget Est. "hurdle" of Profitability (RHS)
Note: The profit and loss figures are rough estimates assuming 50% share of box office receipts to the studio and does not include any ancillary (video, TV, etc.) earnings. If we include ancillary revenues, the loss
(and, thus, writedown related to the losses) would have been smaller.
Does not include The Lone Ranger as it is still running in theaters globally.
Source: RBC Capital Markets, the-numbers.com, Boxofficemojo.com
We note that profitability and losses can be measured in both absolute dollar and ROI terms.
A film with a smaller budget in relative terms – such as Shrek 2 at $70 million – can have a
higher relative ROI (in this case, roughly 13x worldwide box/budget). While the absolute
profit dollars were smaller ($390 million) than a larger film’s would have been, the relative
ROI is still substantial.
Types of profitable films
There are two types of movies that generally become profitable: big-budget tentpoles and
low-budget films.
1. A big-budget tent-pole film (such as the Harry Potter franchise) have mass appeal. While
these behemoths have giant budgets (often tipping the $200-million mark), they can
generate substantial revenues. In the following exhibit, we show the gross box office
revenues and budgets for each of the films in the Harry Potter franchise.
Total worldwide box office for the franchise topped $7.7 billion. On a cumulative budget
of $1.15 billion, this means the total franchise has earned 6.7x total worldwide box/total
production budget, well above the 2.0-2.5x estimate needed to break even.
Profitability can be
measured in terms of:
1) absolute dollars, and
2) ROI

Exhibit 16: Harry Potter film franchise ($MM)
Total Gross
Domestic Overseas Worldwide
2011 Harry Potter and the Deathly Hallows Part 2 381 961 1,342 125 10.7x
2001 Harry Potter and the Sorcerer's Stone 318 657 975 125 7.8x
2010 Harry Potter and the Deathly Hallows Part 1 296 664 960 125 7.7x
2007 Harry Potter and the Order of the Phoenix 292 648 940 150 6.3x
2009 Harry Potter and the Half-Blood Prince 302 632 934 250 3.7x
2005 Harry Potter and the Goblet of Fire 290 607 897 150 6.0x
2002 Harry Potter and the Chamber of Secrets 262 617 879 100 8.8x
2004 Harry Potter and the Prisoner of Azkaban 250 547 797 130 6.1x
Total 2,390 5,333 7,724 1,155 6.7x
Profitability
Ratio
Harry Potter Franchise Budget
Source: Boxofficemojo.com, RBC Capital Markets estimates
2. The other type of film that can be very profitable is low-budget movies with mass
appeal. While a low-budget film is unlikely to bring in $1 billion at the box office, solid
revenues paired with a low budget can result in substantial profitability.
Per the following exhibit, the budgets for the films in the Paranormal Activity franchise
are very low, ranging from $15,000 to $5 million. Solid box office revenues resulted in
the ratio of total worldwide box to budget of 28.2x-1,289.3x.
Exhibit 17: Paranormal Activity film franchise
Total Gross
Domestic Overseas Worldwide
2009 Paranormal Activity 108 85 193 0.2 1,289.3x
2010 Paranormal Activity 2 85 93 178 3.0 59.2x
Total 351 368 719 13.2 54.7x
Paranormal Activity Franchise Budget
Profitability
Ratio
Source: Boxofficemojo.com, RBC Capital Markets estimates
Profit records
On an absolute dollar basis, Avatar is considered to be the most profitable film in recent
years, bringing in just shy of $1.2
8
billion in profit (on $2.8 billion in worldwide box).
On an ROI basis, however, ET: The Extra-Terrestrial had the highest return at 75.5x
worldwide box/budget (on $793 million worldwide box and an $11 million budget).
8
The-numbers.com

Exhibit 18: Most profitable movies
0x
10x
20x
30x
40x
50x
60x
70x
80x
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
WorldwideBox/Budget
Profit($mm)
Profit WorldwideBox/Budget (RHS) Est. "hurdle"of Profitability (RHS)
Note: The profit and loss figures are very rough estimates based on the assumption that 50% of box office receipts were returned to the studio. They don't include ancillary (video, TV etc.) earnings, and serve only
as a guide. Source: RBC Capital Markets, the-numbers.com
While box office bombs like John Carter can cause substantial “sticker shock” for investors, a
studio can often absorb these losses. As we show in the following exhibit, Disney was able to
absorb the John Carter losses on the strength of The Avengers. Disney’s total cumulative
worldwide box office/cumulative budget was still 3.3x, despite the significant bomb.
Exhibit 19: Disney’s box office profitability on major releases in 2012
$536
$84 $71 $73
$36
$2
($10) ($24)
($109)
3.3x
0x
1x
2x
3x
4x
5x
6x
7x
8x
($200)
($100)
$0
$100
$200
$300
$400
$500
$600
WorldwideBox/Budget
Profit/(Loss)(millionsof$s)
Profit/(Loss) (mm) WW Box/Budget (RHS) Overall WW Box/Budget (RHS)
Note: The profit and loss figures are rough estimates assuming 50% share of box office receipts to the studio and does not include any ancillary (video, TV etc.) earnings. Excludes movies where production budget
is not available. Also excludes Marvel's productions that were distributed by Paramount.
Source: RBC Capital Markets, Boxofficemojo.com

The same was true at Disney in 2011, when Pirates of the Caribbean: On Stranger Tides made
up for the Mars Needs Moms bomb. Profitability for the year came in at 2.9x worldwide box
office/budget.
Exhibit 20: Disney’s box office profitability in 2011
$272
$81 $80
$61
$38 $34
$23 $12
($10) ($13)
($131) 0x
1x
2x
3x
4x
5x
6x
7x
8x
9x
($150)
($100)
($50)
$0
$50
$100
$150
$200
$250
$300
WorldwideBox/Budget
Profit/(Loss)(millionsof$s)
Profit/(Loss) (mm) WW Box/Budget (RHS) Overall WW Box/Budget (RHS)
Note: The profit and loss figures are rough estimates assuming 50% share of box office receipts to the studio and does not include any ancillary (video, TV etc.) earnings. Excludes movies where production budget
is not available. Also excludes Marvel's productions that were distributed by Paramount.
Source: RBC Capital Markets, Boxofficemojo.com

