By Eugene Christiansen, Founder, Christiansen Capital Advisors, LLC, New York City

(Mr. Christiansen’s “Secretariat: Critics vs. Moviegoers” was published by Horse Racing Business on October 13, 2010 and can be accessed in the Archives.)

The New York Times weekly movie box office report employs data from Baseline, a widely used industry source that includes Canada and typically provides numbers that differ slightly from similarly defined statistics fromVariety and those posted on the Fandango website. Some observations about the most recent data:

1. Secretariat is on 3,072 screens. This constitutes a wide release but is considerably fewer than the saturation booking 4,500+ screen release a major studio/distributor would opt for if it believes, on the basis of pre-opening market research, that critical opinion and/or word-of-mouth is going to be poor. This was clearly not the case with Secretariat, but is not uncommon, even for a major investment ($100 million+ negative cost), which may test poorly and looks certain to garner bad reviews. In these circumstances the unhappy owner of a negative that may have cost more than $100 million to make and another $75 million (for prints and advertising) to bring to market tries to get the movie on as many screens as possible in its opening weekend. The premise is that the movie’s assets (stars or a pre-sold property such as a best-selling novel) will attract the maximum number of admissions before adverse critical opinion and bad word-of-mouth poison the box office. About 8 times out of 10, movies that fit this profile still lose money in large amounts on a current-accounting basis. Whether foreign and ancillary sales enable investors to ultimately recoup their investment is then very much a case-by-case situation. The studio/distributor, however, if it has been astute in laying off risk (remember always that movies are made with other peoples’ money), has a much better chance of emerging with a whole shirt than other investors do.

2. Secretariat dropped about 26% in its second weekend in domestic release. This isn’t great but it isn’t bad and is above average for all MPAA releases in a given year; it’s typical of a solid–but not a blockbuster– Disney family picture. For a movie to drop less than 10% in its second weekend is rare and means:

a) word-of-mouth is extremely favorable and is pushing the movie beyond its core audience (i.e., a breakout film);

b) unless the negative cost was way over budget, the movie is going to be profitable and maybe very profitable;

c) the movie’s director and star(s) move up the feeding chain, become players, earn a whole lot more on their next project, and may (if only temporarily) become sufficiently powerful to dictate their next project.

The movie The Social Network fits this description. Put this together with the fact that The Social Network was not a pre-sold property, did not fit any proven formula, had no major stars (other than its director, who is a name player), and must have been a marketing nightmare, and you will see just how unusual a movie it is.

The other and much more common side of this coin is box-office collapse: a movie drops 75% to 85% in its second weekend. This happens often. It happens particularly often with cookie-cutter, me-too mega-budget tentpoles–tentpoles like Pearl Harbor, representing negative costs north of $200 million, a lot of that going for digital fx, and above-the-line costs, such as for star salaries. (A tentpole film is intended to financially carry the other films on a studio’s agenda.) This was never going to happen with Secretariat, which is a rigidly controlled Disney in-house production ($35 million cost) and an example of one of the most tried-and-true products in the entire industry. Disney family pictures don’t encounter box-office collapse.

You may ask why cookie-cutter tentpoles like Pearl Harbor continue to get made. The answer is risk-aversion. Movies are insanely risky. A studio executive who greenlights or is in any way associated with a risky project like The Social Network that fails (as most such projects do fail) is making the career move equivalent of standing in front of a freight train. Mighty few executives who make this career move get to make another career move. On the other hand, no one can criticize a studio executive for supporting Toy Story 3. It’s probably going to work at least reasonably well and if it bombs he/she can point to Toy Story 2, a hit, and say something like all the signs were good and blame somebody else, like the director. Other reasons for making tentpoles are that they tend to perform globally better than they do domestically, and if the studio is careful with its contracts, it can make a bundle on domestic tentpole bombs.

The bottom line is track record. Studio/distributors make what has been proven in the marketplace to work. The Disney family picture is maybe the perfect example. Disney will be turning them out until the end of time.

Racing has nothing to do with it.

Copyright © 2010 Horse Racing Business