Jodie Foster may think big-budget films are ruining the future of Hollywood, but financially these films perform better than small-budget films, with rare exceptions, according to an analysis released on Wednesday by Standard & Poor’s.
In analyzing the box office performance of 3,406 big-studio films released between 2000 and October 2017, the credit rating agency found that movies with production budgets of $200 million or higher have “greater, more predictable” box office returns.
The studios whose releases were included in the study were Walt Disney Pictures, 20th Century Fox, Universal Pictures, Sony Pictures, Warner Bros. Pictures, Paramount Pictures, and Lionsgate Films.
S&P also assessed box office predictability by calculating the correlation between production budget and domestic and worldwide box office receipts. In calculating returns, S&P did not take into account other significant costs that studios incur (advertising, marketing, participation) or the lifetime revenue streams of a film.
Worldwide, the big-budget films in the study generated box office returns of 3.69x their production budgets. These films also had the strongest correlation between budget size and box office returns.
The performance of these so-called “tent-pole” films compared with an average 2.99x box office return for films with budgets of $100 million to $199 million and 2.52x for films with budgets of $20 million to $99 million (the largest category).
The average worldwide box office return for the releases studied was 2.84x.
Surprisingly, films with production budgets of less than $20 million earned higher worldwide returns (3.28x) than other films with budgets of $199 million or less. However, their performance is the least predictable, according to S&P.
“Despite the unpredictability, film studios continue to make a large number of these films because of their modest production budgets and the oversize returns if a film is successful,” according to the S&P report. As examples, S&P cited STX Entertainment’s 2016 movie “Bad Moms,” which had worldwide returns of 9.1x, and “The Conjuring,” a 2013 hit from Warner Bros. which produced returns of 15.9x.
At the same time, if these low-budget releases don’t attract audiences, “it isn’t a significant financial loss for a global film studio that generates billions of dollars in annual revenues,” stated S&P.
Not every film, of course, deserves to have a big $200 million production budget. S&P said that “only intellectual property (IP) with a global appeal can justify a big production budget. IP of this type include ‘Star Wars’ and comic book superhero franchises that require extensive special effects or elaborate staging.”
One of the reasons is that, by itself, U.S. domestic box office performance doesn’t justify the costs of making big-budget films. The box office return domestically for the 54 big-budget films studied was only 1.27x. Excluding 15 superhero films from the group of 54 films, the return was near breakeven, at 1.04x.
“The growth of the international film market is the single most important development for the English-language feature film industry in the past 20 years. The international box office has expanded and diversified film revenue streams, allowing film studios to de-risk their film slates,” according to S&P. “With the incremental cash flow from international sources (box office, physical sales, international syndication, etc.), studios now can afford to grow production budgets and make more big-budget films.”
Since 2000, the international box office has accounted for 55.8% of the worldwide box office. And, since 2011, that share has grown to 60.3%, compared with 51.8% for films released from 2000 to 2010, said S&P.
One way Hollywood is responding to box office return trends is by releasing more big budget films, while reducing the total number of films produced. Annual film production declined 16% from 2000-2010 (202 films released on average per year) to 2011-2017 (170 films released on average per year). Meanwhile, the studios have released more big-budget films (33 over the past seven years, versus 21 in 2000-2010).
At the same time, the number of smaller budget films (less than $100 million production budget) has declined (1,008 over the past seven years, versus 2,056 in 2000-2010).
Not surprisingly, “with the shift to more expensive films, average film production budgets have increased,” S&P pointed out. The average film released since 2010 costs 30% more than the average film released from 2000 to 2010.
Whether this trend of bigger budget films can continue given poor domestic box office sales in the United States — the all-important summer 2017 season totaled only $3.8 billion in receipts, a 15.2% drop from 2016 — is a valid question.
It sounds like film icon Foster would rather it not.
“Going to the movies has become like a theme park,” she told Radio Times in December. “Studios making bad content in order to appeal to the masses and shareholders is like fracking — you get the best return right now but you wreck the earth.”
Photo: Warner Bros.