Profitability profile of individual studios
Operating income before depreciation & amortization (OIBDA) margins for total filmed
entertainment vary across studios. Some include both feature film and television product
(Twentieth Century Fox, Warner Bros., Lionsgate, and Sony) while others do not include
television (Disney, Paramount, Universal).
Exhibit 21: Total film OIBDA
HousesFilm& TV at FilmedEntertainment
20th CenturyFox
Warner Bros.
Lions Gate
Sony
Does Not House TVat FilmedEntertainment
Disney
Paramount
Universal
Source: Company reports, RBC Capital Markets
In the following exhibit, we show the profitability profile of each of the big six studios.
Twentieth Century Fox consistently has the highest OIBDA margin of the group (17% in 2012)
and Warner Bros. (13.5% in 2012) comes in second. Each studio houses television production
and distribution at this segment, which we believe helps lift margins and reduce variability.
Walt Disney Pictures (10.3% in 2012) also enjoyed double-digit margins. This is well above
Universal Studios, which has the lowest margin (1.5% in 2012). Sony (5.2% operating income
margin) and Paramount (6.9%) also had lower margins.
Exhibit 22: Total Filmed Entertainment OIBDA margins
0%
5%
10%
15%
20%
2009 2010 2011 2012
OIBDA*Margins
Paramount Warner Bros. Disney
20th Century FOX Universal Sony
20th CF
WB
Disney
Paramount
Sony
Universal
*OIBDA margins, except for Sony, which show operating income margins
Studios that house
television production
within the filmed
entertainment segment
(including 20
th
Century Fox
and Warner Bros.) show
higher profitability and
lower variability.

Strategies of studios & major franchises
Each studio employs its own strategy; for example, Viacom’s Paramount management has
said that it tries to focus on its “great brands” while shrinking the total number of films it
produces. Fox makes relatively smaller-budget films with wide release. As we can see from
the exhibit below, Paramount has a larger percentage of films that fall in the “as expected”
category than the average studio. While we believe de-risking is a goal across the major
studios we cover (particularly through a focus on existing brands), Paramount appears to be
doing best at following this strategy. Twentieth Century Fox also appears to be following a
similar strategy.
Exhibit 23: “Surprise tentpoles”, “failed tentpoles”, and “as expected tentpoles” by studio
0
1
2
3
4
5
6
7
8
9
10
11
SurpriseTentpoles…
FailedTentpoles…
AsExpectedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
FailedTentpoles…
BV BV/DW Disney FD Fox LG/S LGF P/DW Par. Sony Sum. Uni. WB Weinstein
Numberoffilms
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
“Tentpoles” include films that made (or are expected to make) at least $85 million at the domestic box office. Estimates are used in actual domestic box office column for films that were released less than a month
ago. Predicted “tentpole” box-office receipts are as of the first day of the quarter. Surprise tentpoles: Films that grossed more than $85 million in domestic box-office receipts although they were expected to do
less. Failed tentpoles: Films that grossed less than $85 million in domestic box-office receipts although they were expected to do more. As expected tentpoles: Films that grossed more than $85 million in domestic
receipts and were expected to do so.
Source: Boxofficemojo.com, hsx.com, RBC Capital Markets estimates

Walt Disney Studios
Disney produces and distributes films under the Walt Disney Pictures, Pixar, Marvel,
Lucasfilm, and UTV banners. Following the acquisition of Pixar, Marvel, and more recently
Lucasfilm, Disney has focused on creating large tentpole films. The Avengers, Pirates of the
Caribbean, and Iron Man are its top grossing box office franchises. With an average budget
for these three franchises of about $200 million/film, Disney is no stranger to taking big bets.
These big bets can have significant payoffs, but sometimes writedowns can result from box
office bombs (think John Carter, which we discussed in Exhibits 15 and 19).
Disney’s goal is to leverage its studio content across its other business (parks, television,
consumer products, interactive, etc.). Thus, its studio brands and content are consistent with
Disney global branding generally (for example, Buena Vista had no “identity” outside of the
Disney Studio, so the label was rolled into Disney Films, while brands like Pixar and Marvel
optimize Disney’s global brand in consumer marketing, parks, etc.).
Exhibit 24: Key Disney film franchises
Pirates of the Caribbean 4 $1,279
Toy Story 3 $852
Cars 2 $436
National Treasure 2 $393
The Santa Clause 3 $369
The Muppets 7 $289
Monsters, Inc. 2 $554
Step Up 4 $201
Herbie the Love Bug 5 $200
Star Wars* 7 $1,918
Indiana Jones* 4 $906
50 $9,553
Studio Key Franchises # Movies Domestic Gross (mm)
Disney
The Avengers (including Iron Man,
Thor, Captain America, Hulk)
7 $2,156
Total
*Upon the acquisition of Lucasfilm, these properties now lie with Disney
Source: Company reports, RBC Capital Markets, Boxofficemojo.com, the-numbers.com
We outline the timing of Disney’s windows in the exhibit below. Films are released on
DVD/Blu-ray three-six months after the box office release. For up to 28 days after that,
rentals (Blockbuster, Redbox, or Netflix) begin. For up to one month after the rentals begin,
the VOD/PPV window begins. After 16 months of PPV/VOD, a film is released into the pay-TV
window. After that, films are released into other pay-TV and free-TV windows.
Exhibit 25: Disney film monetization windows
Disney
16 months after
PPV/VOD
With home entertainment,
or up to 1 month later
PPV/VOD Pay TV
up to 84 months
after Pay TV 1
14 months after
Free TV
Free TV 2Free TV Pay TV 2
Follows Pay TV 2
window
Parent
US vs. Int'l Box Office
Release
Simultaneous, or up to 4
months later in the U.S.
Home Entertainment
3-6 months after box
office release
Rentals
Up to 28 days after home
entertainment release
The free TV 2 window
includes film syndication to
both basic cable networks
and 3rd party TV stations
Source: Company reports, RBC Capital Markets estimates
Walt Disney Studios is
known for big-risk, big-
budget films.
The misses can be painful,
but the payoffs can be
astronomical.

