Perhaps some might wonder why Hollywood studios have been so fond of high-budget productions since the turn of the new millennium. Almost every year, they shoot numerous projects with budgets exceeding $100M, and often invite several major stars to join.
Do they not know the high risk associated with high investment? Are they not afraid of failure?
Of course, they know. In fact, so many companies' top executives have been replaced due to the failure of poorly performing projects that it's hard to keep track. Yet, they continue to follow this investment strategy.
Taking small risks for big rewards seems more secure, isn't it? For instance, films like "Paranormal Activity" or "The Blair Witch Project".
But if you think deeply, do you find more of these successful types or big-budget films that rake in substantial profits?
The probability and risk-return ratio might hold the answer.
The reason films like the aforementioned ones gained fame and even became case studies for various film companies is precisely due to how difficult it is to replicate their success.
In contrast, big-budget films succeed many times each year.
Furthermore, you might not realize that films with budgets ranging from $100M to $150M are actually the safest bets. They're more likely to generate profits over twice their budget compared to films with different budget levels. Films above or below this range, whether higher or lower, all carry certain risks of loss or disappointing returns.
In other words, those low-budget independent films might not necessarily be less risky. Even if they're consistently profitable, the earnings from a normal blockbuster could eclipse those of five or six indie films. How then do you factor in the risk of market rejection that might lead to failure?
In any case, making films entails investment risks.
When reduced to big data, it's a matter of probability. Why not choose a risk-to-return ratio that's minimized?
This is why the era of blockbusters has arrived.
Take "Miscreant" for instance. With a massive investment of $100M, plus an additional $60M for marketing and distribution, it achieved impressive box office results.
In North America, the final box office reached $335.2M. Globally, it's still playing in some regions, but so far, it has accumulated $688.23M, steadily approaching the $700M mark.
Such box office figures are enough to make any film company pause in astonishment, and especially for EuropaCorp. This project has been the company's best achievement since its establishment.
And films like this are put on display every year.
"Die Another Day", "The Matrix Reloaded", and even the currently showing "Finding Nemo" have all achieved market returns that align with their worth.
The first two might not be as impressive as "Miscreant", but then again, they are series films that benefit from fan support.
However, the latter is even more outstanding. It's been out for just over a month and has already earned $600M globally. Hitting $700M is a given, and perhaps even $800M won't stop its momentum.
Now, let's discuss the return ratio.
Lyman participated in the production of "Miscreant" through a combination of fixed salary and profit sharing, while Mann Studios purely owned a portion of the investment stake. All three parties collectively took on the significant production risk, and in return, reaped tremendous market profits.
Just this one project could bring Mann Studios an estimated $60M in revenue. Of course, this amount would have to be subjected to taxation and various deductions.
Though detailed calculations haven't been made, it's safe to assume it won't be less than $50M. And this is just for the studio; Lyman personally could earn around $10M.
And after all the screenings had ended worldwide, major theater chains sent their profits to EuropaCorp, allowing for the final accounting among the three parties. After deducting the initial investment of $15M, the net profit income would be over $35M.
That's quite a substantial profit, isn't it? And he received the smallest portion. Just think about Paramount and EuropaCorp; these two are the real big players.
The latter even secured a long-term meal ticket. Even after the accounting was done, the offline market could still bring in a continuous stream of income. Of course, it's incomparable to now, but at the very least, it's stable. Just like how Disney manages to present impressive financial reports year after year – their massive film library plays a significant role. Even "Snow White and the Seven Dwarfs", filmed in the 1930s, is still making money up until now.
The return ratio of this film isn't as high as "Buried", after all, "Buried" only cost a few hundred thousand to produce and earned tens of millions. But when you look at the practical results, the two can't be compared.
One successful blockbuster could easily outmatch the combined profits of several small independent films.
Since both options carry risks, why not take on a bit more risk to earn more?
High investment, high risk, high return.
Low investment, high risk, not necessarily high return.
So, which one would you choose?
This is also why Paramount Pictures wasn't too pleased with Tom Cruise's high profit sharing from the "Mission: Impossible" series but still had to collaborate while pinching their noses. It's why EuropaCorp released a portion of their earnings to Lyman, to maintain their cooperation.
Profit is the common denominator.
As long as it makes money, everything can be negotiated.
Think about it, a film like "Miscreant". Though Paramount Pictures and EuropaCorp didn't openly disclose their internal profit figures, a simple calculation suggests they at least harvested over $100M in net profits. And that's after accounting for costs and taxes, with the actual number likely even higher.
After all, reasonable tax avoidance is known by those in the know. The tactics of big companies are much more elaborate than what someone as straightforward as Lyman can imagine.
What's even more significant is the substantial added value of a successful blockbuster like this.
Even if you disregard the workings of related copyright, how would you calculate the gains from a company's stocks rising due to positive news?
A higher market value surely can't be a bad thing. There have been plenty of instances where a film company's stock rose or fell due to fluctuations in the film market.
At least in this instance, Paramount Pictures' shareholders are quite content, and so is Sherry Lansing.
This excellent performance finally silenced those critics.
Perhaps these underlying factors are the reasons why those film studios are insistent on investing in major productions. The success of such a project alone is enough to significantly elevate their performance level, and the immense returns will serve as a robust foundation for their next production.
It's a rather positive cycle, you could say.
After North American screenings ended, amidst Paramount Pictures' happiness, they also thought of holding a celebration.
Originally, they had planned it when the film crossed the $100M mark, but Lyman had rejected the idea.
Now, nearly everything was settled. Lyman no longer had an excuse to continue declining Paramount's goodwill.