Bad Films/Good Economics 
[Why There Are So Many Superhero Movies]

//Philip Conklin

Whether they’re complaining or not, critics, commentators, and your dad have been talking about the childishness of Hollywood movies for years. It’s all superhero movies, Fast Five (or are we on to Six?), and bad remakes these days. In a July article in The New Yorker, Richard Brody, one of the magazine’s film critics, asked, “What Happened to Original Movies Aimed at Adults?” His article was a response to a few of author Mark Harris’s tweets: “Number of 2014’s ten highest-grossing movies that are not remakes, sequels, or adaptations of material for children: 0,” and, “To those who are saying ‘What else is new?’, through 2000, half of each year’s top 10 movies were often originals aimed at adults.” Brody's article argues, among other things, that the great auteurs, who can't compete in the cutthroat arena of studio blockbusters, now require “exceptional modes of financing,” akin to orchestras or opera houses receiving donations from wealthy patrons. He centers this change in the ‘80s, when “the industry found that it had left its largest market, that of young people wanting to get out of the house, untapped or shunted to ludicrous beach-blanket anachronisms.”

In a New York Times article called “The Death of Adulthood in American Culture,” A.O. Scott addresses a similar point: “In my main line of work as a film critic, I have watched over the past 15 years as the studios committed their vast financial and imaginative resources to the cultivation of franchises … that advance an essentially juvenile vision of the world. Comic-book movies, family-friendly animated adventures, tales of adolescent heroism and comedies of arrested development do not only make up the commercial center of 21st-century Hollywood. They are its artistic heart.”

While these articles, and others like them, address an important trend in the American movie industry, their energies are misguided. While conceding that filmmaking is a business, or vaguely referring to the “commercial realm,” the thrust of these articles is mainly directed towards explaining how social and cultural trends have shaped the film business. Though I wouldn’t categorically dismiss arguments of that kind, they miss the point that the films Hollywood studios make are not a response to shifts in the zeitgeist, but necessary adaptations to the economic imperatives of the film industry. Popular movies are what they are not because of a lack of creative imagination on the part of studio heads, or tectonic shifts in the cultural landscape, but because of shrewd and specific reactions to the reality of the modern entertainment business.

The first point to understand is studios do not make money from the theatrical release of films. At least, not in general. Despite the widely reported and discussed Box Office numbers, seemingly the sole and absolute judge of a film’s financial success, box office receipts are not a source of revenue for the studios. First of all, the numbers are deceiving; the “budget” these box office numbers are compared against is the production budget, meaning the cost to produce the film — paying for the crew, the script, locations, postproduction, etc. — but excludes other expenses like Prints and Advertising — which in 2007, the most recent year for which I could find a number, cost the major studios on average $35.9 million per film. [1] Further, studios only keep about 50% of the revenue from domestic ticket sales, [2] and 40% from international ticket sales [3] — the theaters keep the rest — from which percentage the studios still have to pay hefty distribution fees, including prints and advertising, customs fees, taxes, and insurance. After all this, it’s rare that studios end up with any profit from a film’s theatrical release.

To illustrate this, let’s look at Godzilla, the 9th highest “grossing” film of 2014. On the surface, it appears to be fantastically successful, with a “budget” of $160 million, domestic box office receipts of $200.7 million, and international box office receipts of $324.3 million, for a total of $525 million. Subtracting the budget from the revenue, the film appears to have earned $365 million for Warner Bros. But this is not an accurate number. Remember that the studios only keep about 50% of domestic theater ticket sales ($100.35 million), from which we have to subtract prints and advertising ($35.9 million, using the 2007 average, surely much lower than the advertising budget for a film this size), as well as other fees. Further, for international ticket sales, subtracting advertising and distribution fees, Edward Jay Epstein estimates that a studio is “lucky to wind up with 15 percent of what is reported as the foreign gross” [4], which in this case would be $48.6 million.

Godzilla is, after its theatrical release, not $365 million in the black, but $76.95 million in the red. Considering that this estimate doesn’t include all domestic distribution fees, or other expenses like payments to unions and guilds, Godzilla is probably even deeper in debt. The film will have to earn back its money in other ways.

However, box office numbers do often indicate the future financial success of a film; the more popular it is in theaters, the more DVDs will get bought, the higher the demand for television licensing will be, the more action figures will be sold. There’s also a historical reason for the reporting of box office numbers. Until around 1950, the six major studios (Paramount, Universal, Columbia, Warner Bros., Fox, and Walt Disney) owned almost all of the theaters in the country (all the studios started as theater chains and only later started manufacturing products to show in those theaters). Since they controlled production, distribution, and exhibition, the box office receipts were almost pure profit for the studios. And since there was little competition from other media, the studios cleaned up at the box office.

