Movie Studios Are Setting Themselves Up For Huge Losses

Business Insider

This post is part of the Roadmap To The Future Series. Roadmap To The Future explores innovative industry trends and breakthroughs in science, entertainment, and technology. This series is sponsored by Verizon.

When DreamWorks Animation released " Rise of the Guardians " last year, the studio took a gamble on a $145 million film about holiday mascots.

The film performed poorly opening weekend, grossing $23.8 million — short of its $60 million expectations — and the company's stock dropped five percent.

When fourth quarter earnings were reported at the end of last month, "Guardians" took an $87 million write-down, DreamWorks reported losses of $83 million, and 350 employees were laid off.

The result shows how much studios have riding on the success or failure of one film.

"They [DreamWorks Animation] spend as if every movie they produce is a new 'Shrek,' but it's unreasonable to spend as if you are making big, big tentpoles when you really aren't," Vasily Karasyov, an analyst for Susquehanna Financial Group, told TheWrap. "They need to cut production and releasing costs to make it less risky."

DreamWorks Animation's recent misstep brings other plus-sized studio budgets under scrutiny. 

Last year, Disney's $250 million "John Carter" bombed opening weekend, grossing $30.2 million. If it weren't for "The Avengers," which went on to become the highest-earning movie of the year with more than $1.5 billion worldwide, Disney would have been in trouble.

Movies didn't always cost this much to make.

James Cameron broke the mold with "Titanic," which cost $200 million to produce in 1997. It wouldn't be until 2003 that we'd see another big $200 million project with "Terminator 3: Rise of the Machines.

Since then, there's been a rise in the number of films produced each year with multi-million-dollar budgets.

Granted, the majority of them are sequels, hoping to piggyback off the success of a previous installment, but more recently the films are new fodder i nspired by games and fairy tales,  which doesn't always result in big box-office magic:  "Battleship," "Prince of Persia," and "Jack the Giant Slayer" are examples.

In 2009 there were five films with budgets at or above $200 million ("2012," "Terminator Salvation," "Transformers: Revenge of the Fallen," "Avatar," and "Harry Potter and the Half-Blood Prince").

In 2010, six films including two animated pictures cost upwards of $200 million ("Tangled," "Toy Story 3," "Alice in Wonderland," "Iron Man 2," "Robin Hood," and "Prince of Persia").

By 2012, eight films had budgets of $200 million or more.

Here's a look at some of the biggest film budgets of the past three years and the differences in how they fared opening weekend:

As you can see, sometimes the risk pays off. "The Avengers" and "The Dark Knight Rises" grossed more than $2.5 billion combined.

So far this year, seven films are estimated to have larger-than-life budgets:


Only two in the above list are sequels — "The Hobbit" and "Iron Man 3". 

"Man of Steel" is expected to be another hit coming off of director Christopher Nolan's success with the "Batman" franchise. Disney is hoping "Oz the Great and Powerful" will ride the success of "Alice in Wonderland" in 2011.

However, "G.I. Joe: Retaliation" and "The Lone Ranger," were both delayed until this year.

Paramount has "Star Trek: Into Darkness" to fall back on this summer. However, if both "Oz" and "The Lone Ranger" don't fare well in theaters, Disney  could be facing similar situations to DreamWorks later this year.



More From Business Insider

Rates

View Comments (7)