Twentieth Century Fox
Twentieth Century Fox produces and distributes 25-30 films per year under the Fox 2000
Pictures, Fox Searchlight Pictures, Fox International Productions, and Blue Sky Studios
banners. Key franchises include X-Men, Ice Age, Alvin and the Chipmunks, Alien, and Planet of
the Apes.
Exhibit 26: Key Twentieth Century Fox film franchises
X-Men 6 $1,062
Ice Age 4 $730
Alvin and the Chipmunks 4 $577
Alien 7 $516
Die Hard 5 $502
Home Alone 3 $490
Planet of the Apes 7 $439
Night at the Museum 2 $428
Fantastic Four 2 $285
Predator 5 $265
Big Momma 3 $226
Diary of a Wimpy Kid 3 $166
The Omen 4 $163
Porky's 3 $160
Total 58 $6,007
Twentieth Century
Fox
Note: We are excluding Star Wars following the purchase of Lucasfilm by Disney
Twentieth Century Fox has the highest OIBDA margins of any of the big six studios, as
previously discussed in Exhibit 22. Indeed, the studio enjoyed the highest OIBDA among its
peers
9
during three of the past four years and it has been profitable for the past 10 years. To
investors, this is very reassuring.
These results are driven by several things, including the fact that television production and
licensing is included as part of filmed entertainment, which helps to lift margins. Also, the
studio tends to take fewer risks on big-budget tentpoles (there are few budgets >$200
million). It also seeks slate financing, and practices cost control. Additionally, the studio is
globally driven and seeks distribution scale. Current distribution capabilities range across
more than 100 countries, and the studio ranked No. 1 in international box office during three
of the past four years.
As Twentieth Century Fox prefers to take fewer big risks and emphasizes disciplined
production and marketing costs, it has less variability in profitability than the other studios
and is more “investable”, in our opinion, given the lack of big bombs. Pair this with a strong
international distribution platform, and you’ve got the highest-margin studio of the majors.
9
21st
Century FOX Investor Day
We view Twentieth
Century Fox as a more
investor-friendly studio, as
it tends to take fewer big-
budget risks.

Warner Bros.
Warner Bros. produces films on its own as well as with co-financing partners. It also
distributes some films produced by other studios. The studio produces films under the
Warner Bros. Pictures and New Line Cinema banners and has major co-financing
arrangements with both Village Roadshow Picture (through 2017) and Legendary Pictures
(through 2013). The most famous deal is for the Batman franchise with Legendary, which we
think demonstrates Warner Bros.’ willingness to take partners on big tentpole films, a unique
feature about the studio.
Warner Bros. total filmed entertainment OIBDA margins rank second among the Big Six (see
Exhibit 22), due, in part, to its successful television production segment being included in
these results. As we’ve mentioned, television tends to have a lower risk profile and can help
lift profitability for a studio.
Key Warner Bros. franchises include Harry Potter, Batman, The Hangover, The Lord of the
Rings, Sherlock Holmes, and Superman. The studio is known for taking big bets on big-budget
films and for trying to balance the risk-reward of these bets.
Exhibit 27: Key Warner Bros. film franchises
Harry Potter 8 $2,390
Batman 8 $1,898
The Lord of the Rings/Hobbit* 5 $1,364
Superman 6 $809
The Hangover 3 $644
The Matrix 3 $592
Terminator 4 $519
Rush Hour 3 $508
Lethal Weapon 4 $488
Austin Powers 3 $473
Ocean's 11 3 $426
Sherlock Holmes 2 $396
Friday the 13th 12 $381
Nightmare on Elm Street 9 $371
The Exorcist 5 $292
Final Destination 5 $264
Police Academy 7 $240
Dirty Harry 5 $228
Vacation 4 $219
Blade 3 $205
Texas Chainsaw Massacre 7 $199
Ace Ventura 2 $181
Total 111 $13,083
*Partners with MGM on certain films
Warner Bros.
Source: Company reports, RBC Capital Markets, Boxofficemojo.com
Our sense is that Warner Bros. operates as part of a bigger whole (Time Warner Inc.) and
that it has a closer tie to this parent (more so than other studios, including Paramount and
Universal, who have been bought and sold several times and don’t always identify with the
parent company).
Warner Bros. is known for
taking big bets on big-
budget films, and for
allowing co-financing
partners to be involved
with these larger films

