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Anatomy of a Blockbuster: Moves & Video Games

Halo - Reach
Source: Microsoft
Halo - Reach

Microsoft's "Halo: Reach" hit $200 million dollars in sales in just its first 24 hour on store shelves. That makes it the biggest debut of any movie or game so far this year.

But how much will Microsoft actually make? And how does that compare to a blockbuster movie opening?

Microsoft wouldn't reveal any details but it's clear that Halo:Reach is already profitable. If the game sold $200m at retail, retailers take 20 percent, giving Microsoft $160 million in revenue. Though video games usually cost just $20 million, Halo is far pricier than most, taking three years and an estimated $60 million to make, according to Wedbush Securities analyst Michael Pachter. The studio also spent more to market — an estimated $40 million around the launch with another $20 million expected to come over the next year. But by that measure, Microsoft is looking at forty million in profits on its first day of sales alone.

Nine million copies of "Halo:Reach" are expected to sell in the first twelve months, which would give Microsoft $430 million in revenue. If the costs are just $120 million, that means the studio earns $300 million on the game.

The game also drives subscriptions to Microsoft XBox 360 Gold, at $60 a month. Microsoft tells me that 4.5 million people play Halo through the XBox 360 Gold system -- that's another $270 million in revenue to Microsoft thanks to the game.

Halo Reach
Source: Microsoft
Halo Reach

Halo is an unusual game -- it's exclusive to Microsoft XBox platform, so it's a key way to get gamers to commit to XBox rather than the rival Sony Playstation 3 or Nintendo Wii. For years after Microsoft launched the XBox console it sold them at a loss: Wedbush's Pachter says that between 2001 and 2005 Microsoft lost about $2 billion on the consoles. Though that business is now in the black, this is basically a razor/razor blade model. Once you convince gamers to buy the console, the real money is in the games.

This could not be more different than a movie: it's apples and oranges. Studios produce many more films every year, and for the bigger ones they'll shell out more up front than a game-maker would. Halo: Reach is the year's biggest game so far, take Disney's "Toy Story 3" as a comparison.

"Toy Story 3" cost an estimated $200 million to make and another $150 to market. The film grossed $1.04 billion worldwide, and the studio brings home a little more than half of that, about $570 million. Though the box office looms large in the public eye, it usually generates just 45 percent of a studio's take from a film. About 40 percent of movies' revenue comes from home video, which includes DVDs and Blu-Ray sales and rental, plus digital distribution. Based on those general guidelines, home video would add up to some $500 million for "Toy Story 3." TV rights add another 10 to 15 percent of a film's total revenue: $130m for "Toy Story 3."

That means Disney could bring in an estimated $1.2 billion in revenue and $800 million in profits from Toy Story 3 over time. And that doesn't even include consumer products, video games, and theme park attractions. (Note: these are projections and estimates, only the box office number is an official stat.)

"Toy Story 3" and "Halo" are the best case scenarios for their respective studios -- proven brands that continue to deliver, though Halo's profits come to Microsoft much faster than Disney collects Toy Story's revenue stream.

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