Was The $400 Million Warner Bros. Put Into 'Batman v Superman' A Good Investment?

Warner Bros’ latest tent-pole movie Batman v Superman has generated a maelstrom of controversy and debate in the week-and-a-half since its global theatrical debut. Among other questions (and criticisms) that have come my way:

  • Are the critics being too brutal?
  • Should Zack Snyder be decommissioned from the Justice League?
  • Does Ben Affleck deserve to remain in the Batman role?
  • Should DC try to be more like Marvel or not?

Image credit: Warner Bros

These sorts of questions are interesting to ponder, and I’ve weighed in here with a few thoughts of my own, to somewhat mixed reaction. For example, my suggestion that Ben Affleck be removed from the Bat-Suit and relegated to a writing-directing role has been met with nearly unanimous rejection, so I’m going to re-think that one. But for Warner Bros there are really only two questions that ultimately matter:

  • Will Batman v Superman generate an attractive risk-adjusted return on investment?
  • Has the movie done its job in setting the stage for the success of future Justice League movies?

My opinion on the second question is ‘probably not,’ but that’s just an opinion, and in truth only time will tell. But there is enough data now to evaluate the first question, so that’s what I’ll concentrate on here.

I’ll start by making a best guess at Batman v Superman‘s ultimate revenues, costs and profits, beginning with the widely reported figures of $250 million in production costs and another $165 million for global marketing. Then I’ll compare the BvS ROI to the results for other, comparable movies. This should be an empirically valid approach for assessing whether the film was a ‘good’ investment for the studio, as  defined by question #1 above.

It warrants mention that as a former studio executive and current film finance consultant and producer, I have reasonably good qualifications for developing such projections. I should also point out, however, that with limited knowledge of the proprietary and confidential arrangements that Warner Bros has made with talent, producers, and buyers of the film, the best I can offer here is an educated guess.

With that disclaimer out of the way, let’s start with revenues. The current box office trajectory suggests a final domestic theatrical gross of around $345 million, and a final international tally of around $550 million. Of that $895 million in projected box office receipts, Warner Bros will get to keep around 52 percent of the domestic grosses, and a weighted average of around 39 percent of the foreign tally (that’s 25 percent of the roughly $100 million from China, and 42 percent of the aggregated grosses from all other overseas territories).

So that gets us to a sum of about $395 million in theatrical rentals going into Warner Bros’ coffers. We can use this figure, along with some general Hollywood rules of thumb for projections, to estimate the ultimate revenues and costs for such additional lines of business as domestic and foreign video, TV, and the like.

I’m going to estimate worldwide home entertainment, including subscription VOD and online sales, at $240 million. That’s equal to a little more than three-quarters of the $310 million that Avengers: Age of Ultron took in home entertainment, against a bit less than two-thirds the box office figure. Global TV revenues should come in at about $125 million. Estimating merchandising revenue is tricky because the Batman, Superman and Wonder Woman franchises are already generating somewhere around $800 million to $1 billion in annual retail merchandise sales and probably close to $100 million a year net to Warner Bros, so it’s anyone’s guess as to how much incremental revenue, if any, Batman v Superman generates. Let’s leave merchandise aside for the moment.

So if we add up theatrical rentals with global home entertainment and TV, we get to a net revenue figure of $760 million going to Warner Bros. Against that we deduct costs of $250 million for producing the movie, $165 million for marketing, $84 million for global home entertainment costs, $30 million for talent guild residuals and “off-the-tops” (releasing related expenses), $15 million in interest expense, and reportedly around $90 million for talent participation to the director, producers, stars, and others. People like Zack Snyder, Ben Affleck, producers Chuck Roven and Chris Nolan unfortunately don’t come cheap.

Total estimated costs: $634 million. Deduct that from the $760 million in studio revenue and we wind up with $126 million in net profit. Against Warners’ $415 million in upfront production and marketing expenditures, that works out to a 30 percent ROI.

That 30 percent may look OK, but we need to remember that it takes years for all this money to flow in to the studio’s coffers. The $250 million in production funding is spent long before the movie’s release, and the marketing money is also a big upfront cost. The theatrical rental revenue usually comes back inside of a year after the film’s release, but home entertainment revenue can take several years to trickle in, and TV revenue years more.

Taking into account the time value of money, the IRR on Warners’ investment is probably in the range of 12 to 15 percent. And that’s before we count the studio’s overhead costs, which if amortized against the picture would probably reduce the Batman v Superman profits by another $30 or $40 million. But for the sake of argument let’s say that the merchandise revenue I’ve temporarily set aside makes up for that overhead cost, so the film’s final profit works out to $126 million. Pre-tax.

That’s only a fair-to-middling return when lined up against comparable films, as illustrated in the table below (the profit estimates come largely from Mike Fleming Jr.’s excellent analyses in Deadline Hollywood). Assuming my estimates for Batman v Superman are in the right ballpark, then on an ROI basis the film appears to be only a modest success for Warner Bros.

Source: Pacific Bridge Pictures and Deadline Hollywood analysis

A note about the dozen movies in the table: I chose them out of a field of two dozen superhero movies released in the past five years, primarily because these were the ones for which I had the most complete data. The dozen others not on the chart include several hits like Marvel’s The Avengers and The Dark Knight Rises, but overall they skew more toward less successful films like The Green Hornet, The Fantastic Four and The Amazing Spider-Man 2. If I’d had the full data for all the movies and I was able to include them, Batman v Superman would have fallen a little closer to the middle of the pack. I would still characterize it as only a modest success, it’s just that for lack of information I’m not able to make thorough comparisons and show more of the poorer performing films.

So here’s the challenge for Warner Bros going forward: If the studio can contain its production costs and talent participation expenses on future Justice League films, do a bit better in holding on to the domestic audience, and then gain back the interest of overseas moviegoers–especially the massive Chinese market–then they should do just fine financially going forward.

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