Hollywood Has a Blockbuster Budget Problem | Analysis

Christopher T. Smith/TheWrap

Moving forward, Disney will try to make fewer, cheaper movies while "focus[ing] on improving the quality of our films," Bob Iger promised analysts on a recent earnings call. While Iger has made promises to Wall Street about this before, it's an issue that has raised alarm bells over the course of the summer as a slew of Hollywood tentpoles have failed to become profit-gushing blockbusters, in part due to their exorbitant budgets.

The likes of "Fast X," "Indiana Jones and the Dial of Destiny," "The Little Mermaid" and "Transformers: Rise of the Beasts" ended up costing so much above the norm — at least in relation to their likely theatrical revenue — that they may not make money (or produce sequels) even with objectively decent box office.

Tom Cruise's "Mission: Impossible – Dead Reckoning Part One" is on track to take in just $165 million domestically and $550 million globally despite strong reviews and solid buzz. That's disappointing considering the last three chapters earned between $682 million and $792 million, and this seventh chapter cost $290 million alone to make.

"I highly doubt that Hollywood intended to spend $300 million each on the fifth Indiana Jones movie or the seventh 'Mission: Impossible' film," BoulderLight Pictures partner Raphael Margules told TheWrap, echoing other insiders who spoke to TheWrap about the bloated budgets of this summer's blockbusters.

Inflation is an obvious culprit, as the dollar has lost 15% of its value since 2020. This upped the cost of every portion of the production pipeline, from labor to materials to transportation. A film greenlit at $200 million in 2019 would cost at least $230 million to achieve comparable production value today. And the other X factor in all of this is on top of the rising production costs, marketing spends add at least another $100 million in many of these blockbuster cases, further increasing the difficulty of getting to profitability.

TheWrap spoke to filmmakers, executives and industry insiders to ask just why the most recent slate of tentpoles cost so much, and whether it's a temporary situation.

COVID delays were expensive

Yes, shooting a blockbuster movie during a global pandemic — an unlikely-to-be-replicated situation — can make that movie pricier.

Margules broke it down for TheWrap. "PPP equipment, testing and accommodations related to social distancing can add at least 5% to a budget," he said.

However, he noted that the big factor was the delays that occurred as productions stopped and started amid the pandemic. "Mission: Impossible – Dead Reckoning Part One" saw its production begin and pause several times, often in far-flung international locales like Venice or Rome.

Shutdowns and restarts mean filmmakers must pay to prep and wrap a location multiple times, all while keeping stages reserved far longer than initially intended. That can add weeks, if not months, to the shoot while certain creatives and crew remain on the payroll amid the hiatus.

The resulting costs associated with principal photography (stages, crews, actors, etc.) and post-production (finishing effects-packed tentpoles amid a COVID-clogged pipeline) helped make the industry a comparative seller's market.

Big stars want big bucks

"There's still a box office value in the big stars," stated one high-level studio executive. "We pretend for a while that there aren't [but] they still bring an audience."

"Fast X," for example, has a dozen returning cast members, along with new-to-the-franchise actors like Jason Momoa and Oscar-winner Brie Larson. That partially explains how the tenth "Fast and Furious" movie cost 70% more than "F9." The $340 million budget means a box office performance on par with the $722 million total of "F9" wasn't enough to be exceptionally profitable.

Another veteran writer-director with experience in indies, tentpoles and streaming titles who wished to remain anonymous explained to TheWrap, "Sequels with contractual pay bumps for ensemble cast members can add over $50 million – plus perks."

"Marvel had control of the actors' salaries," stated "xXx: Return of Xander Cage" and "Disturbia" director D.J. Caruso. "Now, they no longer have the power once the actor has established themselves as being defined with the character." Actors like Chris Hemsworth and Elizabeth Olsen were relative newcomers when they joined the Marvel Cinematic Universe, but are now inextricably linked to Thor and Scarlet Witch — not to mention fielding offers for other major films of their own outside the MCU.

A high-ranking studio executive said, "It's almost impossible to make a franchise sequel that is cheaper than [its] predecessor."

Streaming — which often pays the cast and crew upfront since there are no immediate revenue sources (box office, DVD sales, etc.) for backend bonuses — has also changed the math for star salaries. As one high-level Hollywood executive explained, "The often intentionally inflated quotes movie stars had been getting from streamers can inflate the asking price for theatrical features."

Platinum Dunes co-owner Brad Fuller said that, in more questionable theatrical circumstances, "movie stars are likely to ask for more money upfront with less 'risky' backend," therefore adding to the production budget.

