As a guy who makes dick jokes and attends porn conventions, I’m not really your go-to for math and graphs and research. But for anyone who’s been paying attention to the movie business for the last few years, there’s been a general sense that the studios have been increasingly interested in churning out huge-budget blockbusters, without a corresponding increase in attendance. Meaning they’ve been scoring more and more record grosses and more and more record losses interchangeably. Are they even breaking even?
We need hard (throbbing) numbers to know the answers to this, and that’s where Liam Boluk, writing for the Ivey Business Review comes in. He’s not only analyzed the “tentpole” phenomenon to prove that it exists, but even has an explanation for why it exists.
First, yes, the tentpole strategy exists, now more than ever, and no, studios aren’t breaking even, at least not in terms of box office receipts.
The Summer 2013 season was so jam packed with “blockbusters” that the industry seemed destined for historic losses containing:
• 18 blockbusters – A historic high and 41% increase over the ten year average
• 15 back-to-back weekends of blockbuster releases – A third more than ten year average and 25% more than a decade ago
• 5 weekends with two blockbuster releases – 317% more than the average, 2.5x the previous record and 5x the number in 2003
So, for summer 2013, only four out of 18 blockbusters were profitable, and the studios collectively lost $750 million on them, a -17% return on their investment. Even Marvel, who we generally assume has been printing money, has only returned profits on four of their eight films, losing an average of $50 million per film leading up to The Avengers. Studios are spending more and more per ticket, while revenue on those tickets hasn’t kept pace.
Which, obviously, raises the question of why studios keep doing it? If they’re losing money making all these blockbusters, why is the trend moving toward more and more of them? And for once, the answer doesn’t seem to involve cocaine or mass stupidity.
The answer, Boluk argues, is that the business of movies isn’t really the movies anymore. It’s “ancillary revenue,” which is a lot more complicated than dolls and lunch boxes.
Why then, do executives continue making films? They have few (if any) levers they can reliably play with, the success of individual films causes massive disruptions in annual performance and in the long run, performance is unlikely to break-even, let alone outpace market returns.
The answer: ancillary revenue. In 2012, box office receipts represented only 52% of revenue for the average film, with the remainder comprised of home video sales, pay-per-view and TV/OTT licensing, syndication fees and merchandising.
First, the adage that a film needs to gross twice its production budget to ‘break even’ is as outdated as it is inaccurate. Not only can theatrical losses be part of a successful film strategy, it has actually become commonplace. [...]
Since silent films first appeared on the silver screen, motion pictures has been primarily a B2C business, with film studios sharing revenue with theater operators. But over the past decade, the majors have transformed into an increasingly diversified B2B partner. Their job is not to bring eyes to their theatrical products, but to enable NBC to drive Sunday advertising revenue, ABC Studios to create a high-margin television series, HBO to collect monthly subscriber fees or Mattel to sell Cars toys.
[John Carter] did not need to break even. In fact, average returns (-16%) would still have left Disney $65M out of pocket (versus $160M). John Carter simply needed to garner a critical mass of viewers upon which Disney could build a multiplatform media experience. Though the cost of failure was immense, so too was the potential upside.
Clearly, making money on a movie has become much more complicated than just hoping to sell enough tickets to recover the budget. Marvel makes money not strictly or even primarily with huge ticket sales to their movies, but by “enabling a series of new media products, including broadcast and cable television programming,” creating “a continuous and increasingly integrated multimedia experience.” It’s a strategy Disney is trying to copy for Star Wars, Fox is hoping to emulate with X-Men, and Sony with Spider-man.
It’s nice to have all this explained in excruciating detail, because I only ever had a general sense of how it all worked. You can check out Boluk’s thoroughly enlightening three-part series here. Especially interesting is the part where he predicts an impending crash in the “film as platform” model.
Still, I miss the days when tentpoles described an embarrassing encounter with sweatpants.
I want more like this!
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