"Star Wars: The Force Awakens" opened last week and looks set to dominate the box office this month.
The film is the seventh in the "Star Wars" series, and it represents part of a growing trend in Hollywood for blockbuster franchise movies.
Citadel's Stephen Parlett, Evan Ericson, Joe Pasqualichio, and Steven Rosenberg laid out their thoughts on the movie business in a recent Q&A session.
Citadel, the hedge fund founded and led by Ken Griffin, has $25 billion in assets under management.
Pasqualichio was asked what impact flops had on movie studios. His answer reveals a great deal about why movie studios are going down the franchise route.
In short, they want to minimize their risk, appeal to an international audience, and bolster the potential for additional revenues through games and merchandise. That sounds like a no-brainer, and it probably won't come as a surprise to regular filmgoers.
Still, his explanation is a simple distillation of what is going on in Hollywood right now. He said:
There's a saying in Hollywood that "nobody knows nothing." So it's really hard to predict what's going to resonate with the public and what's not. I think a studio would probably be happy batting .500 on hits and misses, but it's really important to get the big bets right. So you had John Carter, a film with an approximate production budget of $250 million that ultimately lost around $200 million. Lone Ranger was another big miss.
Box office flops are going to come up from time to time, but your big bets, and especially the ones with IP backing them, should be enough to cover them. And that's why you're seeing studios move towards IP and franchise films like the Harry Potter series, where you had eight films that generated $7.7 billion over the full run. Those big hits will be able to absorb the losses from the John Carter s. Today, more than ever we're seeing this blockbuster strategy at studios where they rely on really big, tent-pole films – like the Star Wars movies – to generate sufficient profits that cover all of the misses and make the overall slate profitable.
And here he is on the globalization of the movie business:
Above all, this industry is going to continue to get more global. The focus is going to become more on what does the Chinese consumer want, what does the Latin American consumer want? A truly global blockbuster requires very high production value, very recognizable IP, and a plot that appeals to the entire globe.
Read the full Q&A transcript here.
Here is the video: