Making Movie Monies

The newest Hollywood strategy to make big $$$

Adil, 4–11–17

Today’s fact is based on the Planet Money episode #650: “The Business Genius Behind Get Out.

What comes to mind when you think of traditional Hollywood blockbusters? Fiery explosions, crazy special effects, unbelievable action scenes?

BOAS

Most of the biggest $$$ makers have exactly that. Avatar is widely-cited as the highest-grossing film of all-time, coming in at almost $2.8 billion. [Side note: these calculations typically only account for theatrical earnings, and exclude TV income and home videos, which often make up a significant portion of profits. For example, Titanic earned $2.2 billion at the box office, but also logged another $1.2 billion in video/DVD sales and rentals.] But of course, it takes serious moola to make this kind of movie — Avatar had a budget of about $237,000,000. This isn’t unique; looking at the highest-grossing movies by year, every top-earning movie since 2004 (with Shrek 2) has had a budget of at least $150 million. And to confirm that these kinds of action-intensive movies are indeed the biggest hits: rounding out the rest of the top 5 highest-grossing movies after the aforementioned 2 are Star Wars: The Force Awakens, Jurassic World, and The Avengers.

[Another side note: apparently, after adjusting for inflation, the highest-grossing movie of all time is actually the 1939 rendition of Gone with the Wind, coming in at a whopping $3.4 billion.]

But of course, there are big-budget movies that flop. For obvious reasons, you likely haven’t heard of all these, but recent examples of box office bombs include Mars needs Moms (2011; estimated loss adjusted for inflation: between $106–153 mil), 47 Ronin (2013; $101–154 mil), and The Good Dinosaur (2015; $86 mil loss… Pixar’s lowest-grossing film ever).

So, clearly just spending a lot of money doesn’t guarantee success. Most producers don’t have $150 million budgets anyway, so how do you do better?

The classic example of the low-budget hit is Paranormal Activity (2007). As Planet Money points out, the movie costed less than a used Toyota Camry — a paltry $15,000. How can it be so cheap? It was effectively a home video: there was no sound production, no music, no makeup, no wardrobe, no crew. The whole thing was made by one dude, his girlfriend, and the dude’s friend Amir. Lo and behold, the movie ended up making almost $200,000,000. No film has ever made a higher ROI.

Before Paranormal Activity blew up, a man named Jason Blum watched it, saw its potential and pricetag, and decided to buy the movie and became its producer/work on its distribution. Obviously this worked out well for him. This got Blum thinking — what if you create a system that churns out lots of really cheap movies? Sure not all of them would be such blockbusters, but maybe some hits would pop up due to sheer numbers. So that’s what he does.

Blum is now (in)famous for getting ridiculous ROIs on his films — he has 6 of the 20 films with the highest ROI of the part 5 years. And he does so with this unique strategy: making tons of cheap-as-dirt movies and being totally accepting of some’s inevitable failure. Instead of putting huge time and money into one big movie, Blum becomes a sort of venture capitalist for movies by spreading the wealth and hoping for some hits. He says of his strategy (I paraphrase): “We don’t look for small budget movies and then check to see if we like them; we look for movies we like and put them on a smaller budget.” Blumhouse Productions is the pioneer of this new business model.

Most recently, Get Out was the #1 movie at the box office upon release. It cost $4.5 million to make, and so far, it has grossed about… $177 million. About 40x return and counting. Not bad.

Let’s look at 5 guiding principles for Blum-esque film production.

  1. Movies can’t include any real action scenes— no buildings burning down, no planes crashing, no high-quality car chases or wrecks. If these things are essential to plot, characters just have to talk about them after the fact. You can’t show them on screen.
  2. Don’t let extras talk. Typically an extra costs about $100/day, but as soon as they open their mouth, it’s $500/day. If you pay attention in cheap movies, you’ll notice that waiters at restaurants don’t speak, passersby aren’t having conversation, etc. — all part of the BOAB plan.
  3. Don’t shoot in too many locations. Paranormal Activity was shot in one house.
  4. Pay your actors as little as legally possible. Essentially, the actors are really investors in the movie — if the movie does well, then they’ll get paid more because they’re literally equity holders in the movie. If not, they don’t get paid much. This is why Jennifer Lopez chooses to work for almost no money in a movie like The Boy Next Door, which was shot in 24 days on a budget of $4.2 million. It was one of the lucky ones, eventually grossing $50 million+.
  5. Never spend your way out of a problem. Set a budget and never go over it — take the sunk cost and move on. To prove just how steadfast Blum is with this rule: 40% of his movies go absolutely nowhere. You probably haven’t heard of Area 51 or Stretch… because they were never even released in theaters. When they were done, Blum probably recognized they were trash, but he just moved on to the next one. Movies like these just go straight to video somewhere or are tucked in the depths of Netflix.

However, Blumhouse does make movies you’ve heard of, as hinted above. Examples include Insidious ($1.5m budget, $97m box office), Sinister ($3m budget, $77.7m box office), and The Purge ($3m budget, $89.3m box office). I’m not into horror movies, but I recently and unknowingly watched a Blumhouse movie in Split — a huge success, with a budget of $9m and box office earnings of $272.6m. My personal favorite Blumhouse movie is actually outside the thriller/horror realm (rare for the company)— Whiplash (the 2014 drumming movie) had a budget of $3.3m and brought in $49 million. The film was shot in 19 days.

Blum will release 10 films this year costing a total of ~$50 million, and they’re on track to earn $500 million back.

Sources:

Planet Money episode #650

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