8. BOX OFFICE VS. BUDGET, OR: ADRENALINE IS FOR INDIES

Every industry has an ROI (Return On Investment) curve. So why not make one for film box office? I made a few histograms of ROI’s of different budget categories, based on the 2,349 films that have budget data and international box office data on The-Numbers.com. Here is a summary graph, followed by the detailed histograms:

And here are the histograms behind the above graph. First, this is the total industry picture, across all budgets:

And here is the breakdown of histograms for each budget category:

And just for laughs, here is the histogram for the really tiny movies, whose data is not very reliable, as a large number of them are not reported and those that are reported are not very accurate. By the way, this does not include “Paranormal Activity”, because it’s ridiculous ROI of 15,000x screwed up everything…):

So: if you are a studio that can gather over $100M for your project, you are most likely not going to flop (sorry, John Carter of Mars). However, your returns will most likely not be more than 5x, which is actually not that bad when we are talking about these kind of numbers.

On the other hand, if you’re an indie producer, you better hope to all heavens that you know what you’re doing: the return can be astronomical, but the risk will usually not justify that. That being said, the low-budgeted market is probably swamped with amateurs and first-timers, who have no clue what they’re doing, so if I could only include the real professionals, perhaps the risk graph would be lower for this budget category.

Silicon Valley VC’s were the first to introduce the concept of a broad portfolio of micro investments, such as the Y-Combinator model. This is supposed to mitigate risk, but the question was, and still is – does that one bingo investment (think Paranormal Activity’s 15,000x ROI) really cover for the dozens of failed ones, tiny as they may be? I don’t know about hi-tech, but in Hollywood, it looks like the answer is yes: many micro investments in small projects should yield a higher total return. But since the bandwidth of one studio can only deal with a handful of projects at once, I understand why they tend to go for the lower risk mega-budgeted projects.

It makes me sad, but I understand it.

* Like this post? Follow me on twitter: @stavjdavis and/or like the Facebook page