Two things changed this. First, in 1948, the studios lost an anti-trust lawsuit and were forced to divest themselves from their movie theater chains. Second was television, which kept a growing number of filmgoers at home. With a string of intermediaries between the price of admission and the studios’ pockets, and with increasing competition from home entertainment, the big six studios were stripped of their power, and the studio system that had controlled American movies for years fell apart. But over the next decades, the studios developed different ways to earn money from their movies.

Today, the studio’s revenue comes from the licensing of intellectual property to a multitude of other markets. Essentially, as Epstein has said, studios “make their money by selling the same product over and over again through different platforms.” Licensing movies to television, DVD, and streaming services like Netflix and Amazon Prime; licensing movie characters to video games, toys, clothing, electronics, fast food drink cups, and bed sheets. The longer the life of a product, the more revenue it brings in, thus all the franchises and remakes; it’s easier to build off of something people are already aware of than to start from scratch. This also means that a studio’s library is an important source of revenue; the more avenues you can find to release previous films — whether the studio made the picture or simply purchased the rights — the better. A case in point is the recent theatrical re-release of Ghostbusters to mark its 30-year anniversary, which according to Entertainment Weekly, “is the centerpiece of a Ghostbusters‘ anniversary celebration that will also include special events, collectible merchandise, and a new home-entertainment release. The Ghostbusters 30th Anniversary Edition Blu-ray, as well as the Ghostbusters II 25th Anniversary Edition Blu-ray will be available on Sept. 16.” [5]

In this light, the movies produced by Hollywood are first and foremost platforms to introduce these licensable products to the largest audience possible. This is reflected in the fact that the six global media conglomerates — National Amusements, Comcast, The Walt Disney Company, Sony, Time Warner, and 21st Century Fox — that own one of the six major studios are earning less and less of their revenue from the filmmaking portions of their operation; now, only about 10% of the profits of these six companies is accounted for by their movie business. [6]

The reason for the juvenile disposition of so many of the cultural products of Hollywood is that those are the ones that most perfectly fit in with the economic realities of the system. Fundamentally, wide-released studio films are aimed at teenagers, especially teenage boys. There are several reasons for this. Principally, this is the group that can be most consistently relied upon to leave the house and go to a movie theater. [7] At the theater, they are more likely to buy popcorn, candy, and drinks that the theaters rely on to earn their money. They are more likely to buy apparel, toys, and other merchandise featuring film characters. And they spend hours at home watching television, playing video games, and watching movies. [8] In other words, they are constantly available and willing to participate in the ancillary markets that produce Hollywood’s profits.

One effect this has on the “adulthood” of commercially released movies is ratings. If a studio expects a film to perform well financially, the film must be below an R rating. For one, many TV channels — particularly ones that offer programming for the studios’ target audience of children and teens — will not play ads for a film with an R rating; fast food, beverage, and toy companies will usually not participate in promotional and marketing deals with R-rated movies; Wal-Mart — which accounted for 25 percent of the studios’ DVD sales in 2007 [9] — will not display a DVD with graphic content in a prominent part of the store; an R-rated film is a hassle to license to television, since the film must be recut to eliminate nudity, foul language, and graphic violence, as required by the FCC; finally, theaters are less willing to play R-rated movies for the long runs the studios need to come close to earning back their money, since they’re required to have an employee check that no one under 17 is admitted to the film without an adult.

When you realize that teenagers are the target audience, a lot of other things begin to make sense. One is release dates. The critical times of year for movie releases are summer, Thanksgiving, and Christmas, which all have one thing in common: kids are not in school, and are therefore available to go see movies every day. There is also the fact that teenagers are more interested in movies with lots of action and special effects than ones with big-name stars, [10] which is why movie stars’ salaries and sway have decreased significantly in recent years.

Their reliance on revenues from ancillary markets, and from teenagers buying the products in those markets, also reveals much about the content of studio wide releases. In order to earn wide commercial success, a film should have characters that can be easily licensed to toys, video games, apparel, animated television shows, theme park rides, iPhone apps, etc. The movies that fit this bill are action movies, superhero movies, animated movies, and especially ones with elements of all three. The top ten grossing films in the U.S. this year are, in order:

Guardians of the Galaxy
Captain America: The Winter Soldier
The Lego Movie
Transformers: Age of Extinction
Maleficent
X-Men: Days of Future Past
Dawn of the Planet of the Apes
The Amazing Spider-Man 2
Godzilla
22 Jump Street

Among these, none are “original:” two are based on children’s toys, four are based on comic books, three are based on previous films or franchises, and one is based on a TV show. This is not because of some lack of imagination on the part of studio heads. All of these films have elements that are transferable across a variety of platforms that are more lucrative for the studio than the theatrical release of films. They are built on things that people are already aware of, and that kids like, and they will have a long life in future films, games, toys, and all the rest of it.

