Thursday, December 24, 2009

How Much Did Avatar Really Cost?

In Hollywood, the saying goes, the really creative folks are the accountants. Certainly the number-crunchers at 20th Century Fox, the studio distributing James Cameron’s costly and complex epic Avatar, will be kept busy over the coming months as box office grosses pour in and profit participators line up for their share. As ticket sales are tallied, and investors are repaid, the question will be, Was Avatar worth it?

Determining the final cost of this film is a trick in itself. Wildly different reports have been published, ranging from $230 million (The New Yorker) to nearly $500 million (The New York Times). Avatar’s official budget lies somewhere in between, probably closest to the figure the Los Angeles Times’s John Horn and Claudia Eller cited earlier this month—$280 million for the production, plus marketing costs. “It is the most expensive film we’ve made, but now, having the luxury of hindsight, it is money well spent, so I’m not concerned about it,” James Gianopulos, co-chairman and C.E.O. of Fox Filmed Entertainment, told CNN in early December.

Normally, when people talk about a movie budget, they’re talking about the production costs—the expense of hiring the actors, building the sets and keeping the special effects artists chained to their computer monitors and fed their steady diet of Red Bull and Skittles. They’re not talking about the marketing costs. So when you hear that the third Pirates of the Caribbean movie cost $300 million, that number doesn’t include paying to slap Johnny Depp’s face on every billboard and bus in town. In the case of Avatar, Fox shared the production costs with investor groups Dune Capital Management and Ingenious Film Partners to hedge the risk. The filmmakers also took advantage of a tax credit in New Zealand, where they shot the live-action footage that comprises about a third of the film. That shaved off a cool $30 million. Fox is bearing the cost of the marketing budget, which will tally up to about $150 million by the time the last blue alien flickers off the screen.

Avatar is in a class by itself, however, when it comes to the film’s unofficial costs and their potential returns. This movie has more R&D in it than a DARPA lab. How do you account for the technologies Cameron and co. developed—the 3D cameras, the motion-capture tools, and the virtual production pipeline the director tinkered with for years in order to create the world of Avatar? For the most part, those expenses are not reflected in the $280 million figure. Cameron put up his own money to jumpstart development on some of Avatar’s technologies, and was joined by other investors. They’re already making that money back: The 3D cameras have been licensed for use in other films, including 2008’s Journey to the Center of the Earth 3D and The Hannah Montana/Miley Cyrus Best of Both Worlds Concert Tour. Steven Spielberg and Peter Jackson are making their 2011 film, The Adventures of Tintin: The Secret of the Unicorn, using Avatar’s motion-capture tools.

From the movie industry’s perspective, much of Avatar’s value lies in the film’s ability to motivate cinema owners to convert to 3D screens. If 3D—and its accompanying $3-to-$5 bump in ticket price—becomes the norm, there will be a financial ripple effect in Hollywood. There’s also the revenue stream that would result from taking 2D hits like Star Wars and Titanic and re-releasing them in 3D. At an average cost of about $30 million to convert a film, Hollywood could have a whole new string of proven blockbusters on its hands for the cost of The Hangover. Avatar can also conceivably impact consumer electronics sales—for shoppers to pony up for one of the new, flat-screen 3D TVs making their way to your local Best Buy, there needs to be a movie worth watching on it. Even further down the line? 3D phones. How else to view the trailer for 2012’s 3D films?

All these factors make weighing Avatar’s costs and benefits a lot more complicated than simply comparing its production budget to its box-office haul. Cameron has storylines sketched out for two more Avatar films, and all the movie’s computer-generated plants and animals exist as chunks of digital information, stored away for future use. The day we know whether Avatar’s makers considered the film worth its price tag, will be the day production kicks off on Avatar 2.


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