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.