To illustrate this, let’s compare two films that came out this summer: Snowpiercer and the aforementioned Guardians of the Galaxy. Both are action movies, based on previously published material (a comic book and a graphic novel, respectively), and star major Hollywood actors (Chris Pratt, Zoe Saldana, and Bradley Cooper in Guardians, and Chris Evans in Snowpiercer). Initially, it seems they could both become profitable for the studios. But there are specific reasons why Guardians will and Snowpiercer will not.

Guardians is based on a series of apparently little known Marvel comic books. Snowpiercer is based on a French graphic novel. Marvel is a wholly owned subsidiary of The Walt Disney Company, which produced and distributed Guardians, and it’s no coincidence that the studio’s highly celebrated “discovery” and reboot of the source material will coincide with sales of previous and future comic books, and also provide a wealth of source material for future movies. The graphic novel Snowpiercer is based on — Le Transperceneige — may see an uptick in sales from the release of the movie, but this won’t result in much profit for the studios.

Snowpiercer is rated R. Guardians is rated PG-13. It was guaranteed from the start, therefore, that Guardians would reach a wider audience, not only because the key teen demographic is only, allegedly, allowed to see the one film, but also because Guardians’ PG-13 rating ensures a broader marketing campaign. So, the more “adult” Snowpiercer is already way behind Guardians.

Because of its cartoonish characters and setting, Guardians is more easily merchandisable than Snowpiercer, a post-apocalyptic film with solely human characters. Even before the release of the film, Guardians already had a huge merchandising campaign in place. The campaign included “a 10-inch electronic figure from Hasbro, Lego’s Milano spaceship rescue construction set, Freeze’s ’80s-inspired apparel with neon colors and retro graphics, iHome character speakers, Mad Engine’s Groot and Rocket T-shirts, Funko’s vinyl bobble heads, Rubies and Disguise’s Star-Lord and Rocket Raccoon costumes and back-to-school backpacks and stationery from Fast Forward and Innovative Designs.” While a Google search for Snowpiercer merchandise doesn’t turn up anything, the Disney online store already has a whole section devoted to Guardians. Of course, it would be hard to get a kid excited about a Lego set that depicts a socially hierarchized train speeding through an arctic wasteland, or about a t-shirt with, say, a character with a severed arm and missing teeth on it. A Guardians of the Galaxy logo, or a Captain America shield, looks much better.

What this all boils down to is that films like Guardians are capable of developing a fan base, while films like Snowpiercer are not. Of course, it is much easier to build off an already existing fan base — cue the remakes, franchises, and supposed unoriginality. If you are able to inculcate a dedicated following for a particular film, not only will they go see it, but they’ll buy the video game, they’ll collect the Lego set, they’ll play the iPhone apps, they’ll anticipate the next movie, they’ll discuss discrepancies between the comic books and the film online, they’ll wear the t-shirts, they’ll go to the theme park, and do all sorts of other things in all kinds of markets that kick back to the studios. Of course, it’s teenagers who are most susceptible to this kind of fandom, and so it’s teenagers for whom these films are made.

Simply put, original movies aimed at adults don’t fit into the financial system of Hollywood. While they might be lauded at industry awards shows, or sometimes earn their money back after DVD sales and TV and streaming licensing, they do not drive the Hollywood money machine. Nor will they ever, not as the system currently exists. Of course, as I mentioned, the Hollywood money machine is only a fraction of the massive entertainment machine that includes the six conglomerates that own the studios, as well as controlling the majority of TV broadcasting, music, and home entertainment of all kinds.

The trends in commercial American movies, then, have very little to do with the greed of studio heads, the unoriginality of writers, the death of adulthood in the culture, or anything else of the kind. Rather, they are the product of economic necessity, small cogs in the gargantuan machinations of multinational corporations. There is no one to blame but the system that not only allows this to thrive, but requires it to continue to exist.

This isn’t all meant as a pat and cynical dismissal of cinema. In fact, I’m tremendously optimistic about the state of films. There are plenty of great films, some that are even original and aimed at adults. But when we’re talking about commercial Hollywood studio releases, these are the terms that we’re dealing with. For discussions of the kind initiated by Brody and Scott to be fruitful, it’s important to understand what’s driving the system that underlies them, to realize that economics is not a facet or a byproduct of Hollywood film culture, but the axis on which it turns.

//Philip Conklin is a co-founder of The Periphery.

Footnotes:
[1] Epstein, Edward Jay, The Hollywood Economist, p.48
[2] Epstein, Hollywood Economist, p. 18
[3] Epstein, Hollywood Economist, p. 116
[4] Epstein, Hollywood Economist, p. 117
[5] This dreck passes for journalism in the entertainment world
[6] http://www.economist.com/news/business/21572218-tale-two-tinseltowns-split-screens
[7] Epstein, Hollywood Economist, p. 78
[8] Epstein, The Big Picture: The New Logic of Money and Power in Hollywood, p. 20-21
[9] Epstein, Hollywood Economist, p. 45
[10] Epstein, The Big Picture, p. 231