Should Box Office Matter?

Does it really matter how much money a movie makes?  Should the public even care about box office results?

I can’t help but ask this question as the summer of 2013 winds down.  While the trades have begun offering report cards on the major studios, I’ve found myself wondering if our whole fascination with hits and flops has essentially made it impossible to have a deeper conversation about the state of American cinema.

Shouldn’t we instead be asking: are today’s movies any good?

Based on the evidence presented from January to August of this year, I think the answer is fairly obvious: mainstream, popular cinema stinks.

I’m generalizing, of course.  There are some gems to be found if you dig for them, but, if I were to summarize my point-of-view at the outset, it would have to be this: the reason we’re all so fascinated with box office numbers these days is because, when it comes to most new movies, there’s nothing else to talk about.

In the 1960s, the film critic Pauline Kael, among others, argued that Hollywood movies had gotten too stuffy, too enamored with their own presumed self-importance.  She railed against directors such as Stanley Kramer who were trying to make quote-unquote Important Films that Kael found tedious and uninspired.

She summed up her thesis in her influential 1969 article, “Trash, Art, and the Movies:”

In American movies what is most often mistaken for artistic quality is box-office success, especially if it’s combined with a genuflection to importance; then you have “a movie the industry can be proud of” like “To Kill a Mockingbird” or such Academy Award winners as “West Side Story,” “My Fair Lady,” or “A Man for All Seasons.” Fred Zinnemann made a fine modern variant of a Western, “The Sundowners,” and hardly anybody saw it until it got on television; but “A Man for All Seasons” had the look of prestige and the press felt honored to praise it. I’m not sure most movie reviewers consider what they honestly enjoy as being central to criticism. Some at least appear to think that that would be relying too much on their own tastes, being too personal instead of being “objective” — relying on the ready-made terms of cultural respectability and on consensus judgment (which, to a rather shocking degree, can be arranged by publicists creating a climate of importance around a movie). Just as movie directors, as they age, hunger for what was meant by respectability in their youth, and aspire to prestigious cultural properties, so, too, the movie press longs to be elevated in terms of the cultural values of their old high schools. And so they, along with the industry, applaud ghastly “tour-de-force” performances, movies based on “distinguished” stage successes or prize-winning novels, or movies that are “worthwhile,” that make a “contribution” — “serious” messagy movies. This often involves praise of bad movies, of dull movies, or even the praise in good movies of what was worst in them.

The long overdo American New Wave of the late 1960s and early 1970s allowed for a tremendous surge of creative freedom, leading to some of our country’s greatest film achievements, from The Godfather to Chinatown.  Kael saw value in all kinds of movies, not just the really great ones, but wasn’t naïve about the consequences of embracing guilt-free entertainment either; and her love and defense of cinematic “trash” wasn’t without reservation.  Long before her retirement in the 1990s, it had already become abundantly clear that the film industry had over-corrected, and that too much emphasis was being placed on entertainment over quality.   A whole other kind of problem had emerged: the B-movie was now the only game in town.

It’s standard practice today for the most successful film directors to reference other popular movies (particularly early Spielberg and Lucas) in their work.  J.J. Abrams has built his entire career on this technique, but he’s not alone; it’s not too much of an exaggeration to claim that most Hollywood screenwriters and filmmakers these days continue to pay homage to the same iconic movie moments again and again, to the exclusion of almost anything else (it’s the equivalent of a pop-culture echo chamber).  But if you listen to interviews with some of the finest screenwriters from the 1970s, writers like Robert Towne or William Goldman, you’ll recognize a common theme: those guys didn’t start out by studying movies in college.  They didn’t set foot anywhere near a film school (it was barely an established major), but instead studied history, art, journalism, literature, etc.  Consequently, their sources of inspiration weren’t other movies.

Today, a derivative picture like Pacific Rim is, in effect, no more “original” than your run-of-the-mill sequel.  It’s got monsters!  It’s got robots!  It’s the end of the world!  The fact that the director of Pacific Rim, Guillermo del Toro, is an unparalleled visual stylist is almost beside the point; if the best a movie can hope to achieve is to remind audiences what it felt like to watch other movies, or read comic books, or play video games, then all the talent in the world isn’t going to turn junk food into art.

