Evening the odds: A question of budgets

Is this the worst fiscal year for movies…Ever?

Lately, it seems no matter where you turn, the prevailing wisdom is the same: 2013 is the “Year of the Flop” on the big-budget side of the Hollywood machine. The trades are full of stories about heads rolling at the studios following disastrous openings. The box office numbers come out week after week…weak. You can’t swing a copy of “Save The Cat” without hitting a story about an astronomical write-down on some dead-on-arrival turkey that fell flat on its face right out of the gate. Even the fathers of the modern blockbuster, Steven Spielberg and George Lucas, have predicted an “implosion” of the big-money film industry they helped create.  

But is that really what’s happening? What’s the real story? Are big-budget tentpole movies still worth the gamble, or are smaller films a better bet?

What’s really going on, here?

“Nobody knows anything.” – Screenwriter William Goldman

The short answer: Goldman was right. Nobody really seems to know for sure.

As usual when there are too many cooks in the kitchen, knowing whom to blame when the souflée falls is a dicey prospect, as is deciding whom or what to credit when the meal goes off without a hitch. Audiences are notoriously fickle, and studio execs are infamously meddlesome. So, when the dust settles, all we really have are the numbers to go by.

But the longer answer runs a little deeper than that. Because when we look at said numbers, at least for the year up to this point, there are some interesting patterns to consider.  

Let’s envision a hypothetical. Let’s say…you’re a Studio Executive. A “Suit”; someone in a position to decide which movies to greenlight, and which ones will never see the light of day. It’s a precarious position to be in, to be sure. Make a good call, and you’re golden. Make a few good calls in a row, and you can expect a fat raise, a better title, and that corner office.

However…Bet on the wrong horse? And you’ll be making bread lines faster than an overheated toaster oven. The stakes are high. The making of movies is a risky endeavor. 

But…Does it have to be?

To answer that, let’s further imagine that you, as the Suit, have just gotten your paycheck. And, after taking care of your bills, you’ve got a spare Bennie burning a hole in your pocket. So you head to the Casino. 

The two most popular games at this particular Casino are Craps, and Roulette. But the odds of these two games are a little different here than at most places. At the Craps table, seven or eight out of every 10 rolls results in a modest winnings of 25% over your original bet. The other two or three rolls, you lose everything.

And why does the Casino offer such favorable odds at the Craps table? It’s because the odds at the Roulette wheel more than make up the difference. At the Roulette, the minimum bet is $500. And the house only lets you bet on either red or black…not individual numbers, or the green zero space. You win? You double your money. You lose? So long, sucker. The house gobbles it all.    

To an extent, this is what’s happening in Hollywood at the moment. Admittedly, it’s a drastically oversimplified analogy, but I’m prepared to defend it. 

When deciding which movies to make and which to pass on, film studios are obviously concerned about return on investment, or ROI. Nobody wants to throw $30 or $70 or $150 million onto a movie that then hemorrhages cash, and tanks. Ideally, as with any business venture, the studios want to make back their investment, and a tidy profit on top besides.  

So if that’s their goal, then what’s their best bet, given what the odds seem to be lately? Do they go with the high-risk / high-reward Roulette table, or opt for the lower-risk but lower-reward Craps route? 

Given this year’s numbers, the answer appears to be “Yes.” Because when the studios have the choice between making four $50 million movies or one $200 million one, we often see them do…both. This, even though our hypothetical Casino’s odds dictate that smaller bets made more often seem to have a demonstrably higher probability of paying off than putting all your chips on red, and spinning the wheel once.

At least, most of the time. It’s confusing.

And why? Because when you look back on the box office numbers for this year…The “Craps”-track movies have almost universally made money. And no…They don’t have the potential to make in the astronomical hundreds of millions like the “Roulette”-style titans (e.g. Iron Man 3 or a Man of Steel). But they make money. Actual totals notwithstanding, the former is a much safer bet, while the latter is very nearly a coin-flip…Albeit with drastically elevated stakes.

For the purposes of this exercise, let’s focus on two of the most prominent types of films that we’ve seen a lot of this year: The mid-range comedy or horror flick, and the huge-budget tentpole “event” movie.  

Consider just some of the year’s films I would consider to be in the general mid-budget bucket, and what their ROIs have been:

Identity Thief: Budget: $35M. Global Gross: $171M.
The Heat: Budget: $43M. Global Gross: $169M.
Hangover Pt. III: Budget: $103M. Global Gross: $351M.
This is the End: Budget: $25M. Global Gross: $102M.
Grown-Ups 2: Budget: $41.5M. Global Gross: $125M.
Pain & Gain: Budget: $26M. Global Gross: $50M. 
Now You See Me: Budget: $75M. Global Gross: $256M.
The Conjuring: Budget: $13M. Global Gross: $170M.    

Total in the black: $1.03 billion dollars. Which is a big fat wedge o’ cheddar by any yardstick. 

Even The Internship, Scary MoVie and 21 & Over (widely regarded by some as “flops”) all made back healthy margins over their budgets, bringing in profits of $12M, $55M and $12.7M respectively…Thereby adding nearly $80M to the previous total, and raising the overall size of the profitable cheese-slice to just over $1.11 billion. Not too shabby.

(Additionally, this is all before we can even think about lumping in a freshly-opened similar film like We’re the Millers, which was already $8M in the black after its first weekend in theatres.)  

In fact, you really have to go pretty far down the list of the year’s cumes on the BoxOfficeMojo.com list in order to find a mid-budgeted, live-action comedy that has lost money. And at #59 overall at the time of this writing, “The Incredible Burt Wonderstone” (Budget: $30M. Take: $23.6M), still only lost slightly less than $7 million. 