Warner Bros. follows a slightly different schedule from Disney. According to company filings,
Warner Bros. has historically released films into home entertainment (DVD, Blu-ray) and
VOD/electronic sell-through (EST) simultaneously. In 2012, however, the company began
releasing titles on EST two weeks earlier than on DVD/Blu-ray or VOD.
Exhibit 28: Warner Bros. film monetization windows
Following the release into home
entertainment window
Warner Bros.
4-6 months after box office
release
28 days after home
entertainment release
Parent Home Entertainment RentalsVOD/EST Television/SVOD
Historically simultaneous to DVD/Blu-Ray
release. In 2012 began releasing EST 2 weeks
earlier than DVD/Blu-Ray, VOD on select
titles
Box Office Release
Home
Entertainment
Rentals PPV/VOD
Source: Company reports, RBC Capital Markets estimates
Paramount
Paramount produces and distributes films under Paramount Pictures (a major), Paramount
Vantage, Paramount Classics, Insurge Pictures, MTV Films, and Nickelodeon films. The studio
typically puts out about 15 films per year (down from 25-30) and its library consists of more
than 3,300 motion pictures.
There is no scaled television production in the filmed entertainment segment, as Viacom
produces its television-related content in the media networks division. This, in part, explains
its lower margins versus some peers, as Paramount is subject to more variability of
profitability as a result of relying specifically on film releases, which aren’t mitigated by
lower-risk, higher-margin television content. However, management said recently it would
like to begin producing television shows in this segment, which could point to margin upside.
Key franchises include Transformers, Star Trek, Mission: Impossible, and The Godfather
(among others, per the exhibit below).
Exhibit 29: Key Paramount franchises
Star Trek 12 $1,242
Transformers 4 $1,080
Mission: Impossible 4 $740
Jack Ryan 4 $447
Beverly Hills Cop 3 $431
Paranormal Activity 4 $351
Crocodile Dundee 3 $310
G.I. Joe 2 $272
Jackass 3 $254
The Godfather 3 $248
The Naked Gun 3 $217
Rugrats 3 $216
Alex Cross 3 $161
51 $5,967
Paramount
Total
Note: We are excluding Indiana Jones, given the acquisition of Lucasfilm by Disney
If Paramount begins
producing TV shows as
management has said it
would, it could result in
margin upside for the
studio

One of Paramount’s key deals is for Transformers with Skydance. Our sense is that the studio
tends to partner with another studio in order to mitigate risk, particularly if it is a new
franchise.
Sony
Sony produces, acquires and distributes motion pictures and television content under
Columbia Pictures (one of the Big Six), TriStar Pictures, Screen Gems, and Sony Pictures
Classics. Sony also houses its television production in its pictures segment.
Key franchises include James Bond, Spider-Man, Men in Black, The Karate Kid, Resident Evil,
and The Smurfs.
Exhibit 30: Key Sony franchises
James Bond (with MGM) 24 $1,913
Spider-Man 4 $1,376
Men in Black 3 $620
The Karate Kid 5 $430
Rambo 4 $294
The Pink Panther (with MGM) 10 $283
Resident Evil 5 $244
Underworld 4 $222
Look Who's Talking 3 $198
The Smurfs 2 $222
Total 64 $5,803
Sony
Universal Studios
Universal Pictures is one of the Big Six studios. It releases films under the Focus Features and
Illumination banners. Universal produces, acquires and distributes films both on its own and
with partners in both live-action and animated formats. Universal’s filmed entertainment
division consists primarily of film production; more specifically, Universal Pictures.
Universal’s library consists of theatrical films, direct-to-video content, as well as a film library
that is comprised of 4,500-5,000 titles across mixed genres. Universal has no scaled television
production included in its filmed entertainment segment.
While Universal has fewer key franchises than most of the other Big Six, its most well known
are The Fast and the Furious, Jurassic Park, and the Bourne movies.
Universal has fewer
franchises, but it does have
a very large library of
assets it can package with
current releases

Exhibit 31: Key Universal film franchises
The Fast and the Furious 6 $938
Jurassic Park 3 $767
Bourne 4 $639
Despicable Me 2 $609
Fockers 3 $594
The Mummy 4 $551
Back to the Future 3 $417
American Pie 4 $409
Jaws 4 $404
Smokey and the Bandit 3 $199
36 $5,526
Domestic Gross (mm)
Universal
Studio Key Franchises # Movies
Total
Source: RBC Capital Markets, Boxofficemojo.com, the-numbers.com, Company Filings
Universal puts out 25-30 films per year, and has a library consisting of more than 4,500 titles
that span a mix of genres. Continuing to produce current films can help monetize the library,
as Universal is able to package library content with newer content in negotiations.
Our sense is that Universal works in the opposite way from Warner Bros., as Universal has
been bought and sold more than once, it has a more limited corporate and cultural tie to the
parent company (i.e. Comcast today).
Universal co-finances films with both studio and non-studio entities.
Lionsgate
Lionsgate has said it intends to release 12-14 films per year in the future. The budgets tend
to be more modest (up to $120 million), and the demographic targets are often teens and
African Americans. While the studio is still considered a mini-major, many believe it is on its
way to becoming a major.
Exhibit 32: Key Lionsgate film franchises
Twilight 5 $1,364
The Hunger Games 1 $408
The Expendables 2 $188
Madea 5 $323
Saw 7 $416
20 $2,699Total
# Movies Total Gross (mm)Studio Key Franchises
Lionsgate/Summit
Lionsgate releases films into the premium VOD window two-three months after the initial
film release. Three-six months later, the film is released into the home entertainment
window, which includes DVD/EST, VOD, and pay-per-view. Pay-TV and SVOD follows nine-15
months after the initial film release, and network TV comes 27-30 months after initial
release.

