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Kung Fu Panda 3 has hauled in millions worldwide.  DreamWorksTV/YouTube

The economics of a blockbuster

Janet Nguyen Feb 15, 2016
Kung Fu Panda 3 has hauled in millions worldwide.  DreamWorksTV/YouTube

Big-budget sequels, superhero films and CGI-animated tales have taken over the worldwide box office in recent years, highlighting the growing domination of tentpoles in popular culture and sparking debate about whether the production of big-budget movies helps or hurts the financing of smaller films with less appeal.

“Kung Fu Panda 3,” one of the latest tentpole releases, cost at least $140 million and has already hauled in about $262 million worldwide in revenue. In the past decade, tentpoles — big-budget flicks that are supposed to financially support a studio through their returns – have primarily pulled in the most earnings at the box office.

The Hollywood ecosystem of movie profits is complex: tentpoles can help offset the costs of less profitable flicks or independent projects, but the concentration on making popcorn movies has led to a decrease in the production of smaller-scale films, and will continue to, according to industry analysts.

In the past five years, the movie and video production industry has faced increasing film production costs. Investment has gone into high-cost special effects with a focus on nabbing high ticket sales rather than producing more comedies and dramas, according to a recent report from research firm IBISWorld.

The IBISWorld report states that the growing trend of 3-D movies is the reason for the  increase in operational costs, which has caused studios to reduce the number and types of movies made. According to the MPAA, 708 films were released in 2014 — a 24 percent decrease from a decade ago.

Basically, big budget film begets big budget film.

This new movie-making strategy has caused a shift away from the creation of mid-budget films, specifically, said Ben Harris, an assistant director at the UCLA Department of Film, Television and Digital Media.

Mid-budget movies are films that cost anywhere between $20 million to $70 million or so to make.

“We need those films that you can’t describe in an elevator. But those are films that are harder to sell,” said Daniel Loria of BoxOffice Media, which reports on film industry news and data.  

Yet while an increasing reliance on big-budget films may seem like a safe bet for studios, it’s anything but, said Jason Squire, an associate professor at USC’s School of Cinematic Arts.

“The thing to remember about blockbuster movies is that that they are highly speculative. They are very risky. Even with a familiar franchise,” Squire said.

But the potential economic damage from a series of tentpole failures really depends on which studios are spearheading these movies, Loria said.

A big studio like Disney, which owns successful properties such as the “Star Wars” franchise and Marvel Studios, could survive losses, while a studio like Lions Gate probably couldn’t, he said.   

“That’s a company that really can’t afford “The Hunger Games” to not work,” Loria noted.

Harris said that even with any potential risks from a failed blockbuster, they’re here to stay because of  how much consumer reach they have — think DVD and product sales, along with TV syndication. Theater revenue is just one component of the equation.

“Imagine the blockbuster is kind of the locomotive that is ahead all of these divisions and pulling them all together,” Harris said. “I think the studios couldn’t exist without blockbusters. I think it’s built into their organizational DNA to have a blockbuster.”

While the factory-like production of megabudget movies is a recent phenomenon, the rise of the blockbuster began decades ago — starting with “Jaws” and “Star Wars”  in the ’70s.

They opened the eyes of studio distributors who realized the enormous potential of national release, Squire said. Previously, movies were released regionally.

Now, a good chunk of  the mega-budget projects that studios produce take the form of comic book adaptations. Over the next five years, at least 29 superhero movies are expected to be released.

Harris said he thinks there’s a psychological aspect to the fascination with superheroes, one rooted in fear.

“Superhero movies are an expression of what’s going on in our culture — anxieties and insecurity about where the world is.” Harris said. “Audiences are looking for that kind of messiah that is independent of political regime.”

As to whether we’re facing a crisis in quality film, Loria said he doesn’t think we’ve reached a critical point.

“There are still a lot of very exciting filmmakers,” he said. “And there are a lot of great independent distributors looking for the type of films that studios aren’t making. I think that’s a wonderful thing.”

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