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Chapter 110: The First North American Box
🕑 Added 2024-11-10 08:19:52 +0000 UTCAfter the celebration party, the work regarding "Real Steel" came to a temporary halt. Gilbert resumed his usual job at Melon Studio without any vacation plans this year, as his aunt didn't allow Ellie to go. Meanwhile, Naomi Watts, Cameron Diaz, and Charlize Theron all had their own projects to attend to.
So, Gilbert took on a white-collar routine—working from nine to five, drinking tea, and reading newspapers in the office.
At the same time, he kept an eye on the development of the two companies he had invested in. After a few months, Banana had the advantage of an early start, placing it well ahead of Yahoo and enabling it to initiate its first round of angel financing.
Though the company was still losing money and hadn't yet turned a profit, venture capital firms remained optimistic about Banana's potential.
During the angel round, Banana secured a financing amount of $14 million, contributed by three venture capital firms, in exchange for only 20% of the company's equity. This 20% was divided among the three firms, ensuring no single firm held more than 10%, allowing Gilbert to retain strong control over the company's shares.
In March, Yahoo officially launched, marking the beginning of a portal and search engine battle.
Raising funds at this point was necessary; without it, there likely wouldn't be enough capital to compete with Yahoo.
The other social media company, Facebook, had already expanded to a Series A round, securing another $24 million in financing.
With the funding, Facebook continued to grow, benefiting from the rapid development of the internet, becoming America's top photo-sharing and social networking site.
Naturally, Facebook's emergence brought competition from other social networking sites in North America. Some even began experimenting with targeted advertising, achieving profitability. This proved once again that real-name-based social networking and targeted ads could be highly profitable.
Meanwhile, other companies pursued a different approach, with some opting for a virtual social route instead of Facebook's real-name model, which also proved viable.
Seeing competitors achieve profitability through ads made Facebook's investors restless, urging the platform to quickly launch its advertising business.
Given Facebook's position as the top social network in the U.S., with its substantial market share and continued expansion, it was poised to create a network effect and dominate the market.
However, Gilbert and Facebook's CEO, Mark Rull, agreed to avoid commercialization unless Facebook's user base surpassed one million.
This cautious approach was supported by the U.S. government's announcement last September of an Information Superhighway construction plan, signaling the start of major internet development.
By April 1994, internet users accounted for 5% of North America's population—a percentage that was increasing rapidly, as the internet boom was just beginning.
Due to concerns about a potential internet bubble, Gilbert maintained a cautious approach, urging Facebook and Banana to grow steadily and avoid aggressive moves.
Though such a careful approach drew criticism from the investment market, with many faster-growing companies outpacing Facebook and Banana, Gilbert held firm. For instance, Netscape, founded in April, gained favor from investors thanks to its browser and was already planning an IPO on Nasdaq in August.
Gilbert even invested $1.5 million, becoming a minor shareholder in Netscape.
While Banana was still preparing for its Series A funding round, the potential of these two companies was undeniable, and the investment market remained optimistic about their future.
These two companies were long-term holdings for Gilbert, just like Apple. However, he still seized the opportunity presented by the internet boom to buy other tech stocks, including those of Microsoft, Cisco, and Oracle, which were rising steadily. Gilbert tried to acquire as many shares as he could.
He also monitored start-ups, looking for familiar names to invest in, planning to sell them before the anticipated dot-com bubble burst.
Gilbert wasn't sure of the exact timing but recalled it would likely occur between 2000 and 2001, so he planned to gradually sell off shares before 2000.
His investment manager, David, handled the specifics, with Gilbert focusing only on giving instructions and trusting professionals to manage the details.
These off-camera ventures didn't demand much of Gilbert's energy, allowing him to keep an eye on his companies while maintaining a steady rhythm in his daily life.
"Sophia, what's Nicolas Cage up to these days?" Gilbert asked Sophia one afternoon over tea.
"Oh, him," Sophia smirked. "He's busy partying with a bunch of long-legged models."
Nicolas Cage's fondness for model-filled parties wasn't a secret. At first, Gilbert was surprised by Cage's playboy side, as he seemed like the quiet type. But then again, it was North America—Gilbert's choice to maintain relationships with only three women was seen as unconventional in Hollywood. Some even speculated, perhaps maliciously, that he used them to hide an interest in men.
Of course, no one dared to ask Gilbert about it directly.
Sophia asked curiously, "Why do you need Nicolas? To film a movie?"
"Of course," Gilbert replied, "I don't like men, nor do I want to throw model parties. I need him for a movie."
"The Devil's Island project?"
"Exactly. Can you ask if he's available to work with me?"
"Alright, I'll ask him sometime," Sophia agreed.
At that point, Nicolas Cage had starred in "Wild at Heart," "Red Rock West," and other films, often independent or B-movies, which gave him the aura of an artist.
Sophia soon found Nicolas Cage. "Gilbert wants you for a movie."
"Which Gilbert?"
"Which other Gilbert is there in Hollywood?"
"Oh, him," Cage replied indifferently. "Isn't he only into commercial films? I'm not interested."
Sophia, anticipating her cousin's reaction, suggested, "I think you should speak with him directly. You might change your mind."