Exhibit 33: Lionsgate film monetization windows
27-30 months after initial
release
Lionsgate 2-3 months after initial release 3-6 months after initial release
9-15 months after initial
release
Parent Premium VOD Home Entertainment (DVD/EST), VOD, PPV Pay TV/SVOD Network TV (Free & Basic)
Box Office Release
Home
Entertainment
Rentals PPV/VOD
MGM
MGM is a mini-major that releases film and television content under the Metro-Goldwyn-
Mayer, or MGM banner. The studio generally releases a handful of movies each year
spanning a mix of genres and seeks to have a broad commercial appeal.
The studio aims to co-produce new film and television content in order to mitigate risk.
MGM does not own production facilities, and has co-production arrangements in place with
Sony, New Line/Warner Bros., and Paramount. It aims to retain digital distribution rights and
international television distribution in co-financing agreements.
MGM has a library of more than 4,000 films. A key to its success is packaging new film
releases with older library content. Key franchises include James Bond (with Sony), The
Hobbit, Robocop, and Rocky.
Exhibit 34: Key MGM film franchises
James Bond (with Sony) 24 $1,913
The Lord of the Rings/Hobbit* 5 $1,364
Robocop 3 $110
Rocky 6 $566
Hannibal Lecter 5 $425
Pink Panther (with Sony) 10 $283
Barbershop 3 $177
Amityville 3 $164
Total 59 $5,001
MGM
*Partners with Warner Bros. on certain films
MGM aims to retain digital
distribution rights and
international television
distribution in co-financing
agreements.

Exhibit 35: Major film studio details
Walt Disney Pictures Avengers and Characters
Pixar Pirates of the Caribbean
Marvel Toy Story
Lucasfilm The Muppets
UTV Star Wars
The Fast and the Furious
Universal Pictures Jurassic Park
Focus Features Bourne
Illumination Fockers
Despicable Me
Columbia Pictures James Bond (with MGM)
TriStar Pictures Spider-Man
Screen Gems Men in Black
Sony Pictures Classics The Karate Kid
Harry Potter
Warner Bros. Batman/Superman
New Line Cinema The Lord of the Rings
The Hangover
Sherlock Homes
Twentieth Century Fox X-Men
Fox 2000 Ice Age
Fox Searchlight Pictures Alvin and the Chipmunks
Twentieth Century Fox Animation Planet of the Apes
Fox International Productions Die Hard
Paramount Pictures Star Trek
Paramount Vantage Transformers
Paramount Classics Mission: Impossible
Insurge Pictures Jack Ryan
MTV Films Paranormal Activity
Nickelodeon Movies G.I. Joe (with MGM)
Select FranchisesMajor Studios Major Banners Films per year
Portion Produced vs.
Distributed 2012
Total Film Library
Disney iTunes, Netflix, Hulu
Both small and big budget movies - up to
$200 mm plus marketing costs
Select Pay-TV Output
Partners
SVOD/EST
Participation
Typical Budget
~25
1,070
Starz (till late 2016);
then Netflix
9-14 (domestic) 64%
NBCUniversal
Sony ~30-50 40% >3,500
67% >4,500 HBO
iTunes, Netflix, Hulu,
others
Starz No Specific deal
Time Warner 17-23 (domestic)
Twenty-First Century
Fox
~25 (domestic) 57% Several thousand
65% >6,000 HBO
iTunes, Stream Pix,
Amazon, Hulu, Netflix,
others
HBO Netflix, Amazon
Both small and big budget movies. Tends to
be smaller budget films.
Viacom ~15 (domestic) 62% >3,300 EPIX
iTunes, Amazon,
Netflix, Hulu
Note: we define portion produced vs. distributed 2012 films as the total number of films (that we have access to data for) that were produced versus those that were distributed
Source: Company reports, RBC Capital Markets estimates, media reports

Exhibit 36: Mini-major film studio details
Shrek
DreamWorks Animation Madagascar
DreamWorks Classics Kung Fu Panda
How to Train Your Dragon
Lionsgate Twilight
Summit Allison Shearmur The Hunger Games
Mandate Pictures 34th Street Films The Expendables
Artisan Entertainment Madea
Saw
Metro-Goldwyn-Mayer Sony James Bond (with Sony)
United Artists Paramount Hobbit (with WB)
Orion Pictures Warner Bros. RoboCop
Rocky
Minimajor Banners Specialty Typical BudgetFilms per year
Portion Produced vs.
Distributed in 2012
Total Film Library Important Partners Key Franchises
Dreamworks
Animation
Family 2-4 - 25 Fox Big budget movies - up to $200 mm plus marketing costs
Lions Gate
Teen & African
American
12-14
Both small and big budget movies - upto $100-120 mm plus
marketing costs
50% ~10,000
MGM Fanboy 5-6
Co-produce mid and big budget movies - up to $200 mm plus
marketing costs
- ~4,000
Note: we define portion produced vs. distributed 2012 films as the total number of films (that we have access to data for) that were produced versus those that were distributed

Exhibit 37: Independent film studio details
Meet the Parents
Batman/Superman
Hangover
Clash of the Titans
300
Bridget Jones’s Diary
Mission: Impossible
G.I. Joe
Stark Trek
Scream
The Weinstein Company Spy Kids
Dimension Films Scary Movies
<100 Multiple historical partners
marketing costs
Co-produce small and mid budget movies<100 Partners -
The Weinstein Company Arthouse ~15
~5
1-4DramaSkydance
Relativity Media Relativity Drama
2-4
Multiple historical partners
Small to mid budget movies -with around $50 mm plus
advertising and marketing costs
New Regency Pictures New Regency Pictures All types Alvin and the Chipmunks
marketing costs
>100 Fox
Miramax Miramax Films Arthouse 2-3 >700
Disney; multiple historical partnersDreamworks Studios Dreamworks Studios Drama
Big budget movies - up to $200 mm plus marketing costsSmall Was Warner Bros; Universal in 2014Fanboy 2-6
2-5 ~75
Skydance Paramount
Total production spending is expected to range $200-$250
million annually
~10
Important Partners Key Franchise Participations Typical BudgetIndependent Banners Specialty Films per year Total Film Library
Co-produce small, mid and big budget movies - up to $200 mm
plus marketing costs
Legendary Legendary Pictures

