Blockbuster economics: bigger budget, more sales
Blockbusters: Hit-Making, Risk-Taking and the Big Business of Entertainment
By Anita Elberse Scribe Publications, 320pp, $32.95 IN 2013 Steven Spielberg and George Lucas, speaking to students at the University of Southern California, warned Hollywood was headed for an “implosion’’. If even a handful of “mega-budget” blockbuster movies failed, the industry paradigm would collapse. “The pathway to get into theatres is really getting smaller and smaller,” Lucas said.
US academic Anita Elberse begs to differ and in Blockbusters she makes a strong case that, in entertainment at least, bigger is better.
A professor at Harvard Business School, Elberse has spent years embedded in entertainment, sports, publishing and similar industries, talking to insiders and collecting the facts and figures that underpin her argument.
She contends the increasingly outrageous sums of money spent on today’s massive media ventures makes sense. Using examples such as basketballer Lebron James, entertainer Lady Gaga and The Dark Knight film trilogy, she deconstructs the economics of ‘‘blockbuster strategy’’. Her conclusion: make as big a splash as possible.
Blockbusters opens in the late 1990s and looks at the different strategies pursued by two media executives, Jeff Zucker of NBC TV, the top-rating US free-to-air-network and Alan Horn of Warner Bros. While Zucker went small, saving money and hoping that quality programming would shine through, Horn gambled on expensive marquee names and highly visible pre-known brands. A dozen years later, Warner Bros was at the top of the Hollywood tree, thanks to films franchises such as The Dark Knight, Harry Potter and The Hangover, while NBC’s ratings had tanked.
It’s the first piece of accepted wisdom Elberse contests. You often hear Hollywood people complain about rising costs and the need to avoid risk, but each year the studio bosses seem to spend hundreds of millions of dollars on big movies. What nobody seems to admit out loud is that, quite simply, spending more money works. “Blockbusters will become more — not less — relevant to popular culture,’’ Elberse writes, “and blockbuster strategies will thrive.’’
She goes on to explain why the bigger-isbetter strategy endures, discussing basics such as how to launch a blockbuster, the merits of using big name stars in movies — and product endorsements — and the benefits and challenges of technological change in media.
This is a timely subject, not just because entertainment properties are growing larger, but because the media landscape is morphing. While many have declared the end of big media because of direct-to-consumer models and the new channels that can market them, Alberse’s findings suggest an alternative outcome.
As she points out, there have certainly been YouTube and Twitter stars, but the playing field is still far from level. Driven by experienced practitioners and established supply chains, the media industry offers a product ‘‘pipeline’’ the likes of which artists (or inventors, engineers or sportspeople) struggling on their own simply can’t wield, no matter how many Twitter followers they have.
Though not quite as simple, the takeaway from this book might be that you have to spend money to make money. With Horn’s strategy still in place at Warner Bros as recently as 2010, “although the top three biggest bets only accounted for a third of the total production budget, they were responsible for ... 50 per cent of the worldwide box-office revenues generated that year’’.
Indeed, 70 per cent of the studio’s profits came from its four most expensive movies: Harry Potter and the Deathly Hallows: Part 1 (budget $250 million), Inception ($ 175m), Clash of the Titans ($125m) and Sex and the City ($100m). In contrast, its four least expensive movies contributed “next to nothing’’.
Alberse explores a fascinating world where business is decoupled from the artistic performance or product achievement. After the huge sums of money Spanish football club Real Madrid paid for star players such as David Beckham, it didn’t win many more trophies than it ever had, but it enjoyed unheard-of revenue growth thanks to product endorsements and merchandise sales.
The blockbuster strategy itself has also evolved. You may have read stories about how A-list salaries grew to ridiculous proportions in the late 1990s, but just because Hollywood’s fallen out of love with movie stars doesn’t mean it’s not still betting big. Hundreds of millions were spent on Harry Potter and SpiderMan movies because the brand is the star. The selling point, not the strategy, has changed.
Those expecting the pizzazz the title promises may be disappointed. Blockbusters is a business book (with bar graphs to prove it) and Elberse is an academic, not a poet. And if you love film, sport or literature but think big business is sucking the creative lifeblood out of them, her conclusions may depress you.
It comes down to a paradox: the spectre of expensive failure is countered by spending more. As Elberse writes, “content producers can’t afford to walk away from big bets ... (they) react to this new reality by doubling down on blockbuster investments and focusing even less on smaller bets’’.
Drew Turney is a freelance writer.
April 5-6, 2014
Daniel Radcliffe as Harry Potter in the blockbuster movie of one of the books