“So how do you win, how can you make money if the dumbest guy in the room is the one setting the price?” – Jerry Neumann
Every business has better or worse business models. Pixar only worked as a movie company thanks to the extensions offered by Disney. John Lassiter told Steve Jobs that each movie they made had to be the highest-earning animated movie of all-time every time. Unless of course there was theme park, merchandise, and licensing revenue too.
Another movie model is Thomas Tull’s experience at Legendary Pictures. There the goal was to “stand as close as you can to absolute talent” and be mindful with the marketing. Great directors (Nolan, del Toro, Jonze, Snyder) with established characters (Batman, Superman, Jurassic Park) and good marketing meant Legendary worked.
A third movie model is the Blumhouse model. How does it work?
1/ Horror is the minivan of Hollywood. One day I went to a friend’s house to play pickleball. They love pickleball and painted a court on their driveway. I parked in the grass, got out of the car, and was welcomed by the question you bought a minivan?!?!?!
Yup. Besides the practical aspects, minivans are don’t include a “signaling premium”. It looks cool to ride in a Suburban. A minivan is much much much less cool. Because it is ‘hired’ to do fewer things it’s cheaper for the other jobs.
In Hollywood action movies are Suburbans and horror is the minivan. “It’s very hard for producers and executives in Hollywood,” Blum said, “to get out of their way.” Horror movies don’t have an ego reward.
2/ Control the costs. Blum does this three ways.
- Actors get the minimum plus bonuses. “Few locations, few speaking parts, and we shoot 90% of our movies in Los Angeles. It’s twenty to twenty-five days and everyone works for the least they’re allowed to be paid from the union.” It’s a venture capital model.
- There’s no meddling. “I’m not an artist,” Blum said, “I leave that to the directors.” If you hire the right people they don’t need to be told what to do. At Seinfeld, they celebrated the 100th episode with an enlarged list of requests from NBC – none of which had been made. People are willing to work for less because there’s also no “note tax” on their psyche.
- Moneyball hiring. “James Wan and Leigh (Whannell) had done Saw together and they came in my office and pitched Insidious,” Blum said, “Leigh and James had done two movies for Universal that hadn’t worked very well and I think Hollywood judges all of us too harshly on our last work as opposed to our body of work.” Blum found metrics that were underpriced by the market due to recency.
3/ Total addressable market. The movie business model affects how many and what kind of movies there are. The 1990s saw a bunch of movies because there were many screens. The 2000s saw a bunch of DVDs because of their high margins. The 2010s saw a bunch of superhero action movies because they easily translated across languages. Horror does too.
4/ Sequels. Each movie is a test. If the ‘proof of concept’ works, Blum and his team add to it. The Purge was made for $3M and earned $90M in 2013. The sequel, Anarchy, was made for $9M and earned $110M in 2014. There have been five Purge films (so far).
Is there such a thing as a bad business? There are poorly run businesses. Some businesses attempt the wrong thing. There are business cycles. But every business has a model that works. Jason Blum utilizes ego and lack of to compete and compensate in a unique way. Much like a CAC of zero changes the unit economics, Blum’s approach opens up a business model that works.