Friday, May 6, 2011

Occam's barbershop -- Hollywood edition

I was intrigued when I read the following blurb in Felix Salmon's Counterparties:

Did quantitative analysis and movie modelling algorithms kill Anchorman 2?

The feeling of intrigue faded quite a bit when I followed the link and read this:
I was doing a short interview with Ferrell on Friday about his new movie, the indie drama "Everything Must Go," and toward the end Anchorman came up. I was excited to talk about the movie a bit with Ferrell -- especially since rumors of an Anchorman 2 have been circulating. Ferrell deflated my hopes on that score, however, at least for the time being: "We keep trying to explain to Paramount that there’s a lot of interest in a sequel, but they don’t seem to want to listen," Ferrell told me. "I’m not kidding, to the point that I’m openly talking about it with the press. At first we tried to be deferential but now we’re like, 'Yeah they don’t get it.'" This surprised me. With an $85 million domestic gross on a $26 million budget, the first Anchorman was hardly a cult hit. (The Paramount-Anchorman 2 beef is long-festering, it turns out: Deadline wrote a bit about the situation last year, and Adam McKay tweeted that the studio, which owns the rights to the film, "basically passed.") "They say when they model it and run the numbers, it doesn't add up for a sequel," Ferrell explained, "even though we have Steve and Paul and everyone on board to make it, and even though Steve" -- who recently left the cast of The Office -- "is free to make movies now."
Let's do a really quick back-of-the-envelope run of the numbers and see what conclusion we reach.

1. Thanks to the deadline link we know that AM grossed 85mil domestically but only 5 overseas;

2. From the same source, we know that Ferrell, McKay and company are looking at a 70mil budget this time;

3. There is reason to question what side of the career parabola Ferrell is on, at least when he has to carry a movie. The last two films that were clearly Ferrell vehicles (thus excluding Megamind, the Other Guys and Step Brothers) were Land of the Lost (Budget $100 million, Gross revenue $68,777,554) and Semi-Pro (Budget $90 million, Gross revenue $43,884,904);

4. And we haven't even talked about marketing costs which have grown substantially in recent years, often exceeding production costs. The Hangover cost $35 million to make and $40 million to market. Assuming a similar push for Anchorman 2, we're talking a combined budget of around $110 million;

I have no doubt that the studio used various sophisticated models when looking at Anchorman 2. I suspect that's where they got the $40 million budget mentioned in the Deadline post. But it's worth noting that $40 million is awfully close to the number we derive from this decidedly unsophisticated formula:

Conservative Sequel Budget = Gross of first(90) - Marketing(40) - Overruns(10)

Given that (according to Wikipedia) no film starring Ferrell has ever grossed $200 million domestically, his biggest hit (Elf -- $173 million US) was back in 2003, his second biggest ( Talladega Nights) was five years ago and that no live-action film* starring Ferrell has broken $120 million domestically since then, it's not hard to see why a studio might be nervous about committing to $110 million in production and marketing.

Though people tend to talk about models in business with hushed, Oracle-of-Delphi tones, running the numbers usually gives us intuitive, common-sense answers -- often very close to our rough estimates. That's often the key to the models' greatest value -- by reminding us of the obvious, they keep us from building castles in the air using stockholders' money.

* Animated films are a bit of a special case. Megamind did good business, though not as the Incredibles, Up, Ice Age, and no one concluded from those films that Craig T. Nelson, Ed Asner, or Ray Romano could open a big-budget picture.

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