Thursday, November 12, 2009

AVATAR: Are You Ready For A Half Billion Dollar Ride?

Jim here. Do you think AVATAR is a $500 million movie?

Lots of speculation (Michael Cieply, NY Times) going on about the cost of getting AVATAR out the door. $500 million dollars is being thrown around by some influential people. What is my stance on it? My stance is that we may never know the true final tally due to accounting methods.

Cieply makes some errors. If he is considering all worldwide costs for the movie, then you MUST consider negative costs as well - sponsorships, grants, incentives, etc. These are NOT expenses! To the contrary.

As far as total budget, I doubt Fox has a full grasp of it either, but I am sure they know their own exposure. For example, if James Cameron does indeed have a budget point in which his participation in movie profits subsides until after others are paid (IE the studio, financiers), you know Fox is looking out for themselves. And justifiably so.

Cameron on the other hand, has invested YEARS of writing, planning and creating a camera system - that is just extremely hard to quantify. Especially as the cameras, for example, are reusable for future projects taking away future R&D costs. So yes, Cameron has his own money into this thing. Substantially. But should that be quantified?

My opinion is yes, but not completely. Generally accepted accounting principles should be applied here - take a percentage of the cost of those cameras, but not all of it (say 50% for simplicity). Still, without the R&D AVATAR does not exist as we know it today, if at all. Take a good percentage. But take it you must.

So let's sum this up:
1. $300 million production costs - I am fairly confident about this figure. Fox estimated over $200 million for AVATAR back when its release date was Memorial Day Weekend 2009. We all know that VFX and post processing is expensive. AVATAR is not just using one FX shop (Weta) it is using a handful. The daily cost must be staggering to have all those artists and servers creating and rendering AVATAR shots. I peg the extra work at $100 million AT LEAST. Total then is $300 million +.
2. $150 million for marketing - We have yet to see all of the marketing that will be done here but it is ramping up now. I agree with Cieply's assessment of about $150 million.
3. $7 million for the PACE/Cameron Fusion camera development (50% total cost as it is reusable).
4. -$30 million in New Zealand incentives for production costs and post production grants. You can get 15% of your production costs from Kiwi and if you were to say 50% (of the $300m production) was shot in Wellington (probably a bit on the high side), take 15% of that and then add on another $7 million or so in post production grants then you arrive at ~$30 million. This is a negative cost of course.
5. -$25 million for Panasonic's contribution. Apparently Panasonic has contributed money and services for AVATAR according to Panasonic's CTO for North America. Again, a negative cost.
6. -$?? million - Coca Cola is sponsoring AVATAR for Coke Zero. What is this worth?
7. -$?? million - Fastfood sponsorship? For some reason McDonalds comes to mind.
8. -$?? million - Licensing Agreements: Ubisoft, Mattel, Collectables - you name it.
9. -$?? million - Other corporate sponsorships: LG, etc.

You can quickly see how people (Fox and others) have been getting away with saying AVATAR is only a $200 million cost! And again, justifiably so. It is just good business.

But to us? We will be seeing that half billion dollar spectacle guys. You can count on that.

Speaking of sponsors - have a look at a new AVATAR commercial for LG :-)

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Jim Dorey
jim (at) marketsaw (dot) com

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