This is a guest post by Richard Armstrong who is an early stage investor in many startups in both SE Asia and globally. Plus Richard has cofounded several companies.
Guest Author: Richard Armstrong
I came across this post the other day (below) and it got me thinking a bit about ROI on films.
You see Blumhouse Productions is famous for making some films that have the best ROI of all-time in the film industry.
I’m talking about films like Paranormal Activity, The Purge, and Get Out.
So how does someone get good at creating these relatively low budget films that make a ton of money?
Is there some type of secret formula to it?
If you look at their lineup of their films and the ROI they’ve earned on them… it certainly does seem like they cracked it.
Maybe it’s that horror films have a much better chance of creating these types of ROI’s? After all pretty much all of the films on this list are horror films.
So how is this guy, Jason Blum doing it?
Well… to answer this question we need to wind it back a bit to 1999 and a film called “The Blair Witch Project.”
I hear that this film was all the rage that year. In part because it was positioned as being “found footage”. Meaning a lot of folks actually thought they were watching something that actually happened.
Which attracted a huge audience who later said it felt super realistic.
Anyway Jason was working for Harvey Weinstein at Miramax at the time. And Miramax was a pretty heavy hitter having produced films like Pulp Fiction and Good Will Hunting.
But Miramax ended up passing on Blair Witch, which went on to gross $249m on a budget of just $60,000.
Later in 2000 Blum left Miramax to found his own studio which later became Blumhouse Productions.
Blum’s approach is more like an angel investor than a Hollywood studio
You see his approach was to produce 10 or more films in a year with a budget of not more than $5m typically.
And the reason he made horror was because it was cheaper to produce. Not really any special effects. No need for Hollywood A-listers. Not a lot of locations, etc.
Also, sometimes there is no theatrical release. The film just goes straight to streaming. And this helps reduce marketing budgets.
One more key is that because he doesn’t take any large investor checks, he has more control over the film. Whereas when someone cuts you a $100m check and has some ideas for your film… you are pressured to listen to them.
But leave them out of the picture… and all of a sudden you have a lot more creative freedom.
This one just sounded way too much like VC when I heard it.
Some other examples of the highest ROI films of all time and what we can learn from them.
Eraserhead (1977)
Budget: $100,000
Profit: $4.6m
A very bizarre movie that deals with male paranoia in a very personal way. Complete out of the typical mold of popular films at the time.
An Inconvenient Truth (2006)
Budget: $1,000000
Profit: $46m
It’s very unusual that a documentary on a topic like climate change can lure so many visitors to the theater.
What can we learn from these films?
They broke the mold for the time and often created their own market. Not unlike many tech unicorns.
And the approach to creating many of these highly profitable hits was very much like the angel investing process. Cut a small check to a high number of films and then allow one or two successes pay for the rest.
Hmmmm. Maybe I need to try investing into horror films?