Meanwhile, let’s take a look at the massive, massive red numbers of the big-budget turkeys so far:

The Lone Ranger: Budget: $250M. Global Gross: $130M. 
White House Down: Budget: $150M. Global Gross: $88M. 
Turbo: Budget: $135M. Global Gross: $60M. 
Red 2: Budget: $84M. Global Gross: $30M. 
R.I.P.D.: Budget: $130M. Global Gross: $23M. 
Elysium: Budget: $100M. Global Gross: $41M. 
2 Guns: Budget: $74M. Global Gross: $49M. 
Percy Jackson: Sea of Monsters: Budget: $90M. Global Gross: $33M. 

Net losses: -$559M. Ouch. And when you add in the fact that the worldwide totals have only just managed to crack other big-budget “flops” like Pacific Rim and After Earth into meager profitability, the numbers don’t manage to suck that much less. That said, the losses are only roughly HALF of what the take of the above films pulled in, so the studios as a collective concern still wound up ahead. WAY ahead. 

But that’s still not the whole story. Because when you consider the big money blockbusters, you start talking about real cash. 

When it comes to massive hauls, the high-risk / high-reward “Roulette” model still seems to pay off more often than not, potential green “zero” spaces notwithstanding.

Consider the top 10 for the year so far as I write this…

1) Iron Man 3: Budget: $200M. Global Gross: $1.2B. 
2) Despicable Me 2: Budget: $76M. Global Gross: $746M. 
3) Man of Steel: Budget: $225M. Global Gross: $648M. 
4) Monsters University: Budget: $82M. Global Gross: $615M. 
5) Fast & Furious 6: Budget: $160M. Global Gross: $742M. 
6) Oz The Great and Powerful: Budget: $215M. Global Gross: $492M. 
7) Star Trek Into Darkness: Budget: $190M. Global Gross: $449M. 
8) World War Z: Budget: $170M. Global Gross: $467M. 
9) The Croods: Budget: $135M. Global Gross: $583M. 
10) The Great Gatsby: Budget: $105M. Global Gross: $331M. 

When you take a look at the cream at the top of the bottle, you’re looking at a total profit of right around $4.72 BILLION DOLLARS. And a full QUARTER of that is just from “Iron Man 3” alone. So, obviously, the studios as a collective entity still come out way ahead.

To put a finer point on it, Even if you look only at only one division of a single studio and consider the two big animated Dreamworks releases this year (The Croods and Turbo), those guys are STILL $372M in the black even though they only hit on one out of two times at bat. 

Nevertheless, even in the face of such massive numbers, the argument for smaller films still stands.

Y’know, Casino analogies notwithstanding, I’m not a gambler. But if I was, I’d pay the proper amount of attention to the overall odds rather than the overall totals. Because when you do, even though the actual total made on the medium-sized comedy/horror movies is far, far less…Their actual probability of MAKING MONEY AT ALL is a whole helluva lot higher.

Again: Present the average person with one hopper full of ten envelopes, and one with two. Tell them they can pick one from either bin. Explain that eight of the first 10 envelopes contain a $100 bill, but that only one of the two second ones has $500 in it. There will probably be equal numbers of people who will opt for each hopper. But there will be more overall winners among the group that goes for the first one.   

Or, in Hollywood terms: It would seem to make sense that making six or seven mid-tier films in a year (given the demonstrable probability that at least four or five of them would turn a profit) would make more sense than putting out one or two huge-budgeted tentpoles. Especially given the higher-than-average odds that at least one of them would be a lackluster “blockbuster,” and mean a $150M write-down. 

Of course, it’s not as simple as all THAT, either. Because, at our hypothetical Casino, there is the occasional wild card…even for the folks playing at tables that don’t use cards at all. 

A lot of gamblers tend to look at the long game. They come with a pocket full of cash, and they sit down at a given table fully expecting they’re going to be there for awhile. They win some, they lose some…But their ultimate goals have less to do with the ebb and flow of luck, and far more to do with strategy. And there’s plenty of THAT going on at our hypothetical Casino, too.

Screenwriter Craig Mazin (Identity Thief, Hangover Pt. III) put it best on a recent outtake from the popular weekly “Scriptnotes” podcast he shares with fellow screenwriter John August (Big Fish, Charlie and the Chocolate Factory). According to Craig:

“Big expensive flops are made once. Big expensive hits are made three, four… six times. The cost of failure is limited, but the upside of success is extraordinary and repeatable.

Yes, I can write a sequel to Identity Thief, and it will likely be profitable. However, it won’t be as profitable as a sequel to World War Z. It can’t be. It simply isn’t that kind of movie. The fact that we’ll be getting a seventh Fast and a fifth Pirates should tell you a lot.”

Of course, Craig is right. Because if John Carter, or Cowboys and Aliens or even Lone Ranger had made money, there would be multiple iterations of each going forward…As well as a LOT more dusty movies with vaguely western settings and big, fight-y set pieces. Possibly involving extraterrestrials. Because whenever something is successful, there’s always The Chase that happens in the wake of it as everyone tries to bite off of what has already proven to be successful. To wit: There’s a reason why Johnny Depp is putting on the three-corner Captain’s hat again…But not the crow chapeau.

So, after countless gallons of blood, sweat, tears, and op-ed ink, what are we really left with?

Hollywood takes risks every day. If any business person, tinseltown Suits included, knew beyond a shadow of a doubt which ventures would be guaranteed successes and which would fail? It wouldn’t be a very exciting industry. But whether they’re making safe bets or taking high risks, the raw numbers seem to indicate that we shouldn’t start sounding the death knell for the movie industry just yet.

And as long as the box cars are coming up often enough to cover for the occasional green zero? We should still have plenty of choices to make at the cineplex.