The Big Business of Big Hits: How Blockbusters Conquered Movies, TV, and Music

An interview with Anita Elberse, the author of Blockbusters and a professor at Harvard Business School

How come so many movies are sequels, adaptations and reboots? Why do music studios spend so much on just a handful of superstar artists? And since when did TV shows become so lush and sophisticated?
These sound like scattered questions for an entertainment guru, not an economist, but Anita Elberse, a professor at Harvard Business School, is both. And her great new book, Blockbusters, explains that the four questions share one answer. The blockbuster strategy—betting more and more money on fewer and fewer titles—has taken over the entertainment world.
The book comes out in an interesting time for Hollywood, which suffered a row of famous big-name flops this summer. Has the last year proved that the blockbuster approach is dead—or stronger than ever? That was just one question I asked Elberse in a wide-ranging interview. This conversation been edited for length and clarity.
THOMPSON: Would I be oversimplifying your thesis if I said: "In movies, music, TV, and books, people have learned that $1 spent on a blockbuster is better than $1 spent on a not-blockbuster"?
Elberse: I think that's a good way to summarize the book. Another way is to say that, although there is no way to play it safe in the entertainment industry, a blockbuster strategy is the safest way to play. In investing, we intuitively think we should make a number of small bets. A blockbuster strategy is the opposite. It means making fewer huge investments. But it turns out to be safer.
The obvious reason that you're right is that people keep showing up to big, loud sequels in movie theaters, so studios keep making big, loud sequels. But the most interesting part of your book is the not-so-obvious ways that spending more money on fewer projects is smart. For example, if you're known for making big popular movies, then you attract artists and creatives who think they're sitting on a big popular idea. 
Yes. And you can price yourself out of the market for great entertainment by not spending big on high production value. This is true in film. It's true in television, where NBC tried to manage costs for a few years, saw margins decline, and lost out on some major new projects. If you're a book publisher, and you don't compete for the biggest and most promising books, you'll lose shelf space at Barnes & Noble, and leverage with Amazon, making it harder to get and promote future books.
So what you see is that efforts to save on cost might improve profitability in the short run. But in the long run, you're undermining the very essence of what builds blockbusters. Studios and publishers need help from talent and from retailers to make these big hits.
And there is a trickle-down effect. The companies that made the last successful blockbuster, whether it's a book or a TV show, tend to be well-positioned to produce the next successful blockbuster. How do blockbusters beget blockbusters?
If you haven't had a hit in a long time, it's harder to build the next one. One hit has a halo effect. [The opposite effect] is what NBC is experiencing. They haven't recovered from the period when they managed for margins.
You see the same dynamics in movies, too. Think about trailers you see in theaters. If you're seeing a Warner Bros film, the studio might have three of the five trailers. So having a hit helps you create the next hit. If Macmillan publishes Bill O'Reilly's book "Killing Jesus," and it sells well, Macmillan can urge him to interview me about my new book [also published with Henry Holt - Macmillan] driving up sales for my book. Hits create hits.
And in music?
It's very much the same. One way you see the trickle-down is in concerts. If you are the record label who owns Lady Gaga, and you have a new artist coming up, you can say, "Let's have the artist play just before Gaga." Now you've exposed the huge Gaga audience to the new artist. It's similar to showing a trailer before a movie. The hit creates a hit.
I think my friends are most familiar with the blockbuster formula playing out in movies, and my sense is that they hate it. They see big loud sequels and adaptations taking over and they want to know who to blame. So who's to blame?
There are a number of people who are negative about blockbusters, and that surprises me. Put yourself in the mind of an executive. They know everybody pays the same amount for a movie, whether the studio invested $10 million or $300 million. To complain about studios overspending is odd, because the price of the ticket doesn't change. In what other industry do we complain about companies increasing their spending when they don't raise prices? In video games, it's the opposite. People are thrilled when companies spend more on the next [Grand Theft Auto].
So consumers are to blame?
As consumers, we are at fault. These are the choices that we're making. More of us want to see Iron Man III than an artsy film. So studios will make more franchise films. More sequels to sequels.
This is to their marketing advantage, too. You have to spend a certain amount to reach everybody in the country at least once. It doesn't cost as much to reach everybody twice. There are discounts when you do these larger media buys, so the studios buy up a whole lot of advertising in one go. It's more expensive to cobble together a bunch of markets. Smaller films are released in NYC and LA first, and if they catch on, they go to other markets. That is a very expensive strategy to run for every movie.
Can we blame China, too?
The majority of revenue right now is coming from outside the U.S. If you're a film studio, you're making a movie for a foreign market. You're pursuing ideas that travel well.  It changes the movies we see and how movies are made.
There were many famous flops this summer. Did this blockbuster season prove your thesis wrong?
No. In fact it confirms the arguments I made in the book. This was Hollywood's most successful summer ever [in nominal dollars]. Most of the blockbuster events, like Iron Man III, did extremely well. You also had flops like Lone Ranger. But flops are inherent in a blockbuster strategy. People aren't talking about the smaller movies that failed to overcome their costs. If you add all the smaller bets that didn't pan out, you'd see a worse failure rate than for the larger bets.
Even if this summer didn't change your mind, do you think it changed Hollywood's?
No. If anything, they will be more mindful of their blockbusters bets. Lone Ranger had a famous producer and Johnny Depp, so it seemed like a safe bet. But it wasn't a franchise that was very well known. So producers will probably bet even more on Marvel super heroes and sequels and less on original or old franchises. They will play it even safer.
What do you say to somebody who claims the sequel-adaptation-blockbuster strategy is simply ruining movies? That, as the formula is getting smarter, the movies are getting dumber? 
I am sympathetic to that viewpoint, but you have to realize that a lot of people who complain about films aren't the target audience for those films. If you're not going to the theater regularly, maybe you should consider there are other people who are -- and that these movies are made for them. The movie-going audience is an under-25 crowd, and in fact mostly teenagers. Most of us who fall outside that demographic spend much more time watching television -- and some of what we find there, from Game of Thrones to Homeland, is of truly remarkable production quality.