Box office numbers find their way into this discussion because, ultimately, a movie’s success nowadays is measured by how much money it makes during its theatrical run.  So, even though Man of Steel was kind of crummy, it was still a hit.  Some hits are terrible, others are okay — but are any of these money-makers actually great?  Was Iron Man 3 great?  Or World War Z?  You tell me.

At the start of the blockbuster era (post Jaws), a similar contradiction emerged, and it divided the country.  Was the original Stars Wars any good?  Kids said yes.  Nerds said yes.  Adults, not so much.  But, as B-movies came to reshape the entire film industry, soon becoming the only product Hollywood felt qualified to produce, a simplistic, comic book mentality took over.  By the 1980s, it was already painfully obvious that grown-up audiences were going to lose this fight.  Yes, to some extent the fall season is reserved for older moviegoers, but not entirely.  No matter the month, there will always be a new, heavily hyped “tent-pole” entertainment to contend with, be it another Hunger Games, another Hobbit, or another Thor.  We simply can’t escape these blockbusters.  And the idea that an oversimplification of good and evil, which defines our modern cinema, won’t permeate into other movies, or that an older audience’s attention span won’t be influenced by the smash cutting and mind-blowing special effects of a typical studio release, is wishful thinking.

When a sequel to a popular franchise isn’t worth talking about, we’re left discussing how much money it made.  What else is there is say?  I’m as guilty of this as anyone.  But the major studios, which have either bought or merged with other studios, are so heavily leveraged and so wedded to the economics of global mainstream entertainment that they have no choice but to keep doing what they’re doing.  Marvel, owned by Disney, has its slate of superhero movies lined up through 2021.  We have already been promised new Star Wars movies, also from Disney, for as far as the eye can see.

Do the economics make sense?  Again, if these movies are terrible, all that is left to do is spin our wheels justifying the cost benefit of producing terrible movies.  But when movies are this bad, we kind of need to know why they’re bad, and box office results can offer us a clue.

Let’s start with what we know.  Regardless of what you thought about Despicable Me 2 (I found it boring), Fast and Furious 6 (I skipped it), Man of Steel (Zach Snyder is arguably one of the worst acclaimed directors working today), World War Z (semi-entertaining and likably trashy), or Iron Man 3 (witty and clever, but not memorable), these movies helped make the summer of 2013 the highest grossing of all time!  Not the most profitable, mind you (we’ll get to that later), just the highest grossing.

After an article appeared in Variety projecting a record-breaking summer, Scott Mendelson at Forbes stepped in to remind us that Hollywood isn’t a collective in which profits are shared equally among the players.  As he rightly points out, Universal’s record grosses, for instance, don’t necessarily benefit Sony.  It’s an intriguing argument (though, to be fair to Variety, the headline of their article was “Summer Box Office Looks to Break Record Despite Flops”), but it’s also a slippery slope.  If it doesn’t matter that Hollywood in general broke box office records this summer, then what is it exactly about box office numbers that do matter?

After all, if industry-wide box office gross figures are irrelevant, or somehow offer a flawed picture of the state of the film industry as a whole, how else should Hollywood’s business strategies be measured?

Imagine making the same argument about the major television networks.  The four major networks have been steadily losing viewers over the past decade — that’s the bird’s eye view.  But CBS is the highest-rated network of the four — so they’re winning the ratings battle.  But the other networks have a handful of hit shows, which, during particular time slots, can still beat CBS — that’s the case-by-case analysis.  Which part matters, that network viewership is in steady decline, that CBS is the most watched network, or that “America’s Got Talent” gets big ratings?  All of it?  None of it?

That’s the problem with concentrating on box office numbers in general: we’re looking for trends, patterns, or insights from raw numbers.  Meanwhile, the real impact of a blockbuster-obsessed film industry alludes us.  Instead of debating whether or not a regurgitated sequel like Star Trek Into Darkness should exist at all, we’re arguing over whether Paramount did a decent enough job marketing it to international audiences.

