Win More Product Home Runs with Blumhouse’s Microbudget Model

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Illustration by tubik on Dribble

If you like horror movies, you’ve probably seen some of Blumhouse productions’ work: Get Out, Split, Whiplash, just to name a few.

Jason Blum, the successful producer and creator of Blumhouse productions, made a name for himself for making low budget movies that consistently generate outsized returns. In the last five years, Blumhouse produced 10 out of top 25 most profitable films worldwide.

It seems that Blum had figured out a formula for making consistently profitable movies. In short: make it cheap, make lots of it, and make it different.

Blum caps the production budget at $5 million. He has created a system to keep production costs low. This significantly reduces the risk of failure and allows him to make many movies and give directors the creative freedom to experiment and innovate. It’s really a simple approach, and yet the rest of Hollywood studios haven’t caught on due to the prestige and ego that comes with “making $100 million dollar films”.

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Product managers are like producers, that begs the question: can the Blumhouse micro-budget approach be applied in building product pipelines that consistently produce successful products?

It certainly can — with caveats.

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$5 million is a fraction of the average budget for Hollywood movies. Blum has revealed in interviews that the purpose of the micro-budget is to allow them to bet on many films. That increases the chance of finding that gem that might never have had a chance to get picked up by major studios.

Paranormal Activity is the classic success story — a “home-made” looking movie that costed $15,000 to make and earned almost $200 million in box office.

In order to stay disciplined to the budget, Blum created a set a rules.

  1. Limit the number of extras and speaking parts.

Every extra without a script costs about $80–100 a day, but if they speak, it’d cost $400 a day. How much impact would that speaking extra really add to the story, or the experience?

2. Limit the number of locations and concentrate shooting days.

Most Blumhouse movies are filmed inside a house rather than at large public spaces. It’s much less costly to film in a house, where production is not at the mercy of the weather and requires significantly less planning of transportation logistics. This works due to the nature of the horror genre, where a house actually makes the perfect venue for creating blindspots and fear.

3. Avoid expensive special effects and action scenes.

Building ambiguity of the impending unknown danger creates more fear than revealing all of the “monster”. As such, showing a quick glimpse of something that implies danger without having to invest in meticulous design or special effects, works in favor of horror movies.

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Illustration by Ouch

The discipline of keeping a micro-budget lowers the cost of failure. As a result, the pressure to follow the status quo that has always worked in the past is also minimized. Blumhouse gives directors a lot of creative control over the script, the story, and experimenting with novel concepts. Granted, directors and talents are paid next to nothing and only get box office bonuses if the movie performs well. But the directors get the final cut, they get to bet on themselves. That level of creative freedom is quite rare in Hollywood, which makes the risk-sharing model a worthy trade-off.

The micro-budget model allows Blumhouse to experiment with a wider range of formats and bet on more artists. Jordan Peele’s script for “Get out” was passed by many producers before Jason Blum and Couper Samuelson (Blumhouse’s president of feature films) saw it and decided to bet on Jordan, a first time director. “Get out” had a production budget of $4.5million, and made $250+ million at box office.

Capping a micro-budget and experimenting with riskier creatives don’t mean betting on luck. What must accompany this model is owning a differentiated capability.

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Illustration by Ouch

Owning a focused niche means having a working process that is repeatable. For Blumhouse, owing the horror genre is intentional, because it’s a genre where the delivery of emotional impact is more important than flashy setups. Genres like action and science fiction would not have worked in this model. As Couper Samuelson describes, “all the things that are features of big-budget movies tend to be flaws of scary movies.”

The focus on horror turned out to establish an incredible strength in creating drama. That strength is a repeatable capability that allowed Blumhouse to diversify beyond the horror genre to drama with Damien Chazelle’s “Whiplash”. Made on a budget of just over $3 million, Whiplash earned $49 million in box office, 3 Academy Award wins, and a Golden Globe win. Another example is “The Gift”, a successful thriller made on a $5 million budget and delivers drama that puts the audience at the edge of their seats.

The micro-budgeting production model serves as a tangible inspiration for building a product pipeline that can consistently pump out profitable products.

Start with an intentional focus that is based on a unique, defensible strength. Perhaps it’s speed, engagement, or design. Create a system that takes advantage of that strength in a cost efficient way that can afford many products in the portfolio. Dyson was famous for its bagless vacuum for a long time. But the core competitive strength it built was its digital motor. That core is the basis of diversification into a much wider product range like hair dryers and electric cars.

When writing a product requirement document, prioritize features by impact/effort matrix. Look for patterns in the target users’ profiles and goals that can be deduced into simple rules that make build decisions easier. For example, if the main acquisition channel is a squeeze page for newsletter sign up, is it really value-adding to build an elaborate website? Morning Brew is a great example of a high-conversion minimal landing page.

And when it comes to creating the A-team, bet on creators and product talents and give them the freedom to experiment beyond the status quo. A budget cap and its set of rules will help keep them disciplined to innovate within cost constraints.

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The Babe Ruth effect is an investment approach named after baseball player Babe Ruth, who famously hit incredible home runs but struck out a lot.

“Never let the fear of striking out keep you from playing the game.” — Babe Ruth

This effect highlights the probabilistic concept that the magnitude of correctness matters more than the frequency of correctness³. In a similar way, good VCs evaluate investments probabilistically by their expected values and place bets accordingly. They’ll either lose big or win big. Their batting average may be low, and they might lose money more often, but ultimately their portfolio will significantly outperform as they’d have bigger “home runs”. (Read more on Chris Dixon’s blog.)

This seems like a counter approach to Blum’s model that has been quite successful in achieving high frequency of correctness. So when should one bet big, risk big, potentially win big, or bet small, spread risk, and win frequently?

The answer is in a behavior flaw. Humans are wired to feel more pain over loss than gratification over gain, a behavioural concept coined as loss aversion by Kahneman & Tversky. That’s why people tend to place bets that have high probability of winning even at small outcomes, over bets that have high probability of losing even though the expected value is higher.

It takes discipline to “swing big, hit big or miss big”. Jason Blum recognizes this behavior flaw himself. In his interview with Bill Simmons’ podcast “The Ringer”, he admits that he hates to lose money, for himself and for others⁴. Blum believes in taking calculated risks to survive, and has consistently generated outsized returns over small bets.

When it comes to sourcing growth, it may simply be that the Blumhouse approach is better suitable in building product pipeline internally and developing a defensible, repeatable strength, while the Babe Ruth discipline is better practiced in buying or investing in new assets that aren’t within the core strength.

Would the micro-budget model work for your growth? What’s your favorite Blumhouse movie? Share in the comments below! Hit/hold the 👏 if you enjoyed this piece.

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I write about product building, DTC products, and consumer behavior.

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