What are Exploitation Costs?

Exploitation costs are those costs incurred in relation to the distribution of a film, including advertising, marketing, promotions, and publicity. These costs encompass activities such as creating trailers, running advertising campaigns across television, online, and print media, organizing premieres, and managing press tours. The goal of incurring exploitation costs is to build public awareness, generate excitement, and drive ticket sales or streaming viewership. Successful exploitation strategies can significantly enhance a film’s profitability, sometimes making the difference between a box office success and a financial disappointment. Studios carefully plan and monitor these expenditures to maximize exposure while maintaining a balance between promotional spending and anticipated revenue returns.

Accounting for Exploitation Costs

Exploitation costs are charged to expense as incurred, rather than being capitalized into film costs and amortized over time. Any advertising reimbursements received from third parties should be offset against exploitation costs, thereby reducing the amount of expense that is recognized.

Example of Exploitation Costs

Spotlight Films spent $50,000 on promotions for its new film, Accountants After Dark. Promotional costs are classified as exploitation costs, so the entire amount was charged to expense as incurred. The film went on to incur substantial losses, since it could not attract viewers - after all, everyone knows that accountants only fill out tax returns after dark.