Hollywood Reporter
By Brian Fuson
February, 1999Are G-rated films more profitable than others? A study released last month says they are.
Adding a twist to the long-running debate over sex and violence in entertainment, the study commissioned by the nonprofit Dove Foundation indicates that during a recent 10-year period, the average G-rated film enjoyed a 78% greater rate of return on investment than the average R-rated film.
The study is based on data from all 2,380 MPAA-rated theatrical films released on 800 or more U.S. screens from Jan. 1, 1988-Dec. 31, 1997.
"While Hollywood produced 17 times more R-rated films than G (films) between 1988 and 1997, the average G-rated film produced eight times more gross profit than its R-rated counterpart," said Dick Rolfe, president and CEO of the Grand Rapids, Mich.-based media advocacy group.
Entertainer Steve Allen and author Michael Medved, frequent critics of sex and violence in movies, are listed as advisers to the foundation, whose stated goals are encouraging and promoting creation, production and distribution of "wholesome" family entertainment.
The report was commissioned in hopes of quantifying the superior profitability of G, PG and PG-13 films over R-rated pictures. The study defined "gross profit" as estimated worldwide theatrical film rentals, TV and video grosses minus estimated negative costs, P&A and video manufacturing costs.
"I hope the industry will be motivated by our study to move more in the direction of family-friendly films, which our report clearly demonstrates are very popular and profitable," said Rolfe, whose foundation has given its Dove Seal of Approval to a select group of R-rated films such as "Saving Private Ryan," "Amistad" and "Schindler's List."
"Moviegoers are not crying out for endless sequels of 'Rugrats' and 'Barney' but are looking for high-quality action-adventures, comedies, dramas and thrillers, minus the gratuitous sex, violence and profanity," Rolfe said.
But don't expect the report to bring a tidal wave of family-friendly fare. Studio officials said they are well aware that less-restrictive ratings garner potentially bigger audiences but note that ratings do not drive the business.
"We are in a creative business, based on content," said 20th Century Fox Domestic Film Group chairman Tom Sherak, who spoke generally on the subject but had not seen the report.
"The creative element has to be allowed to make the movie they want to make. The one thing you don't want to do is hurt the integrity of the movie."
A recent example of the struggle between art and commerce involved Fox's raunchy hit comedy There's Something About Mary, which has collected about $175 million in domestic boxoffice.
Studio executives and Peter and Bobby Farrelly, the film's directors, edited a PG-13 version in hopes of generating additional boxoffice from younger patrons who could not easily attend the R-rated original. But after Fox executives and the filmmakers viewed the revised version, they agreed not to release it because they felt it hurt the film's integrity.
That a less-restrictive rating allows younger patrons to attend, with or without parents, is obvious. And Sherak said films rated G, PG and PG-13 tend to attract more repeat viewing than R-rated films. Certain films, including PG-13-rated "Titanic," have thrived on repeat business. But he argued that a good R-rated film can be highly successful at the boxoffice.
"The rating turns out to be what it is, and that's what you live with," Sherak said. "If people don't want to see a movie, they don't go."
In the same vein, a leading entertainment industry investment banker said the report is unlikely to cause a ripple among mutual fund and pension fund administrators, groups Rolfe said he is targeting.
"By and large, these sorts of reports are a tool to promote or satisfy some objective, and (the investment community) will take this into account," said Steven Cesinger, managing director at Greif & Co., a Los Angeles-based investment banking firm.
In fact, the bottom line for G-rated films may soon face greater pressure as animated films become more prevalent in the marketplace. The Dove report "reflects a lack of competition in a market category that has changed in the last few years," Cesinger said, remarking on the fact that studios have recently increased their investments in animation. As a parent, Cesinger said he is aware of the popularity of family-friendly fare after seeing the stack of videos his children regularly bring home to view.
The foundation used data compiled by well-known research firm Paul Kagan Associates, with analysis provided by the Seidman School of Business (though some results are based on Kagan's estimates of proprietary corporate information). Many costs of making studio movies are not ordinarily disclosed publicly. Ancillary grosses were applied to the year a film was released, not when accrued.
While "profit" as used in the report is not the actual profit earned by a studio, the comparisons cited in the study are viable because the same factors were applied to all films. Hence, the results reflect a relative—though not absolute—assessment of return on investment.
With these qualifications in mind, the report maintains that the average rate of return for G-rated films is 66%; PG-rated films garnered 52%; PG-13 pictures returned 50%; R-rated films registered a 37% return; and NC-17 pictures had a 27% return.
The premise that the average G, PG or PG-13 film outperforms the average R-rated film is underscored by looking at the 25 top-grossing domestic theatrical releases. Three were rated G, 10 were PG, 10 were PG-13, and only two were rated R.
Buena Vista's G-rated The Lion King, the sixth-highest-grossing release, earned $329.7 million from North American theaters. The biggest-grossing PG-rated film is 20th Century Fox's Star Wars with $461 million (the second-highest domestic grosser), while Titanic, the No. 1 domestic grosser, is the best-performing PG-13 picture with $601 million.
In stark contrast, the highest-grossing R-rated film is ranked 17th -- Paramount's Beverly Hills Cop, with $234.8 million—and it was released 15 years ago.
It is well-known that G-rated films gross better on video as well. Animated films, in particular, can be reissued over decades and generate substantial revenue with no foreseeable limit as the market is driven by parents purchasing videos for their children.
The Dove study found aggregate average "profits per film" from 1988-97, breaking out theatrical and video grosses, and found that video profits from G-rated films far outstripped those from the other four ratings categories.
Buena Vista, long the leading producer of G- and PG-rated films, has generated more than $1 billion in domestic theatrical boxoffice grosses during four of the past five years. Sony and Paramount are the only other studios to reach that mark.
If the foundation fails to make Hollywood executives reflect on the impact of ratings on profits, it will not be for lack of trying.
Rolfe said the study will be sent to the nation's top 200 mutual fund administrators and top 100 pension fund administrators.
"We want to hold the studios accountable for how they invest their stockholders' money," Rolfe said.
The study will be available on the Dove Foundation's Web site, http://www.dove.org/reports
© 1999 Hollywood Reporter
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