The Future of Movies: The Blockbuster Apocalypse (Not Yet)

A summer of mega-flops should have forced Hollywood to reinvent itself, but it's still business as usual

the hangover iii
Courtesy Warner Bros. Pictures
Zach Galifianakis, Bradley Cooper and Ed Helms in 'The Hangover III'
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Earlier this summer, Steven Spielberg warned of an impending implosion of the Hollywood studio system. All it would take, he said, was for three or four or maybe even a half-dozen of these mega-budgeted movies to go crashing into the ground, and the current major-studio business model would collapse, forcing the studios to reinvent the way they greenlight, market and distribute movies.

Spielberg didn't say how imminent such a crash might be, but already this summer, the box office has seen several high-profile flops of the sort he mentioned. In just the last two months, such would-be blockbusters as The Hangover Part III, After Earth, The Internship, White House Down, The Lone Ranger, Pacific Rim, Turbo and R.I.P.D. have either flopped outright or vastly underperformed expectations. That's eight expensive disasters right there, during Hollywood's peak season, that will lose hundreds of millions of dollars for the various studios.

So where's the implosion? That sound of crickets you hear emanating from Hollywood is the sound of Spielberg's apocalypse failing to take place.

Summer Movie Preview 2013

Hollywood's current model is simple: Make expensive action spectacles based on familiar titles. Action does best in the international marketplace, which now accounts for 70 percent of the global box office. Familiar titles (franchise sequels or reboots) are easier to market than new, original, untried properties. And special effects and big stars cost money. But when the formula works, a movie that cost $300 million to make and market can make $600 million and launch or extend a franchise of similar hits. Sure, the return on investment might come at a higher rate with modestly budgeted movies that don't need to earn so much in so many countries just to break even, but the huge cash rewards of blockbusters are hard to walk away from. A system that's used to spending $200 million to earn $400 million isn't going to be interested in, or even capable of, spending $20 million to make $40 million, or $2 million to make $4 million.

Of course, the risk in such a model is obvious – a big-budget movie that flops can lose hundreds of millions of dollars. Hollywood imagines, however, that it'll have enough smashes to make up for the occasional turkey. But is the system strong enough to absorb eight turkeys in two months?

The answer, surprisingly, is yes. Even with all the flops, this summer's box office is 10 percent ahead of last summer's at this stage. Part of that increase is due to rising ticket prices, but not much; ticket prices are up just 20 cents over last year, or 2.5 percent. Some is due to surprise hits like Now You See It, The Purge and The Conjuring. And some is due to the system working as planned for such blockbusters as Iron Man 3, Fast and Furious 6, World War Z, Monsters University, Despicable Me 2 and (to a lesser extent) Man of Steel.

Still, the pile-up of flops ought to be troubling to Hollywood executives. It would be easy to blame an especially overcrowded summer slate, but the studios are gearing up to pack next summer and the summer after that in much the same fashion. (Coming in summer 2015: The Avengers 2, Independence Day 2, The Smurfs 3, Pirates of the Caribbean 5 and the rebooted Terminator.)

There's still also the sense that the foreign market will pick up all the slack for movies that have flopped in North America. That's lazy thinking, and also, not borne out by the actual overseas grosses of most of this summer's flops, save Hangover III, After Earth and Pacific Rim. And even though those films earned more abroad than at home, they still greatly underperformed expectations.

Still, it's hard not to imagine that a reckoning is at hand. Maybe not this summer, or the next, or the one after that, but soon. As Spielberg and George Lucas noted at the forum where the former made his "implosion" prediction, the future of movie distribution is likely in video-on-demand (VOD) and streaming, with theatrical releasing becoming a specialty business.

Hollywood could look to the independent movie distributors, which have been having a successful summer – several modest hits, no huge smashes, but no costly flops either – for a possible model. The indies have been at the forefront of figuring out how to make the transition from theatrical to VOD, or at least how to make both work at once, on a small scale. Just this past weekend, Only God Forgives (the follow-up to 2011 cult hit Drive from director Nicolas Winding Refn and star Ryan Gosling) enjoyed a reportedly successful premiere on VOD  (it was number two on iTunes) while also debuting in theaters to a solid average of $4,025 per screen on 78 screens nationwide.

Sure, that's a total of just $315,000 in theaters, a figure that's like a rounding error for a mainstream Hollywood 4,000-screen wide-release movie. Still, once the big studios learn to emulate the indies and figure out how to overcome the current obstacles to large-scale VOD premieres (including angry theater owners and piracy), they'll likely dominate the digital distribution business the way they have the theatrical distribution business.

Of course, there's still another way the studios could insure against a future series of costly failures like the current summer slate. They could make better movies that people actually want to see.

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