Wednesday, September 2, 2015

Or you could flip this around and say that big-budget superhero movies are a terrible investment

[Part of our ongoing economics-of-movies thread]

The following analysis is a bit simplistic but it does raise interesting questions about perceived vs. actual success in Hollywood.

From Planet Money

Using data from Studio System, a company that collects entertainment industry data, we looked at what kind of films have had the best return on investment over the last five years.
Horror films are at the top of the list, with 13 of the top 30 films by ROI since 2010.

And within the horror category, profits can be huge on small investments. The top five films in horror all had an ROI around 2,000 percent (translation: for every $10 put into a movie, an investor would get $200 in profit). By comparison the top films in comedy had an ROI around 1,200 percent.


Obviously if you're looking for the biggest payoff in total dollar amounts, the most profitable films in Hollywood will still be the traditional action and drama blockbusters. Look at this year's big summer flick, Jurassic World. It has made $1.6 billion in profit worldwide, but it cost an estimated $300 million to produce and market. That's an ROI of roughly 533 percent. By contrast, the horror hit Paranormal Activity 2 made $236 million but only cost $9.4 million to produce and market. That's an ROI of 2,510 percent.


  1. That seems soooo wrong to compare the biggest successes in each domain. Of course, low-budget movies will have higher variance in that ROI ratio. But the decision has to be decided before the movie is made, hence it's meaningless from a decision point of view to compare extremes. It is averages that are relevant to the decision.

    Worth a blog post all its own, I guess.

    1. Yes, there are huge problems with simple comparisons using this ratio, particularly given that the denominator can go down to virtually zero with horror films (Blair Witch cost $22,500 to make). By focusing on top ROIs, the Planet Money people are kinda looking at winning lottery tickets here (thus my somewhat guarded introduction). Mean would have been a much better choice, though I would have preferred to go even further and look at distributions.

      That said, there are some interesting take-aways. One is that, even if we limit ourselves to medium-to-large budget movies (thus reducing the variability), the ROI of the big franchises of today still don't look that impressive, particularly if you look at the hot trends of the past (musicals, spy films, disaster movies).

      My concerns about the current business model is that people are so dazzled by the magnitude of the revenue (and the accompanying hype) that they are losing sight of things like ROI and stability.