Budgeting issues at the movies: Movies are expensive to produce and market.

Budgeting issues at the movies:
Movies are expensive to produce and market. According to IMD, the most expensive film on record is Pirates of the Caribbean: On Stranger Tides, with a total budget of $378 .5 million.11 This movie and its budget were widely publicized prior to the premiere of the film, and moviegoers were eager to see the results of this massive movie budget.
Like other large projects, movies have budgets. Potential financiers look at the budget, the script, and other factors to decide whether to invest in the movie. Several categories of costs will be in a movie's budget, including:
• Story rights
• Screenplay
• Producers and directors
• Cast
• Production costs
• Special effects
• Music
The typical film budget you read about in the press includes only expenses. The movie budgets released to the general public do not include estimated box office receipts or other revenue streams. In addition, movie budgets do not usually include marketing costs, which can be another 50% or more of the film's publicized budget.
Producers and directors will frequently release budget figures for upcoming movies, and these budget figures will be reported in several news outlets . However, Los Angeles Times writer Patrick Goldstein states that "everyone" lies about their movie budgets .12 For example, it was reported initially that The Avengers, a Marvel Studios film, had an overall budget of $170 million. Another source indicated that the budget for The Avengers was $260 million.
Which one of these figures was the "correct" budget figure? No one outside of the management of the movie really knows.
Requirements
1. Budgeting for a movie can be challenging. Frequently, budget items change as the movie production progresses. If budgeting for a movie is difficult, why prepare a movie budget?
2. What reasons can a movie director have for misrepresenting the overall budget for a particular movie? Is misrepresenting a movie budget unethical? Do you think misrepresenting a movie's total budgeted expenditures to the public harms anyone? Why or why not?
3. "If a Hollywood movie's box office number exceeds its production budget, then that movie makes a profit." From reading the information given in the case, do you agree with this statement? Why or why not?
4. Sometimes actors, directors, and producers are asked to take a lower salary up front and instead receive a percentage of the film's overall gross profits (from box office receipts, DVD sales, and similar revenue streams) . Why might the film company propose this arrangement? Why might the actors, directors, and producers accept this arrangement? Would this type of arrangement (lower salary up front with a percentage of the film's gross profits later) make the budgeting process easier or more challenging? Why?