Simply put, the formula for calculating RoI is to divide the film’s box office earnings by the production budget and multiplying the result by 100. The resulting number is expressed as a percentage. So, a film that made a 200% RoI made 2 times its production budget. Sounds simple, right? No.
ROI calculation of film projects have been heavily revised in recent times. In the early days, Box office revenues formed a major chunk of earnings and this meant that other sources of revenue were insignificant compared to box office figures. Today, this is no longer the case. Surely, an investor needs to look at past box office trends but he/she must add other revenue sources into account. For example, festive seasons have a box office upswing, cricket season in India will have downward swing as most audiences are glued to sports matches. A particular actor who has delivered at least 2-3 hit movies can be considered a safe bet and box office earnings of the past can be figured into RoI calculations. A great celebrity is the best bet that a film will succeed but these days a celebrity isn’t enough as audience tastes and preferences have changed. Plus, another daunting task is to look at marketing plans. These also require expenses. At times, the marketing expenses of a film may be equivalent to or exceeding the production budget itself. These days marketing of films may decide a film’s fate itself or else it hangs in the balance whilst being unnoticed amongst hundreds of similar films. A fantastic marketing plan may swing fortunes.
Higher the budget, the more the tendency to spend on marketing and distribution which will simply increase the expense budget and thus makes film distribution a trickier process as the distributors take a good share of the distribution revenues. But the rise of digital medium and OTT platforms, along with exiting satellite to rights and other visual distribution medium, film investments are no longer a gamble anymore because what has changed is the structure of revenue generation. Revenue streams are getting organized much more than ever before.
Is film investment risky? If this were asked in the late 90s and early 2000, the risk would be higher, but this is no longer the case nowadays. Losses in one revenue stream can be covered up by other sources of revenue, thus making film investment, a much less riskier option. If the actors are well known, the director and other team members have excellence in their field; it is possible to earn good money. Film investment is as risky as putting money in a start-up without unnecessary risk associated.
With more competition in film making, it becomes important for an investor to research on production houses, meet their owners and also have an interest in cinema itself. The more one knows, the better.