The Blockbuster Rule: Why The Future Belongs To Mega-Franchises
[Note: This article originally appeared in issue #251 of Game Informer]
In Anita Elberse's new book, Blockbusters: Hit-Making, Risk-Taking, and The Big Business of Entertainment, the veteran professor at the prestigious Harvard Business School argues that, despite claims that digital distribution models would democratize content, the future of games, movies, and television lies more than ever in a small handful of huge blockbuster franchises like Call of Duty and Grand Theft Auto. We spoke with Elberse about this thesis.
What's the basic thesis of your book in relation to the entertainment and game industries?
I think of the book as having three parts. The part that has gotten the most attention, maybe because I start with it, is this idea that, in order to be successful, it is probably best for content producers to make blockbuster bets. They should spend a disproportionate part of their budget on what they see as a handful of the most likely winners. That seems pretty intuitive. But, the alternative strategy also feels intuitive to many people - a strategy in which content producers say, "It's so incredibly hard to predict what's going to work in the marketplace, we're going to make a larger number of smaller bets and spend our resources equally. Then, we'll see what sticks in the marketplace." But my research shows that this blockbuster strategy, which seems very risky - making these big bets - leads to the higher chance of success. That, to me, is the first part.
The second part is about bets made on talent and how you should think about those bets. You see a similar notion there of how much it pays for leading content producers to have a talent strategy that revolves around A-list talent.
The third part, and the second half of the book, is how digital technology is affecting all this and whether it makes blockbuster bets more or less relevant and whether it makes superstar talent more or less relevant. I conclude that we'll see bigger bets on blockbusters and bigger bets on superstars because of digital technology.
What type of research is your book based on? Do you go through the economic data of a lot of different companies and properties, or is it based on anecdotal evidence?
It's a combination of number crunching big data sets and in-depth interviews with people that work in the entertainment space and asking them how they look at the developments that are going on around them. Interviews are important, but it's not enough. It's also about looking at patterns that exist in the marketplace. Then you see, for instance, that companies that make these blockbuster bets have better returns. That's something you can only get from analyzing lots of data.
Can you give an example of a company that embraced the blockbuster theory and had success?
The one that I actually start the book with is Warner Brothers. In the past decade or so, it's been more focused on the blockbuster strategy than any other studio. As a result, they have been really successful. They are known for Harry Potter, the Dark Knight franchise.... If you look across all the gambles they've made, particularly under Alan Horn, who pioneered the strategy, you see that they spend about a third of their budget on the top 10 percent of their movies and those movies account for more than half of their total profits. Those are the kind of patterns you see quite a bit.
In the game industry, you see similar dynamics there. If you look at Activision and how they spend their money and how they approach the marketplace, it's very much a blockbuster strategy. Take-Two Interactive might be the most skewed. They really depend on their Grand Theft Auto franchise.
I wonder about the risk. What if all your big bets fail? Isn't that risky? There are always big projects that don't pan out.
You're not wrong. It is incredibly risky to live by this strategy. But it's incredibly risky to make entertainment products to begin with. There's no way around it. The alternative is to say, "We don't want to make these big bets, so lets make a larger number of smaller bets." Or, to make the same number of bets but make them less expensive. Both of those strategies, which seem safer, are actually riskier, because the chances of failure are much higher. That's something a lot of people have trouble wrapping their head around, but that's what emerged from the data. Instead of making a $250 million movie, yes, you could make ten $25 million movies, but you're actu ally making it harder for yourself to succeed by doing so. The collective profits you'd get from those 10 movies are not likely to exceed what you'd get from that $250 million bet. That is a phenomenon that translates across all entertainment industries.
In many ways, this is the opposite of what we thought would happen with the digital revolution in entertainment. There was going to be a death of what we called the "monoculture" -- a world where everyone grew up watching one TV show like Leave it to Beaver and huge icons like Elvis and the Beatles. Digital was going to segment the audience into a multitude of niche markets for products that would eventually be profitable over long periods of time -- the "long tail" theory. Did that prove not to be true?
That's largely the case. It was a compelling idea, and there certainly have been changes in the marketplace. There's more variety in the marketplace. But, what most people forgot when thinking about the market is that the hits are benefiting from this increased access as well. If it becomes cheaper to offer goods, which is what digital technology does, you lower the cost of offering and consuming. It is the most popular products that benefit from that in a disproportionate way. But it's not a monoculture in the sense that there's no room for other voices; it's just incredibly hard for those other voices to break through.
I get a lot of feedback from our readers that they feel as though this focus on blockbusters is having a negative effect on quality -- that too many resources are being devoted to a few huge, formulaic projects at the expense of variety. Can the blockbuster theory have a negative effect on the overall health of an art form?
This is a common concern. I've heard this from many people in different sectors. I understand the concern. For example, if movie studios only made tentpole films or if video game publishers would only make those really big, blockbuster games, that would have a negative impact on the future of those industries. But that's really not what's happening. If you look at the portfolios of these top content producers, they're not just making these big bets. In fact, a good blockbuster strategy means spending a disproportionate amount on these big bets, but not necessarily cutting out the smaller bets. That's where innovation happens. That's where employees can tinker with new ideas.
I'd like to turn it around, actually, and say maybe consumers should be happy that these strategies are happening because it leads to better products with higher production values. If we had a situation, for some reason, consumers would love crappy products, we would be faced with more and more cheap, crappy products. But people love high-production value products. This is a marketplace where Take-Two can spend years and years developing what is by all accounts a phenomenal game in Grand Theft Auto V that requires tremendous resources. The market supports those kind of endeavors, which I am actually quite pleased about. It's a good thing that consumers respond favorably to higher production values and bigger brands.