And if we accept that one studio’s success doesn’t necessarily translate to other studios, then could we not also make the same argument about individual movies?  What difference does it make that The Lone Ranger bombed, when the very same studio released Iron Man 3?  Couldn’t we even apply this logic to domestic grosses?  Do we even need to know what a movie earns in the U.S., if all the real growth is taking place overseas?

Here’s the thing: box office numbers matter because movie studios are publicly traded companies, or are owned by publicly traded companies, whose share prices go up and down according to, you guessed it, box office numbers.  This vicious circle just keeps going around and around.  Does anyone honestly think that if a studio like Sony has a bad year it will stop chasing the lure of the global mega-blockbuster?  Will Sony shift gears next year and suddenly “go small?”

Oh brother, here come more numbers.  Which studio do you think released the most films so far in 2013?  Any guesses?  Well, thanks to the indispensable Box Office Mojo, we have our answer. It’s a tie (as of August), between IFC and Magnolia.  Each studio has released 26 movies thus far in 2013.  You’ll often hear the claim that one expensive release could pay for 25 independent films, right?  Well, here you go.

And guess what happened?  IFC’s 26 pictures represent a whopping 0.1% of the total domestic box office pie of 2013.  Magnolia’s 26 releases represent another 0.1%.  All of IFC’s 26 movies combined have grossed $7.2 million domestically so far.  Magnolia has fared even worse, grossing only a combined $4.4 million domestically thus far.  But wait, you say, these indie studios make all their money on VOD.  So what?  You don’t think the major studios make money on VOD as well?  Wouldn’t IFC prefer a theatrical crossover hit over a business strategy that relies almost exclusively on VOD revenue?

The fastest way for a studio to go out of business is to release a bunch of inexpensive, independent movies that don’t make any money.

Around and around we go.  I often ask myself the question, are the major studios actually making any money, when all is said and done?  It’s actually a much tougher question to answer than you might think.  Let’s say Studio X makes a $200 million movie…

Assumption #1: The studio is telling the truth about the budget.

Assumption #2: An additional $100 million might be spent on marketing the movie, but the exact amount is never reported.

Assumption #3: Only about 50 cents of every theatrical dollar will go to the studio.  This varies considerably — domestically, a major studio might receive up to 65% of gross box office in the first few weeks of release, with that number dropping toward 50% in subsequent weeks, while overseas a studio might only be able to pocket 35% or 40% of the ticket price (in China it’s only around 25%); but 50% seems to be the agreed-upon figure.

Assumption #4: The VOD/disk/cable post-theatrical revenue stream is decent, but in no way can it match the gross earnings of a hit theatrical release.  In fact, more often than not, theatrical box office will be a predictor of VOD revenue, i.e, a movie that does poorly in theaters is not going to be a huge money-maker on VOD.

Okay, four basic assumptions.  Let’s plug in a movie.

world_war_z poster

World War Z earned approximately $200 million domestically and another $300 million overseas.  Paramount has pegged the budget at $190 million (though the entire third act was rewritten and reshot, so I have a hard time believing that number).  Marketing was perhaps another $100 million, give or take, and the studio kept $250 million of box office grosses, give or take.  So, was it a hit?

It sure doesn’t seem that way.  It cost Paramount around $300 million to earn $250 million.  Star Trek Into Darkness, from the same studio, had an identical reported budget, along with a similar marketing spend, and managed only $450 million in global box office.  Was that movie a hit?

Okay, new assumption: if we factor the marketing spend against a picture’s profitability, then almost every movie will appear to lose money.

The truth is, we can’t know what a studio actually spends on marketing, anymore than we can ever really trust those reported budgets.  But marketing spends are even harder to calculate.  What if Disney advertises Iron Man 3 on ABC?  They own the network!  And then there’s the whole question of promotional tie-ins with fast food companies, toy manufacturers, and all the rest.  So, let’s just go ahead and not factor the cost of marketing into a discussion of a film’s profitability.  In that case, how did World War Z perform?

It made $50 million, give or take.

But will there be a sequel?  You bet your ass (will they call it World War ZZ?).  Will Paramount find a way to make more money from World War Z down the line?  Ditto.

But here’s the kicker: will the fact that Paramount could have made the same $50 million net profit on a cheaper movie deter them from continuing to pursue the next huge blockbuster?  Not a chance.

