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Disney's Secret: Pushing Aside Jedi Master Lucas

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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The record-breaking performance of "The Force Awakens," the new Star Wars sequel, demonstrates marketing's victory over creativity in the movie industry. Hollywood, however, isn't to blame: Because of the way we watch movies, the industry is increasingly dependent on a few enormous financial bets -- and sequels are the safest.

"The Force Awakens" grossed $238 million in the U.S. alone on its opening weekend, making it the fastest movie to make its first $100 million, $150 million and $200 million. Our family went, of course, and so probably did yours. Because Star Wars is a Disney franchise now, acquired for $4 billion, and the result was designed to recoup a big part of the investment.

As with its acquisition of the Marvel comic book universe, Disney's goal was to awaken as little outrage as possible among Star Wars fans, while at the same time driving merchandise sales with new characters such as the cute BB-8 robot. It's a marketing feat for business school students to study: "How to push the original creator aside and produce what the target audience wants."

There's a bigger story behind this calculated, if somewhat uninspired, success. In 1990-2000, there were by my count an average of 1.9 of sequels, prequels and remakes among the industry's top 10 box-office hits. In the following decade, that figure increased to 4.5 out of 10, and in 2011-2015, to 7.4 out of 10. (In making the calculations, I didn't count the first movie of a series as a sequel and treated TV series remakes as original).

Familiarity Breeds Big Hits
Number of sequels, prequels and remakes among the 10 top-grossing movies in the U.S.
 
Source: Box Office Mojo

This trend has been bemoaned by writers for years. Even those of us who do not write for the movies cannot help but feel slighted by the sequel boom: The industry doesn't appear to believe in original stories anymore.

It would be wrong to call Hollywood studio bosses overcautious, though. The risks they face have increased greatly, and they are responding sensibly to them.

In 1990, according to Box Office Mojo, the average movie grossed $12.2 million in the U.S. In 2015, before the arrival of "The Force Awakens," the average take was $15.4 million -- just 26 percent more, even though ticket prices had roughly doubled in the 25 intervening years. However, the average top-10 hit (again, before the latest Star Wars installment) grossed $326.9 million this year and $154.5 million in 1990, an increase of 110 percent. 

A Top-Heavy Industry
Average gross box office returns for Top-10 movies and all movies shown in U.S. theaters
 
Source: Box Office Mojo

Making average movies is a business with declining returns. It makes sense: All traditional content industries have been battered by the technological revolution, and Hollywood is no exception. Netflix made $6.4 billion in revenue last year, 62 percent of the total U.S. theater gross. People would rather watch most movies at home or even on their mobile devices: If there are no spectacular visual effects, a trip to a movie house has become redundant.

The production of top-10 hits is, on the contrary, an increasingly lucrative business. The gross ticket sales of blockbusters have actually overtaken ticket price inflation. That makes sense, too: Movies such as the latest Star Wars offering are best seen on a big screen, with 3-D glasses. On a small screen, much of the power of today's box office hits is often lost.

It costs a lot to produce one of these technological juggernauts. "The Force Awakens" had a $200 million budget. Blowing that kind of money on a dud can be painful, something Disney knows all too well. Its 2013 movie "The Lone Ranger" starred Johnny Depp and cost $215 million to make. It grossed only $89.3 million in the U.S. and $260 million worldwide, resulting in heavy losses (a movie generally needs to gross twice its budget to turn a profit). Drawn from an old radio series, "The Lone Ranger" was neither sequel nor prequel and, from a business point of view, should never have been made.

Sequels, prequels and remakes have been consistently shown to perform better than original movies. Using Box Office Mojo data from 2011 for his recent master's thesis, Catolica-Lisbon School of Business and Economics student David Polido determined that the average ratio of revenue to budget stood at 2.24 for sequels, compared with 1.56 for non-sequels. Although revenue often declines as the number of movies in a franchise increases, recent hits have proved that that's not a universal law: Series such as the Harry Potter films and the movies based on J.R.R. Tolkien's books have not suffered from dwindling returns, perhaps because their creators kept them coming at relatively short intervals: That's known to be useful.

Disney, having paid dearly for the Star Wars franchise, is determined to make no marketing mistakes with it. Even George Lucas, the creator of the Star Wars universe who had totally different ideas for the sequels, says "the fans are going to love" "The Force Awakens." A lot of effort must have gone into the focus groups.

As for those of us who would like a little more art and daring in our movies, and perhaps a little less naked business calculation, we have only ourselves and the technology that we find so life-changingly convenient to blame. Our altered viewing habits have pushed Hollywood to make bigger, and thus necessarily safer, bets.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Marc Champion at mchampion7@bloomberg.net