Hollywood’s Reliance on Sequels Makes for a Pallid Picture

July 26, 2013, 7:06 p.m. ET

Hollywood’s Reliance on Sequels Makes for a Pallid Picture


Hollywood is having a problem with numbers. To get lucrative sequels, studios have to score with original hits, but this summer the biggest movies have titles that end in a 2 or 3. Even more than in recent years, audiences haven’t bought into original concepts despite record-setting efforts to offer big-budget features that generate healthy international ticket sales—and, down the road, ready-made sequels. Several weekends of expensive misses have some in the industry talking about “tentpole” fatigue. Moreover, the glut of megabudget flicks meant to hoist Hollywood’s fortunes is shortening the time studios can capture audiences, especially for a poorly reviewed movie. Hollywood’s dependence on sequels and franchises, particularly in the summer, is hardly new, but this season’s numbers put the issue into sharp relief.The 19 movies released so far this summer with production budgets of $75 million or more have grossed about $2.76 billion at the domestic box office, with “Iron Man 3,” “Despicable Me 2” and the Superman reboot “Man of Steel” taking the top spots. Nine of movies were nonsequels, and though representing nearly half of the big-budget releases, they accounted for only $790.9 million, or 29%, of the category’s box-office take before the July 26 weekend, according to an analysis of figures from Hollywood.com.

The movies based on original premises include costly flops, such as “After Earth.” The offering from Sony Corp.’s6758.TO -3.80% Sony Pictures Entertainment had a production budget of nearly $150 million but its domestic box office over nearly eight weeks is about $60 million. Only one of these new films, “World War Z” from Viacom Inc.’sVIAB +0.23% Paramount Pictures, is expected to parlay this summer’s success into sequels.

The topsy-turvy returns and other high-profile flops like Walt Disney Co.’sDIS +0.67% “The Lone Ranger” have caused hand-wringing in Hollywood over the dependence on big-budget spectacles to draw in moviegoers during the hot summer months. From 2008 to 2012, so-called tentpole films accounted for between 52% and 66% of all summer grosses.

The category has consistently grossed more than production costs. Nonetheless, it’s difficult to determine the payoff to studios, given factors such as marketing expenses, the box-office share claimed by theater owners and home-video sales.

Five years ago, 13 films qualified as summer tentpole offerings. Led by “The Dark Knight,” they grossed $2.69 billion overall, or about $860 million more than production costs. Last year, 15 tentpoles came out, grossing $2.85 billion, or $450 million above cost.

This summer season, beginning in May, at least 23 big-budget films are slated, making for a crowded four months at the multiplex. For the 19 already out, the gross collectively is about $17 million short of recouping costs, with many of the movies still in theaters. Other major summer releases have yet to prove themselves, including Twentieth Century Fox’s “The Wolverine,” which opened Friday, and Sony’s “The Smurfs 2″”and “Elysium,” due out soon.

The taste for proven concepts was on display on a recent afternoon at the Pacific Theatres multiplex at the Grove mall in Los Angeles. Annette Cho and her friend Thomas Seo had considered seeing “R.I.P.D.” from ComcastCorp.’s CMCSA -1.00% Universal Pictures before opting to catch the 2:35 p.m. screening of Sony’s “Grown Ups 2,” because she really enjoyed the first one. The 16-year-old Ms. Cho said she has seen six movies in the past month, four of which were sequels or reboots.

If Hollywood studios were to decide on putting more breathing room between big releases, it would be at least a couple of years before that is reflected at the multiplex. Big films are laid out years in advance, often claiming an opening date before a script has even been written. DreamWorks Animation SKG Inc. plans to release “How to Train Your Dragon 3” on June 18, 2016, while Sony has said “The Amazing Spider Man 4″” should hit theaters in 2018.

Studios often release a big-budget feature during the summer in the U.S. and then stagger its international release—an increasingly critical element of a film’s payoff—over the next several months to maximize its box office in various countries.

International grosses increased 32% from 2008 to 2012, according to the Motion Picture Association of America, Inc., providing a safety net for wary studio executives. This summer, overseas markets have proven vital for U.S. disappointments like “Pacific Rim” from Legendary Pictures LLC. Still, it can be touch and go. After bombing in the U.S., “After Earth” has made a relatively healthy $180 million internationally but will likely remain in the red, according to a person familiar with the matter.

DreamWorks Animation’s “Turbo” opened earlier this month to a sluggish $21.5 million domestically, with its financial fate now in the hands of international openings through October The film is distributed by Twentieth Century Fox, a unit of Twenty-First Century Fox Inc. FOX +0.10% and until recently part of the same company as the publisher of The Wall Street Journal.

“With family-animated films, you chase school holidays, said Chris Aronson, Fox’s president of domestic distribution. And hope springs eternal, with spring holidays just ahead in the Southern Hemisphere.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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