So did the studios make money on this year’s movies or not?  That question is even more complicated by the fact that many of the studios distribute movies they don’t necessarily own.  Universal is crowing about Despicable Me 2, but it’s not their movie.  Illumination Entertainment made it (and presumably paid for it), with Universal attached as domestic distributor.  How is total box office gross divided up between them?  No clue.

For fun, I plugged some numbers into a spreadsheet, and the results kind of surprised me.  I’m not counting marketing budgets in these tables, nor am I projecting VOD revenue.  Also, I’m operating under the 50 cents on every dollar assumption.

Here are the box office numbers (another huge shout-out to Box Office Mojo) by studio as of August 15th (not counting any 2012 releases that remained in theaters in 2013).

Disney:

Studio revenues.xls

Disney report card: Despite the headaches (and write-downs) associated with The Lone Ranger, Disney continues to benefit from the $4 billion purchase of Marvel in 2009.  Some of Iron Man 3‘s money was still earmarked for Paramount, so that will cut into Disney’s profits, but, overall, the situation isn’t as dire as you might have been led to believe.  Going forward, not only haven’t international grosses from Planes kicked in yet, but the Thor sequel is still waiting in the wings.

Universal:

Studio revenues.xls

Universal report card: On paper, they look great, but I’m not sure how much they get to keep of Despicable Me 2‘s foreign grosses.  Nonetheless, even after the R.I.P.D. mess, they’ve been the top studio of 2013 so far.

Warner Bros:

Studio revenues.xls

Warner Bros. report card: A real head-scratcher.  Their grosses essentially match Universal’s, but their budgets were much higher.  And they certainly had their share of costly flops.  The thing is, if you’re in the mega-blockbuster business, you can almost always break even.  If you spend a billion on product, you’ll net around a billion in receipts.

Fox:

Studio revenues.xls

Fox report card: They did a hair better than Warner Bros. with fewer titles and lower budgets.  But, in the end, they didn’t earn huge numbers either.

Sony:

Studio revenues.xls

Sony report card: The only studio that has lost money (based on my assumptions) in 2013 thus far.  But they also spent less than all the other studios on their movies, and their losses have only amounted to around $50 million — and there’s still going to be more overseas Smurfs 2 money coming in.  Was it a horrendous year for Sony?  No, I don’t think so.

Paramount:

Studio revenues.xls

Paramount report card: Kind of in the same category as Fox, though they got there with lower budgets.  They had some “hits,” which more or less broke even, and owe quite a bit of their profits to the success of Hansel and Gretel overseas.  When all is said and done, their net earnings didn’t blow anyone away.

So, there you have it.  None of the major studios has gotten out of 2013 without being somehow battered and bruised along the way.  There are winners and losers to be sure, but none of the studios is making huge sums of money (to put these numbers in perspective, ESPN earns billions upon billions each year from cable fees alone), as spiraling budgets make the prospect of huge profits increasingly unattainable.  And remember, I’m not factoring in marketing costs in these numbers.  Who knows how much is left over in the end, but, even for a studio on a winning streak, it can’t be more than a few hundred million dollars.

One thing you can be sure of: these numbers nearly guarantee that all the six major studios will remain firmly entrenched in the global blockbuster business.  Make no mistake: that is precisely what these box office numbers tell us.  Go big or go home.  The fact that this was a record breaking summer at the domestic box office only makes it more likely that we’ll continue to see more of the same.

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2 responses to “Should Box Office Matter?

  1. Wow! Great blog. So many excellent points. I love how you broke it all down. Can’t disagree with any of your conclusions. Though these films may not be as profitable as the studios PR machines would have us believe (Kudos for pointing that out) as long as they remain even semi-profitable, they’re going to keep making them. How distant that Pauline Kael analysis seems. She was citing storm warnings about the film business in the late 70′s! OMG… what would she say today?

    • Honestly, her tune wouldn’t have changed much over the past few decades, I’d guess. Like Ebert, she’d probably have focused her energies on indie movies and up-and-coming talent. I think she gave up on the studios long before her passing. Thanks for the comment!

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