Walt Disney Studios has shut down production of The Lone Ranger that was due to have Johnny Depp as Tonto. The reason given is that if the Directors cannot cut the budget to $200 million from $250 million, Disney would rather limit its risk with fewer movies.
Movies, like farms, can be high on fixed costs. Fixed costs are incurred even if no one ever sees the film. A farm has a large fixed cost even if nothing is ever planted. Every venture has some amount of fixed costs. Risk is minimized by keeping the fixed cost as low as possible.
That fixed cost has to be amortized over time from the margin on revenues from sale of products and services.
Margin is the total sale less the direct costs of making that sale. In the grocery business the margin on a can of beans is the sale price minus what it cost to buy the can of beans wholesale. In the movie business the margin for the studio is whatever percentage it gets of the ticket price. Sometimes it is most of it. The theaters have to make it on popcorn.
The point at which the fixed costs equals the total margin is the break-even point.
After the break-even point is reached all of the margin is profit.
Is Disney concerned about margins? The Lone Ranger was due to be released in December of 2012. Does Disney have a concern about ticket sales in the future?
There is some belief that there are some structural issues in the economy that will affect margins. For many years the major factor affecting margin has been competition. There are new unknowns about cost of money, inflation, labor, commodities and taxes. Mandatory health insurance will soon be a factor.
It is true that in the long run all costs are variable and that in the very short run all costs are fixed. The new economy is making us rethink everything we have ever known. Is it better to be in a low margin venture with low fixed costs or a high margin venture with high fixed costs and bear the risk of not getting high margins?
There are tremendous opportunities today to minimize fixed costs and at the same time to have high margins with minimal risk. The ability to do just that has become a competitive advantage.
A Cowboy Safety business is open to understanding how this can be done.
David Sneed
Movies, like farms, can be high on fixed costs. Fixed costs are incurred even if no one ever sees the film. A farm has a large fixed cost even if nothing is ever planted. Every venture has some amount of fixed costs. Risk is minimized by keeping the fixed cost as low as possible.
That fixed cost has to be amortized over time from the margin on revenues from sale of products and services.
Margin is the total sale less the direct costs of making that sale. In the grocery business the margin on a can of beans is the sale price minus what it cost to buy the can of beans wholesale. In the movie business the margin for the studio is whatever percentage it gets of the ticket price. Sometimes it is most of it. The theaters have to make it on popcorn.
The point at which the fixed costs equals the total margin is the break-even point.
After the break-even point is reached all of the margin is profit.
Is Disney concerned about margins? The Lone Ranger was due to be released in December of 2012. Does Disney have a concern about ticket sales in the future?
There is some belief that there are some structural issues in the economy that will affect margins. For many years the major factor affecting margin has been competition. There are new unknowns about cost of money, inflation, labor, commodities and taxes. Mandatory health insurance will soon be a factor.
It is true that in the long run all costs are variable and that in the very short run all costs are fixed. The new economy is making us rethink everything we have ever known. Is it better to be in a low margin venture with low fixed costs or a high margin venture with high fixed costs and bear the risk of not getting high margins?
There are tremendous opportunities today to minimize fixed costs and at the same time to have high margins with minimal risk. The ability to do just that has become a competitive advantage.
A Cowboy Safety business is open to understanding how this can be done.
David Sneed
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