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October 10, 2013

From my experience, when Hollywood executives hear the word “drama”, they tend to suddenly remember a prior engagement, politely end the conversation, exit the room and start running until their distant cries of hysteria blend into the massive exodus of other industry professionals who caught word of the project and are now fleeing in any vector that is pointing away from the mentioned production.

It seems that this notion is one of the most violently engraved paradigms of the industy’s psyche. It’s as if the rule of thumb is: “unless it has a real shot at major awards, stay away from dramas”. Comedies are cool (we’ll see about that), horror is awesome (not), action is just dandy (sure, if your underwear is made of pure gold). But dramas seem to be lepars. And no one I talk to can really pin point why. So I set out to investigate the numbers.

The first step is also the simplest one: finding the Return On Investment (ROI) of different genres. This was done by aggregating all the films released on more than 500 screens, between 2008-2012 (kudos to our new data mining tool at Great Road Capital), that have production budget data publically available on – and averaging the ratio of domestic box-office-to-budget, for every genre. Here is what it looks like:

Domestic ROI by Genre

This is a great example of why I don’t like averages and means, but we’ll get to that in a bit.

First, we can see that there isn’t a significant difference between “heavy award contenders” and just regular dramas[1]. In fact it looks like “Pure Dramas” do slightly better than the much larger group of drama sub genres (which may include films that are really action/thriller/fantasy films with a small drama element). Second, we can see that while horror is way up there, dramas actually do better business, on average, than action movies or, surprisingly, comedies. More about that at the end of this post.

So that didn’t quite explain the hatred towards dramas.

The next thing on the agenda is to try to define risk. Anyone with a basic understanding of statistics knows that averages can be very misleading, if they are not coupled with some kind of estimate of the spread around that average/mean. One of the first things we ask at GRC when presented with a seemingly compelling “average argument” to support a pitch for a project, is “what is the standard deviation?” and “what is the size of your sample?” (and of course – “did you cherry pick that sample?”). So in order to get a better look at the genre comparison, the risk for that same group of films was defined as the normalized ratio of the standard deviation to average of the domestic box office (don’t worry about the sample size – it’s at least 50 films[2] for each category and I promise I have no agenda here, so cherry-picking did not take place). Here are the results:

Domestic Risk by Genre

Now we are starting to see why producers and development execs have a bad hunch about dramas: while they may do well on average, they are a wild card, especially compared to comedies. If I could invest in a thousand movies – having all of them be dramas could be a good idea, but if I have to randomly pick one investment, dramas are just too unexpected. Horror is less volatile than I expected, but don’t forget that this study only includes the movies that got a 500+ screen release, and not all of the trashy low budget productions that barely make it to the production finish line and end up on 3 midnight screens in New Mexico at best. Action movies are even more stable than comedies, but that’s a reward that only the big players have the resources to tap into.

The third aspect that seemed very relevant is each genre’s dependency on budget. This was calculated by normalizing the r-squared value of the domestic box office vs. production budget spread plot. Here are the results of that:

Domestic Dependency on Budget by Genre

Here we see that big studios and their action flicks are the big winners: every dollar invested in the budget is far more likely to yield an extra dollar at the box office in this genre than in all the others. Comedies and dramas have a budget-to-box office relationship that is about half as strong and horror is way behind: a more expensive horror production does not translate into better financial performance (which reduces the advantage of big players in this genre – more on this in a bit).

So, to summarize, here are all three plots together:

Domestic ROI Risk and Dependency on Budget by Genre

What this all means:

If you have a huge amount of capital, like studios do, it makes sense to go for action mega-movies, because while their relative return is lower, their absolute return can be higher and their risk is relatively low, plus you know that every dollar you put into the production is probably going to have an impact on revenues.

While lower risk is the privilege of the rich, if you are a medium sized independent production company, comedies are a nice option[3]: a relatively low risk (yes, I know that’s a kind of oxymoron in this industry), coupled with un-spectacular-yet-fairly-solid returns. A medium dependency on budget means that you have a chance of making it work even if you don’t have a giant pool of cash, while still keeping the barriers to entry high enough so the landscape is not too crowded (which is the biggest problem for horror productions). This is, of course, not to say that comedies are always winners, but they are less of a wild card.

Moving on to the low budget production houses and their love of horror: even after the exclusion of “Paranormal Activity” from the sample[4], there is a very low correlation between budget and performance – which is good if you, well, don’t have much of a budget. However, this translates into low barriers to entry, which means that everyone is trying to do horror, resulting in performance that is extremely unpredictable (and that doesn’t even include the ones who never made it to the finish line). When we get pitched horror scripts, we need to see why a specific one is unique: it’s not enough to rely on the memory of a few recent Cinderella stories, because for every meteor horror success story, there are so many crashes-and-burns. It’s very hard to make horror that is both good and successful, as proven by these numbers.

And finally, dramas: now that we have a more detailed picture of film performance elements (on top of the simplistic misleading average performance argument), you can see why dramas are the pariahs of the film industry: while they have a reasonable relative return, they have an insane risk level, regardless of their award-worthiness or purity of genre. In addition, they have a medium correlation between budget and performance, meaning that only medium-large players can effectively exploit those seemingly attractive returns.


[1] Note that while the many sub genres of drama may include things like “fantasy drama” or “action drama”, the category of “Pure Drama” includes only films categorized by as “drama”. When evaluating that list, the vast majority of those were accurately categorized as such hardcore dramas, with only very few odd exceptions that were omitted.

[2] Sample sizes (number of films with available production budget and domestic box office data): “All Drama Sub Genres” – 124; “Dramas Not Including Best Pic Noms” – 107; “Pure Drama” – 97; Comedies – 219; “Horror” – 61; “Action” – 80; “All Movies” – 718.

[3] This recommendation is obviously a bit superficial, as we can dig into many additional important details, such as the international-vs-domestic appeal of this genre, which is crucial for independent productions as international pre-sales are the key to debt financing of the budget, while domestic appeal is the key to actual revenues (in most cases).

[4] For the horror genre, the film “Paranormal Activity” was left out of the list, since it’s performance was so far out of range (it had an extremely abnormal behavior: 15,000x ROI) that it managed to skew the results, even though the sample size was large.

A few general notes and caveats:

– These results refer only to domestic box office. The picture might be different for international box office.

– The list of movies evaluated here pools together studio productions and independent productions, which have very different financing and development processes, so the conclusions might vary depending on specific project conditions.

– Of course, production budgets are different than total budgets (which include marketing and P&A budgets – that have been proven in this blog to have a significant impact on performance), but given the large sample sizes for each genre, these results should still provide a pretty good picture of the general performance trends.

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