The high cost of fear

"They are all trying to outdo each other in terms of effects and production value," another studio executive said as franchises as varied as "Fast & Furious," "Indiana Jones" and "Mission: Impossible" vie for the same eyeballs.

Moreover, the writer/director said, a desire for studio control pushes more of the filmmaking process into post-production. Hesitancy to make firm pre-production decisions can also cause indecision and cost overrun.

Caruso recalled visiting the set of a tentpole film with "every conceivable piece of equipment in a parking lot near the set, just in case."

When a film is stuffed with razzle-dazzle — like a de-aged Harrison Ford fighting Nazis for 20 minutes — or copiously trying to hide the metaphorical strings, every cut in the editing bay means more or revised VFX work, which means more money.

Caruso argued that "the reliance on visual effects burns money like there is no tomorrow."

"Films by committee," he added, require "reshoots and fixes [that] are not simple three-day pickups but a crew reassembling for three weeks, constructing new sets, and shooting multiple endings to cover their asses to ensure one works."

A pre-COVID Hollywood mindset

Most of the films released this summer were greenlit with the presumption of pre-COVID theatrical habits. Before the pandemic, more people were able and willing to go to theaters and studios were not as aggressive about pushing streaming and meddling with the theatrical window.

That meant this batch of films underwent production beset by pandemic complications, inflation and global disruptions in the global supply chain. They then arrived in theaters amid a changed economic ecosystem.

In the mid-2010s, Disney dominated the box office. In the last pre-COVID year, they accounted for 40% of domestic earnings in 2019. Marvel/DC superhero movies and modern live-action remakes of Katzenberg-era Disney toons were mostly performing at peak levels. When non-"Mission: Impossible" Tom Cruise movies usually had a $400 million theatrical ceiling, "Top Gun: Maverick" seemed riskier than another Ethan Hunt adventure.

Meanwhile, China was fully embracing Hollywood tentpoles. Such patronage provided the likes of "Hobbs & Shaw," "Rampage" and "Captain Marvel" with an extra $150-$200 million in theatrical grosses. Dwayne Johnson wasn't wrong to expect a boost for "Jungle Cruise" and "Black Adam" had they been released in a pre-COVID Chinese marketplace. As TheWrap previously reported, Hollywood has essentially written off China.

"Since COVID, there's a 20% decline in available moviegoers," a high-level studio executive who requested anonymity told TheWrap. "Unless you luck into a cultural event, you have to presume that your film will make around 80% of what it might have previously earned."

Too big to succeed?

The end result is several movies that earned strong theatrical revenue but lost money for their respective studios. Theaters were thrilled with the $296 million in domestic earnings for "The Little Mermaid" and the $573 million in overseas grosses for "Fast X." But both films may struggle to break even (at least prior to post-theatrical revenue streams) due to soaring costs.

Ditto "Transformers: Rise of the Beasts," which ended up topping a slew of mid-June tentpole releases with $434 million worldwide. That might have been a sequel-justifying hit on a budget closer to the $135 million spent on "Bumblebee," but at a cost of $195 million, it's in doubt. The "G.I. Joe" crossover teased in the finale may never see the light of day.

Yes, streaming platforms still get a boost from theatrical premieres. But there has been little one-to-one correlation between subscription bumps and A-level movies. Nor is there much of a connection between high viewership for a specific piece of content and the stock price. If "Dungeons and Dragons: Honor Among Thieves" earns $200 million on a $150 million budget, strong Paramount+ viewership doesn't move the needle.

Slower, cheaper, better?

"There are definitely conversations about cheaper tentpoles," stated one executive.

This was before "Barbenheimer" ended up on track to earn a combined $1 billion in North America alone. Warner Bros.' "Barbie" cost $145 million while Universal's "Oppenheimer" cost $100 million. Neither had to break box office records to break even, even after heavy marketing spends.

Can slow and steady help keep costs down? Smaller-budgeted ($90-$120 million) franchise titles like "The Super Mario Bros. Movie," "Sonic the Hedgehog," "Jumanji: Welcome to the Jungle" and "John Wick: Chapter 4" showed that IP can be created or continued without budgets so large as to require astronomical box office.

"You hear anecdotes from crew members of brutal waste," said a writer-director with experience in both indie and blockbuster films. "You get money to shove in a fire, but you lose the autonomy."

"Barbenheimer" has earned praise over how both features feel distinct and personal even within familiar genres or popular IP. With production mostly out of the COVID storm and new films being budgeted for the current new normal in terms of theatrical revenue and post-theatrical value, Hollywood may test whether less money for more autonomy may lead to better — or at least more profitable — tentpole films.

The post Hollywood Has a Blockbuster Budget Problem | Analysis appeared first on TheWrap.

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