$200 Million and Rising: Hollywood Struggles With Soaring Marketing Costs

5:00 AM PST 07/31/2014 by Pamela McClintock
Illustration by: Nick Lu

One studio head calls it "the single most discussed and debated issue in Hollywood" as marketing spends skyrocket, summer box office declines in the U.S. and everyone fights to find audiences overseas.

This article first appeared in the Aug. 8 issue of The Hollywood Reporter magazine.

In only a few weeks, Paramount's Transformers: Age of Extinction has become the top-grossing film of all time in China, earning north of $300 million. What's more impressive is that Age of Extinction cost no more than $3 million to $5 million to market to Chinese moviegoers -- a stark contrast to the $100 million prints-and-advertising spend in North America. And multiple sources say studios now are shelling out an additional $100 million per movie to market this summer's big tentpoles internationally.

Indeed, with the exception of in China, Hollywood continues to wrestle with rising marketing costs, particularly overseas, which can make up 70 percent of a film's gross thanks to booming markets in Russia, Latin America and Asia. Two years ago, the cost had crept up to $175 million globally. Now, studios say it has hit the $200 million mark per picture -- a 33 percent increase from the $150 million spent in 2007 on the first Transformers.

PHOTOS 'Transformers,' 'Battleship' and 'Barbie': The Highs and Lows of Toy-Inspired Movies

At those levels, profitability becomes even more elusive, especially as U.S. box office is in decline, down 20 percent this summer from 2013. "The challenge for everyone is, how do you make sense of the spend when only a handful of territories are growing? Most of the rest, including the U.S., are flat-ish," says Paramount vice chair Rob Moore. Adds CBS Films chief and longtime marketing denizen Terry Press: "Marketing is the single most discussed and debated issue in Hollywood. But cutting through the clutter and building awareness takes money."

In 1980, the average cost of marketing a studio movie in the U.S. was $4.3 million ($12.4 million in today's dollars). By 2007, it had shot up to nearly $36 million. If the MPAA still tracked spending on P&A, that number would be north of $40 million today for medium-size films like The Fault in Our Stars or Tammy.

Blame the cost of television, which remains the biggest line item -- except in France, where American movie ads aren't allowed, and in heavily regulated China. TV can make up half of any marketing budget, even as U.S. viewership splinters and few shows command huge audiences. And while studios have increased the use of social media to deliver a more targeted audience, they haven't decreased their dependence on the small screen. Male-fueled tentpoles such as Transformers, The Amazing Spider-Man 2 or Guardians of the Galaxy need the broadest possible audience -- or so the argument goes.

PHOTOS Roundtable: 6 Celebrated Producers Talk Biggest Successes and Greatest Struggles

"TV isn't necessarily the most effective, but it's the most efficient and still casts the widest net," says Moore, whose studio, like Warner Bros., is considered one of the most aggressive at marketing. "You get the people you want on social media, but the key is getting enough people." For Moore, DVR time-shifting is the biggest concern: "It doesn't help if Universal is advertising on Thursday night for Lucy and people watch [the TV spot] the next week."

In summer 2013, film studios clamored for a spot on Under the Dome after the series became a hit. "CBS made a fortune because it was broadcasting original programming in the summer. It started at $60,000 and ended up at $300,000 and $400,000 for a 30-second spot," says one top marketing executive. AMC's The Walking Dead, cable's top show in the 18-to-49 demo, charges upward of $300,000 for 30 seconds, nearly as much as CBS' The Big Bang Theory. That's nothing, however, when it comes to football: NBC's Sunday night games can command $600,000 to $700,000 a spot, while weekend day games sell for $400,000 to $600,000 (Argo peppered football in fall 2012).

But Twitter and other social media sites increasingly are influencing moviegoers' choices at the multiplex. In a new study by Twitter and Nielsen, 87 percent of Twitter users over 13 said tweets influenced their movie choices. It also showed that 62 percent of moviegoers used the Internet or mobile apps to learn about films. Still, a studio rarely spends more than $10 million on digital marketing. "Maybe a new generation of millennials needs to come into the world of film marketing," says Erik Handler, an analyst with MKM Partners.

PHOTOS 'Guardians of the Galaxy' Screening: Chris Pratt, Zoe Saldana, Vin Diesel Hit New York

Handler believes studios should invest more in their international campaigns. Ironically, marketing costs nearly nothing in China, the world's second-biggest market. The government's China Film Group pays for and runs a campaign, relying almost exclusively on the Internet since few moviegoers watch television. "They must be doing something right," says Handler. Sometimes, a studio will be allowed to supplement those efforts but spends no more than $1 million.

Unlike in North America, outdoor advertising is a major expense in many countries. Prints also cost more because many are dubbed into other languages. Other big items on a global marketing budget: trailers, publicity, radio and, increasingly, digital.

Warner Bros. marketing chief Sue Kroll believes the paradigm has begun to shift. "We have to be more inventive about how we reach consumers," she says. "Moviegoers are very savvy. You have to figure out new ways of appealing to them. We are seeing significant changes in the way we spend across all platforms. It's a patchwork quilt. It never gets boring."

comments powered by Disqus