"Change my mind?" Cage doubted it. He was only interested in art films and long-legged models.
However, out of respect, Cage replied, "Alright, let Gilbert come to my place if he wants to talk."
Sophia, familiar with her cousin, cautioned, "What are you planning?"
"Nothing," Cage said, smiling. "If anything goes wrong, just come to me."
Sophia relayed Cage's terms to Gilbert, along with a warning to be careful.
Initially reluctant, Gilbert's curiosity piqued at Sophia's caution, and he decided to meet Cage.
It was the first weekend of June. "Real Steel" had amassed $169 million at the North American box office, with another $173 million internationally, totaling $355 million worldwide—a solid success. Its PG-13 rating widened its audience, contributing to its North American success, while the global popularity of films like "Jurassic Park" created favorable conditions for its release.
With the film still in theaters, North America entered the long-tail phase of revenue accumulation, while it awaited release in various overseas markets. The worldwide box office was likely to reach $400–$450 million, securing profitability.
The North American theatrical release had reached its first revenue-sharing phase after four weeks.
Disney, the North American distributor, had strong leverage with theater chains. With Gilbert's track record, Disney negotiated top-tier revenue shares for "Real Steel."
The share distribution was calculated on a sliding scale: 90%, 80%, 65%, and 40% for the first four weeks. Disney's revenue from North America reached $126 million.
After four weeks, Disney's share decreased to the standard rate for Hollywood studios, typically only 25%.
Moreover, the distribution agreement stipulated that after 12 weeks, all revenue would go to the theaters, with no share for the studio or distributor. While this condition applied to some films, others continued to share revenue until they left theaters in North America.
Some might wonder how theaters could accept such stringent revenue-sharing terms. In comparison, studios in certain markets received over 40%, which was considered generous.
However, Hollywood studios were strong in North America, as theaters relied on them for quality content. Disney's bargaining power was especially high.
This power balance would shift over the next decade, but currently, Hollywood studios held the upper hand.
Following the first revenue-sharing phase, Disney's $126 million gross was reduced by a 15% distribution fee—Disney's pure profit—amounting to $18.9 million. Other costs included $19 million for marketing, the remaining one-third of the cast and crew fees, and print and storage costs, leaving $88.1 million.
On top of this, Gilbert claimed 10% of the total North American box office, adding another $12.6 million to his earnings.
Fortunately, Bruce Willis was still an emerging star when he joined the project, without an established track record, so he wasn't entitled to box-office profits. Otherwise, the pot would have been even smaller.
So, for the first box office revenue share, only $75.5 million remained—still not enough to cover the film's production cost.
Melon Studio, which held an eighth of the investment share, could take $9.438 million from this $75.5 million in revenue.
Having invested $10 million but only getting $9.438 million back, it seemed like Melon Studio had taken a loss.
And don't forget, taxes had to be paid as well. After taxes, comparing the income with the initial investment showed a significant deficit.
If that were the case, all funds and investors in Hollywood films would end up losing money.
Fortunately, the situation wasn't that dire.
The film was still showing in North American theaters, and after the twelfth week, another round of revenue sharing with the theaters would follow.
Additionally, the film was gradually being released in overseas markets.
Apart from a few regions, the revenue-sharing ratio between Hollywood and overseas markets is usually 35% for the production side, 17% for the distribution side, and 48% for the exhibitors.
Unless special clauses were added, this ratio generally applied.
Though the overseas box office share hadn't been finalized, based on current overseas earnings, the production side could expect about $60.55 million, from which Melon Studio would receive approximately $7.5687 million.
Adding this to the North American box office share, the film had already turned a profit.
But the most crucial point was that this wasn't the end. The overseas box office had strong potential and could achieve impressive results.
Moreover, box office revenue was just one aspect; North American TV rights and video rights were under negotiation and could generate further profit.
In addition, within a month of Real Steel's release, merchandising sales had generated around $9 million.
While not as much as the box office, this represented a long-term income stream, with potential profits continuing over ten or even twenty years.
In summary, while the movie didn't reach Gilbert's personal expectations and even disappointed some of his core fans slightly, general audiences, the film company, investors, and brand sponsors were all very satisfied with the movie's commercial success.
Since the North American box office surpassed $150 million, the sponsors with product placements kept their promises and successively rewarded the Real Steel crew.
These rewards weren't typically shared with the production company but directly distributed among the crew according to their ranks, as a token of appreciation for their contributions to the film.
As can be seen, a film's revenue is calculated across multiple dimensions, making it a rather complex process.
Unless one fully participates in all aspects of accounting, even the most experienced accountants can easily become confused.
Fortunately, Gilbert had anticipated this, and from the beginning, he had accountant Kevin and his team involved in all aspects of the film's production.
It wasn't that he distrusted Disney or Warner to handle the finances fairly, but sometimes you have to prepare for any eventuality, even if nothing happens.
With these complicated transactions, Gilbert generally just received briefings, only caring about when his funds would arrive.
North American box office shares are usually settled quickly, within six months to a year, while overseas box office revenues can take longer, often a year and a half or even two to three years.
But those were issues for later. After focusing on the first North American box office share, Gilbert accepted an invitation to visit Nicolas Cage at his home.
