Conditions in the film business are changing. Theaters are struggling as consumer habits are drastically shifting. People still want to see movies, but they
also want to play games and use Facebook and watch Youtube and engage in any other
number of activities.
The DVD market has also declined precipitously. When they do
watch films, many people are satisfied to watch them on their big screen TV,
their iPad or even their phone, but they would rather not bother with discs. Instead, they want direct access, either
through pay-per-view or subscription models (or pirated online copies, but
that’s a different topic for another day).
The revenue from these new home distribution models has not replaced the
lost DVD revenue
In looking at these changes, where are the opportunities? The answers are in audience demographics and a focus on profitability rather than top line revenue. When you look at many of the most profitable
films of the last year, you see a fairly narrow target audience, modest
production costs, innovative marketing and strong international appeal.
Some examples:
1.
The Best Exotic Marigold Hotel. This is a film made for $10 million dollars
that grossed over $134 million worldwide.
It was aimed at an older audience and marketed in very cost-effective
means (including a commercial tie-in with Starbucks). In terms of profitability, it was a rousing
success, playing for 25 weeks without ever breaking the top 5 and having no
appeal to the “prime” movie-going audience of teens and young adults.
2.
Magic Mike. This film was made for only $7 million and
grossed over $167 million worldwide. In
terms of profitability, this is a gross that is almost 24 times the production
cost. That is a huge number. And again, it was done without a massive
marketing budget. It essentially sold
bare male chests to women and gay men – targeting audiences who are perhaps
underserved in the way that this film entertained them.
3.
Paranormal Activity 4. Of course, the horror genre is always a good
bet to deliver a profit. This franchise
sequel was made for only $5 million (wisely resisting the temptation to grossly
inflate the budgets of sequels in a successful franchise). The picture grossed over $140 million
worldwide. That’s over 28 times its
production budget. It did this with a
narrowly targeted audience, modest marketing and strong foreign, all resulting
in a huge profit – see the pattern?
4.
The Devil Inside. This film made over $101 million on a $1
million production. That’s 100 times the
budget – clearly an anomaly, but no studio picture has any possibility to make
that kind of return on a percentage basis.
All of these numbers don’t even consider the subsequent
revenue from domestic pay-per-view and other home distribution.
Here’s the point: The
key to long term success in the film business is to carefully control risk so
that losses are manageable, and simultaneously maintain the possibility of
substantial returns. If you can
effectively do this, financial success over time is extremely likely.
In summary, follow these rules:
1.
Target
Specific Audiences. From its
inception, each film should be squarely aimed at a clearly identifiable group
of people. This vision should never
waiver, and every production element and marketing campaign should be designed
and evaluated with this audience in mind.
2.
Control Production Costs. This is
another advantage of technological advances – production value is less
expensive than it used to be. The money
can be concentrated on elements that are truly attractive to the target audience.
3.
Appeal To The
World. While it is possible to
make profit selling only to domestic audiences, it is much smarter to create
films that the entire world can enjoy.
International box office is often as much as 2/3 of the revenue for
successful films. There is no reason to leave this money on the table.
4.
Market
Intelligently. When you market to a specific audience, you should be able to control
marketing costs and still get the message out to your audience. And don’t ignore the power of commercial tie-ins as a part of your marketing effort.
If these precepts are diligently followed, and you make good
films, then losses will be controlled and profit potential will be
maximized. That’s the road to success. Best wishes to everyone for a successful 2013.