A brief history of film
The origins of the motion picture date back to the late 19
th
century when Thomas Edison
perfected his Kinetoscope. In the following exhibits, we outline some of the larger milestones
in film history.
Exhibit 38: Key events in film history – 19th century
Muybridge patent for photographing objects in motion
Edison perfects motion pictures (via Kinetoscope)
Edison forms Edison Studios
Lumière competes with Edison
William Morris (WME)Agency Formed
1870 1880 1890 1899
Source: Vogel page 70, Encyclopedia Britannica, industry sources, press reports, RBC Capital Markets
The early half of the 20
th
century included several significant milestones, including the
formation of Paramount, United Artists, the MPAA, Warner Bros., and Twentieth Century
Fox. Disney also began production during this time.
Motion Picture "Trust"formed
Paramount formed
W.W. Hodkinson sets distribution fees at 35%
Motion Picture Patents Co. loses antitrust suit
United Artists formed
MPAAformed
Warner Bros. formed
Disney begins production
Columbia pictures formed
MCAfounded
MGMformed
JazzSinger is first "talkie"
20th Century Fox formed
Snow White is first animated feature film
Justice Dept. Says studios violate Antitrust Act
Regular TV program service begins
Gone With The Wind is top-grossing film
"Studio system"era ends
Paramount Consent Decree
1900 1910 1920 1930 1940 1949

During the latter half of the 20
th
century, major milestone film releases included Jaws, Star
Wars, and E.T. The Extra Terrestrial. Viacom bought Paramount for $10 billion, Sony bought
Columbia and Tri-Star for $3.4 billion, News Corp. bought Twentieth Century Fox, and Time
Inc. bought Warner Communications for $14 billion. Netflix and Amazon began their
subscription video-on-demand content libraries.
1999 1990 1980 1970 1960 1950
MCAbuys Universal
Multiplex theaters appear
Fin-syn rules imposed by FCC
First IMAX theaters
Jaws released
HBO begins satellite program distribution
Creative Artists Agency formed
Star Wars released
First VCRs appear (in U.S.)
Orion formed by former UA/Transamerica team
MGMand UAmerged
E.T. becomes all-time box office champion
First Sale Doctrine approved by Supreme Court
News Corp. buys 20th Century Fox
Blockbuster Chain formed
Sony buys Columbia and Tri-Star for $3.4 bn
Time Inc. buys Warner Communications for $14 bn
Masushita buys MCAfor $6.6 bn
Terminator II legitimizes digital effects revolution
Jurassic Park sets box office record
Viacom buys Paramount for $10 bn
Fin-syn rules ended
Toy Story is first computer-animated feature
Amazon.com went online
Kerkorian group buys MGMfor $1.3 bn
MGMbuys Orion library
Netflix launches
Titanic worldwide gross tops $1.7 bn
Digital Video Discs (DVD) popularized
MGMbuys 1,300 PolyGram films for $250 mm
First internet-distributed film, Pi
First digital screenings in theatres (Phantom Menace )
Netflix starts subscription based plans
Jimmy Stewart gets % of
profits in Winchester 73

The 21
st
century has been busy thus far. Notable deals include Paramount purchasing
DreamWorks for $1.6 billion (they subsequently separated); Disney buying Pixar for $7.5
billion; Disney buying Lucasfilm for $4 billion; and Comcast purchasing NBCU.
BitTorrent began widespread DVD piracy during this period, and Amazon, Netflix, and Hulu
all launched streaming SVOD services.
Exhibit 41: Key events in film history – 21
st
century
Time Warner and AOL merge
Vivendi buys Seagram/Universal for $35 bn
GE/NBC buys Universal
Sony group buys MGMfor $5 bn
YouTube launched
iTunes adds TV shows and music videos
Paramount buys DreamWorks
(ex-DreamWorks Animation) for $1.6 bn
Disney buys Pixar in ~$7.5 bn deal
Amazon launches Amazon Unbox (now Amazon Instant Video),
the Internet video on demand service
2000 2001 2002 2003 2004 2005 2006
2013 2012 2011 2010 2009 2008 2007
First HD DVD pirated film (Serenity) downloaded
from BitTorrent; widespread HD-DVD pirating begins
Netflix introduces online streaming services
Hulu launched as an internet based video distribution network
Paramount puts first film (Jackass 2.5 )
online before DVD release with Blockbuster
DreamWorks and Paramount separate
Disney purchases Marvel for roughly $4.0 bn
Time Warner completes spins-offofAOL
Comcast buys stake in NBCU
Avatar (Released in Dec 09) becomes highest grossing film
MGMfiles Chapter 11
DWAended HBO relationship to sell to Netflix; the first studio to choose web over pay TV
Disney purchases LucasFilms for $4.0 bn
News Corp. announced plans to split publishing business
Time Warner Inc. announced plans to split from Time Inc.
Comcast buys remaining stake in NBCU

