Predictions about Hollywood’s demise, or about fundamental shifts in the way studios produce movies, seem to arise summer after summer as the media and the Internet respond to various box office failures. But not much has drastically changed for Hollywood since the introduction of 3D, despite what doomsayers say.
Six major films “flopped” at the box office this summer: R.I.P.D., Turbo, After Earth, White House Down, Pacific Rim and The Lone Ranger.
George Lucas and Steven Spielberg had predicted this summer’s box office results while they took part in a panel discussion at University of Southern California School of Cinematic Arts in June.
“There’s eventually going to be a big meltdown,” Spielberg had said. “There’s going to be an implosion where three or four or maybe even a half-dozen of these mega-budgeted movies go crashing into the ground and that’s going to change the paradigm again.”
Lucas in turn prophesied a shift towards Broadway-style theatre, where only a few films appear in theatres and stay there for a year with dramatically escalated ticket prices of $50, $100 or even $150.
However, while many industry pundits and media publications have pointed to a congestion of high budget films in theatres as a major cause of these six tent-pole films flopping — with several major films hitting theatres in quick succession — the major Hollywood studios don’t seem to be worse off for the competition.
The Motion Picture Association of America reported that domestic box office totals were up six per cent, from $10.2 billion in 2011 to $10.8 billion in 2012, an increase greater than the rate of inflation during the same time period (2.1 per cent).
Disney, Universal Studios and Warner Bros. have all crossed $1 billion in domestic ticket sales this year and Universal reportedly earned $1 billion in domestic ticket sales faster this year than in any year previously despite R.I.P.D. making back less than $50 million of its $130 million budget.
Theatre attendance is actually higher than last year and the motion picture industry is not suffering from the relative failure of six films.
However these six films do bring up an interesting question: why do these films have to cost $200 million to produce? All six movies might have been much better if they had relied less on costly special effects and focused more on telling a good story.
There are an increasing number of small budget films catching up on Hollywood’s big-budget tent-pole films thanks to the increasingly affordable cost of video equipment and special effects production. While not on par yet with $200-million movies productions, some films have been surprisingly successful despite their small budget. This summer’s The Conjuring had a production budget of $20 million and raked in $40 million during its opening weekend, beating out R.I.P.D., which cost $130 million to make and only earned $12 million on opening weekend. The Conjuring has earned over $140 million to date worldwide.
Two successful small-budget films include District 9 (2009) and Chronicle (2012), which cost $30 million and $12 million to make and earned more than $210 million and $120 million to date worldwide.
The most surprising low-budget success was the first Paranormal Activity (2007), which reportedly cost only $15,000 to make and brought in over $100 million domestically and over $190 million worldwide.
R.I.P.D., Turbo, After Earth, White House Down, Pacific Rim and The Lone Ranger cost an average of $160 million to make and earned less than $100 million each domestically and made almost $170 million on average worldwide.
The profit margin is small for this summer’s six flop films — currently at six per cent, not taking into account costs from international releases due to currency exchange and tariffs which would put the films at a significant loss. District 9 and Chronicle both have an average profit margin of more than 85 per cent.
This is where Hollywood’s “swinging for the fences” mentality comes in. To make the same profit margin as these smaller budget films, a $200-million movie would need to reach the $1 billion milestone — and only 16 movies to date have reached $1 billion in gross revenue.
This suggests that instead of producing one $200-million film, Hollywood studios should invest in five to 10 smaller movies and hedge their bets.
But if the reason those six films didn’t break even, at least domestically, is a congested market, why would Hollywood studios produce more films? More than 600 films were produced by Hollywood in both 2011 and 2012. Rather than hedging their bets, producing a greater number of small budget films would create an even greater flood of movies to hit theatres every weekend, drawing audiences towards a small few that have been well reviewed and garnered great word-of-mouth. There will be as much, if not a greater risk of losing money, even if ticket prices are lowered to draw audiences to the theatre more often per week.
Hollywood movies may be hit or miss but producing more low-budget films or fewer large-budget films have their share of trade offs. Tent-pole films may not make an 85 per cent profit margin but, at a six per cent increase in the market, Hollywood can afford to stick to the status quo for now.
Sean Sullivan watches more TV than is good for him. To prove his time was well wasted, he writes a bi-monthly column looking at television and movies.