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It was the weekend that everyone was waiting for. The debut of James Cameron's Avatar was an event approaching mythic dimension: Don't tell me you didn't know it was coming, because I wouldn't believe you for a nanosecond. The hype was out there, and it became a self-replicating, viral zeitgeist able to cross multiple mediums with ease. Its marketing message dominated the collective cinematic discussion, and even though it didn't possess the brand access of Time Warner's (TWX) The Lord of the Rings trilogy.
Which is why I found the domestic opening of the project quite puzzling. I thought Avatar, distributed by News Corp. (NWS), was worth a heck of a lot more than $77 million, which is what the film grossed, according to Box Office Mojo.
Obviously, we all knew that Cameron's juggernaut was going to dominate. However, I personally was counting on better than $100 million for the opening take (and I don't think the weather fully accounts for the number).
By way of comparison, the other recent phenomenon in the marketplace, Summit Entertainment's The Twilight Saga: New Moon, opened with over $140 million.
As we all know, determining the true budget for a film is difficult. According to Reuters, Avatar may have cost up to $450 million to make and market. Using the general, imperfect rule of thumb that a project must gross twice its investment to break even, it's conceivable that Cameron et al. will need to see their baby take in $900 million worldwide before celebrating.
This is one of those situations where the first weekend could be essentially meaningless in the long run. The question is, can Avatar stay relatively stable in upcoming weekends and keep the grosses at an economically acceptable level? Most everyone agrees that we can forget a repeat of the Titanic dynamic.
So far, on a worldwide basis, the 3D extravaganza has pulled in over $240 million. Not bad, right? Yet, when it comes to shareholder value, such performance essentially misses the point. Studios must refrain from investing such huge sums in the movie business because the risk is simply too high. Summit Entertainment had the right idea when it spent $50 million to create New Moon. Although that statistic does not include marketing, it nevertheless indicates that the film required a lot less capital than Avatar did.
Disney (DIS), Viacom (VIA), Sony (SNE), and all the rest can no longer afford to take chances on epic adventures. If Cameron wants to make a unique, technologically advanced blockbuster, let him fully fund the effort on his own. Shareholders can't be in the business of sacrificing equity for ego. Instead, the focus should remain on cheap executions of compelling concepts. Otherwise, the risk-adjusted return will remain unfavorable.
Disclosure: I own Disney; positions can change without notice.
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Reader Comments (Page 1 of 1)
12-22-2009 @ 10:07AM
Brian said...
You must have missed the part of the weekend were there was a huge snow storm on the east coast...
12-22-2009 @ 10:37AM
Dan Barnett said...
Brian, You're correct that the storm hurt East Coast movie going, but do you really mean to assert that the storm cut the gross by almost 50% when compared to sparkly vampires? We can also argue whether the lack of a decline between Saturday & Sunday (3%) represents people getting to the movies on Sunday when they were snowed in on Saturday.
But I think you miss Steve's point. I take Steve to argue that there is a cost beyond which it is impossible to have the movie be a financial succcess. It simply can't make enough money to justify the costs.
BTW, "Up in the Air" ran $17k per screen last weekend, admittedly on 175 screens. "Avatar" is an undoubted hit. It needs to show world class "legs" though to be a success.
12-22-2009 @ 10:57AM
Brian said...
I went to see Avatar at the 6:15 showing on Friday in middle VA. There was no snow on the ground. When it got out there was about 4" on the ground and the parking lot was nearly empty other than the people that were in the movie before the snow began. Also the theater for the showing I went to was not packed, likely because many people didn't want to risk getting caught/stuck at the theater or in bad weather in general. The snow continued at the same pace through the night, and then all day Saturday. It finally stopped Sunday morning with about 18" of snow on the ground.
Since the entire I95 corridor from Northern VA all the way up through NYC got pounded with snow between Friday, Saturday, and Sunday I would say that, YES, it probably had a significant impact on all movies including Avatar's launch.
I think claiming that a movie must make 2x it's cost to be a success is nonsense. If twilight cost $50M to make and grossed $150M, sure it made 3x its cost and a $100M profit. If Avatar cost $450M to make and ends up grossing $550M it still made the same $100M that Twilight cost. IMO they are both equally successful.
If movie companies do not take chances on new technologies and "grand" ideas they will lose the movie going public. Recycling and remaking old movies is not the answer. Yet that seems to be what they are interested in doing more often than not. Playing the "safe" bet all the time is going to result in people just wanting to stay home and wait for it to come out on DVD or on TV.
12-23-2009 @ 1:13AM
Modsquad said...
It seems like you're expectations for opening weekend gross failed to take in consideration that Avatar is not part of any established franchise. Comparing it to New Moon is not quite fair as the two are rather different. Aside from New Moon being part of a well known existing franchise, it is also a sequel. They generally fare better than their predecessors. If you were to compare Avatar to the biggest december opener ever, I Am Legend's 77.2 million (also non franchise), you'd see the film did quite well; especially considering the heavy snowstorms in busy markets.
The other factor against Avatar is that the general public really was not aware of it. Sure there was a lot of hype, but most of that was refrained to Cameron's loyal followers. Seeing as how the movie is being received so well by both audiences and critics alike, I doubt we'll see a huge drop in the second weekend like we saw with New Moon(70%).
Without resorting to hearsay, the official numbers for Avatar is $237 million for production, $150 million for marketing. Fifteen million of the production budget was spent on developing the cameras alone. Unknown millions more was spent developing the technology needed to create photoreal humanoid CG effects and animation. The point is all this technology can be used now for other projects. As we all know, any new piece of technology is very pricey at first, and it comes down with each iteration. There's a reason why Cameron's biggest COMPETITORS have referred to Avatar as a landmark moment, or a game-changer in the art of film making. Avatar's value as an investment won't be fully realized until long after the film's theatrical run, when the studios involved will be able to use the new technology on other projects. It's worth noting that Cameron pitched this to the studio as a potential trilogy starter as well.
With all that said, most analysts agree that Avatar is on track to earn at least $300 million domestically. Keeping in mind that Cameron's films historically have earned more than 50% of their total gross overseas, a conservative estimate would put Avatar's total gross up to $900 million. That's before the millions more it'll make through various merchandising deals and the DVD/ BluRay release.