How a movie gets made
Before diving into the company-level financials of a studio, we think it makes sense to start
with a basic understanding of how films are made and monetized. We will focus on the major
and mini-major studios, which are responsible for production, financing, and distribution (to
varying degrees depending on the film or studio).
Note that there are numerous ways that a movie can come to be, and we will make some
simplifications and omissions (for example, we won’t begin to address the important role
agents play as matchmakers) in order to make it easier to discuss the topic while still
providing a sufficiently comprehensive outline to help understand the high-level financials.
Additionally, we want to point out that many industry terms are not clearly defined, and may
be used by different people in different ways. We do our best to describe our interpretation
of industry lingo as we go, but keep in mind discrepancies are possible.
The process of making a movie can be dividend into: (1) development & production, (2)
financing, and (3) distribution.
Development & Production: A film begins with an idea that someone thinks would make a
good movie: a script, an idea for a script (e.g., a historical event), a book, a TV show, etc. This
idea can then be acquired by an independent producer who “acquires a property believing
they can then add value to it and sell it to a third party [e.g. a studio] who will distribute and
finance the production.”
10
Alternatively, the concept could be acquired by a studio while still
in its early stages of development (the studio would then hire or assign a producer to
manage the production at a high level). Once a studio has acquired an idea, it has to finance
the production of the film (it could be funded internally and/or externally, through a variety
of methods); primary production financing typically occurs once the story line, director,
producer, location, cast, and estimated budget have been determined.
11
Financing: Financing of development & production costs can come from a variety of sources
ranging from a major studio’s existing capital to private equity or a collateralized bank loan.
The available and preferred method of financing will vary depending on who is producing a
film (for example, a large-cap studio would be expected to have a greater capacity to self-
finance a film than an independent studio). We will address financing of distribution costs in
the Distribution section because (1) these costs are typically borne by the studio/distributor
(rather than the film entity, although in effect this may mean the studio either way—as a
major studio tends to, at least partially, self-finance and distribute); (2) the costs are incurred
over a period of time (rather than entirely upfront); and (3) they are often just financed off
the balance sheet. Once production has been completed, the studio (or its distributor) will
distribute the film.
Distribution: Distribution is the method through which a film is delivered to consumers and
monetized. A film can be distributed through cinemas, TV, on DVD, and through other
outlets. Distribution may be done by a studio’s distribution arm or by a third-party
distributor.
10
The Business Of Media Distribution: Monetizing Film, TV and Video Content in an Online World, Ulin, Jeffrey C.
11
Vogel
Independent producer
 “Individual producers or
film production
companies that do not
work for the major
studios/distributors”
 “Many producers who
qualify as independent
producers using [this]
criteria have contractual
relationships with the
studios that provide for at
least some partial studio
financing of these
independent producers’
feature film projects and
provide substantial
authority for the studio to
approve certain
significant elements of
the film”
Source: Excerpts from John W. Cones.
Dictionary of Film Finance and Distribution :
A Guide for Independent Filmmakers

Exhibit 42: High-level summary
Development Production Distribution
Financing
 Producer may acquire
rights and approach a
studio with a project, or a
studio could acquire rights
directly and develop
 Script may be written
 Some talent may be
committed (attached) to
the feature
 Includes pre-production
and post-production
 Director hired, budget
approved, principal
photography (actual
shooting the film), editing
and scoring
 Distribution is the process
of monetizing a film
 Sold to consumers
through theaters, DVDs,
OTT, etc.
 Costs would include
marketing and production
of DVDs or theatrical
prints; costs are typically
born by the distributor
(but may be reimbursed)
 Wide variety of possible
sources of financing
 This is typically a
reference to financing of
the production
budget/negative costs
Distribution
(P&A)
Financing
 Distribution costs are paid
by the distributor
(typically out of “cash” vs.
outside financing), and
reimbursed before equity
An Idea
Finished
Movie
Consumer
Important Vocabulary
 Production Budget (aka Negative Costs): The cost of creating a movie. Includes costs such as acquiring underlying rights,
paying screenwriter, casting, talent, soundstage rental, editing, overhead fees, producer fees, financing and legal costs.
 Prints and Advertising (P&A): The cost of printing film (onto reels) or creating the digital equivalent and getting these copies to
exhibitors, as well as the cost of marketing the theatrical release of a film (advertising, release parties).
 Participations: Contingent payments made to talent or other parties, determined as a percentage of a defined revenue or
profit calculation (often out of “gross receipts” or “net profits”).
Source: RBC Capital Markets, Ulin
Films are produced under a wide variety of structures, depending in large part on how the
film is financed, and may have a multitude of different distribution arrangements; for
example, a studio could (1) own all rights to a feature and merely outsource production to a
production company, or (2) it could not own the underlying rights, or produce the feature,
but agree to distribute the feature for a certain fee.
In the former case, the studio could own completely the legal entity under which the film is
produced (with contracts created to pay off other investors) or it could own only a partial
stake in the legal entity, with its partner owning a corresponding share based on its
investment. In the case of a slate investment, we believe the standard is for a hedge fund to
own a special-purpose entity that holds a participation in the film (but not the actual film).
Given the fact that we typically do not have this level of detail for each individual feature
(when we analyze studios owned by publicly traded companies), we will approach the
process more generally, as it should be sufficient for financial modeling purposes.
Exhibit 43: Role of a studio
can vary
Distribution
Self 3rd Party
Self Production
(internal, or
external "for hire")
Acquire distribution
rights to
uncompleted film
Acquire completed
film
Production/Financing
Source: RBC Capital Markets

Development and production
Before a film can be distributed it must be made (in other words there needs to be a finished
product). This process begins when a producer acquires the rights to a story or a script (the
producer could be a studio, or it could be an independent entity), and ends when the final
cut of the film is delivered to the distributor. In between, it is necessary to get financing, sign
actors and other talent, hire production staff, shoot the film, edit it, add special effects, and
score the film (among many other necessary tasks).
Exhibit 44: Summary of the development and production process
Development
• Acquisition of
story rights
• Write script
• Some talent may
be attached
Pre-Production
• Hire a director
• Scout locations
• Approve budget
Production
• Principal
photograph (film
actually shot)
Post-Production/
Marketing
• Editing and effects
• Scoring
• Development of marketing
plans potentially
Source: Strategic Finance, RBC Capital Markets
Many individuals work on any given production, but the first question that many ask is “what
is a producer and a director?” The title producer alone can have a variety of meanings. Here
we will focus on the term as applied in the film credits; however, as described in the sidebar,
from the film finance perspective, it may simply refer to the company that supplies the
money.
From the credits perspective, the producer fills the role of the “chief of staff” or “the money
guy” and has ultimate responsibility for the film, typically including authority over budget
and hiring decisions; there may be many producers on a single film. On the other hand, the
director acts much like a “senior line manager” filling the role of the “major creative force
behind the project” and managing the actual creative production of the film.
12
A producer may be an outside entity hired by a studio to undertake many of the tasks listed
above on a fee basis. However, its also possible that a producer could have acquired rights
for a certain production itself, completed some portion of the development (and possibly
pre-production) process, and then partnered with a studio for financing and distribution.
12
The Business Of Making Movies. Young, Mark S., Gong, James J. & Van der Stede, Wim A., Strategic Finance.
February 2008.
Different perspectives on
the term producer
There is an extraordinarily
large number of entities
that can be considered
“producers” but we think it
is important to differentiate
between two perspectives
at the outset.
 Film finance perspective:
A person on the film
finance side the of
business will often use
the term “producer” to
refer to the entity that
put up the money for a
production. While this
entity will be listed in the
credits, it may not be
explicitly referred to as a
producer. On a feature
film, this could be a studio
(e.g. Warner Bros.) and
potentially a financial
partner (e.g. Legendary).
 Film credits perspective:
There are many different
types of producers.
Generically (but not
necessarily) these
individuals or companies
played some role in
making the film a reality.

Individual(s) who acquired the rights to the core content or arranged financing may be
referred to as executive producers.
In some cases, a producer (or an actor or director, who may be considered producers but
may not have the same responsibilities during a film’s development and production) could
have a first-look deal. In such a deal, a “first-look” producer will bring ideas to a studio
before approaching any other studios. The studio then has the option to pick up the film,
under a contract for which many of the terms have been prearranged as part of a longer-
term agreement. If the studio passes on the project, the producer has the right to take the
project elsewhere.
In return for bringing concepts to a studio under a first-look deal, a producer will likely
receive prestige, as well as assurances that it can actually get a project done (making it easier
to attach talent and receive financing), in addition to receiving money to cover overhead
costs (office, salaries of employees) and development costs. The actual production role, as
well as economic terms, will vary depending on who the “first-look” producer is (clout) and
the primary role they play (producer, director, actor, etc.).
A director typically is hired either when (1) a studio is interested in financing a production
but “more development of the screenplay is required” or (2) financing has been committed,
“a start date for principal photography has been set, and no further writing is
contemplated.”
13
The director will be responsible for “all creative phases of the film-making process…. *as well
as contributing] to all of the creative elements of a film and [participating] in molding and
integrating them into one cohesive dramatic and aesthetic whole”.
14
This is the individual
that “implements the actual production (shooting) and post-production budgets.”
15
However, a director’s responsibilities may vary somewhat between projects. For example,
when hired early in the process the director could play a role in casting, developing the
script, and setting the budget or production schedule.
16
The degree of creative control can
vary by project, with the most sought-after directors often being granted the most control
over a film (while in other cases the producer may have more influence). Often, a director
will also be a producer.
The director will also do at least one “cut” of the film (sometimes more), before delivering
the film to the producer. However, this version may be cut again under the purview of the
producer (subject to any contractual agreements granting the director additional control,
such as “final cut”).
17
13
Producing, Financing and Distributing Film Baumgarten, Paul A. & Fleischer, Mark
14
dga.org
15
Young, Gong, & Van der Stede
16
Baumgarten, Paul A. & Fleischer, Mark
17
Baumgarten, Paul A. & Fleischer, Mark
Kevin De La Noy on a
producer’s role
“It’s my job to keep the film
on schedule and budget.
That involves everything
from ensuring we can
achieve the director’s
creative vision to ensuring
we have catering facilities
and toilets for the crew in
the right place at the right
time.”
coventry.ac.uk

Exhibit 45: Summary example of the production and development process
Financing
Production (incl. post production)  Director: Responsible for participating “in all
creative phases of the film-making process….
[and contributing] to all of the creative elements
of a film and [participating] in molding and
integrating them into one cohesive dramatic and
aesthetic whole”*
 Producer: Has “final responsibility for all
business and creative aspects of the
production…”**
 Line Producer: Has “primary responsibility for
the logistics of the production…”**
Distribution/Monetization
The film then needs to be shot (principal
photography), edited, have visual effects
added, etc..
Development (incl. Pre-Production)
 Producer not under contract approaches the
studio with an idea or project (in various stages
of development)
 A studio acquires right to a concept directly (e.g.
a screenplay, or rights to the theatrical
adaptation of a book)
 Producer under a “first look” deal approaches the
studio with a concept
The following then needs to be done before
production can begin:
 Rights must be secured, script written, key talent
attached (important actors, director), budget set,
financing secured, in addition to other steps
Development (incl. Pre-Production)
 Producer not under contract approaches the
studio with an idea or project (in various stages
of development)
 A studio acquires right to a concept directly (e.g.
a screenplay, or rights to the theatrical
adaptation of a book)
 Producer under a “first look” deal approaches the
studio with a concept
The following then needs to be done before
production can begin:
 Rights must be secured, script written, key talent
attached (important actors, director), budget set,
financing secured, in addition to other steps
 Executive Producer: May be responsible for
securing financing**
 Executive Producer: May have
“made a significant contribution to
the development of the literary
property, typically including the
securement of the underlying rights
to the material on which the
motion picture is based.”**
 Executive Producer: May have
“made a significant contribution to
the development of the literary
property, typically including the
securement of the underlying rights
to the material on which the
motion picture is based.”**
Source: *dga.org, **producersguild.org, Ulin, Moore, RBC Capital Markets
Of course, this is a simplified example. For instance, if there are multiple producers on a film,
they cannot all have “final responsibility for all business and creative aspects of the
production”.
18
To provide a little more insight into the many different tasks that a producer might be
responsible for, we present the Producers Guild Of America’s description of a producer’s
responsibilities below. But again, we note these tasks are likely divided up among multiple
individuals. We also present a similar list for additional positions in the following chart.
18
producersguild.org

RBC Report Analyzes Current State of Film Studio Business

RBC Report Analyzes Current State of Film Studio Business

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