How to create a billion-dollar movie franchise.

The numbers behind the industry.
May 31 2005 6:18 AM

The Midas Formula

How to create a billion-dollar movie franchise.

(Continued from Page 1)

8) They use conventional or digital animation to artificially create action sequences, supernatural forces, and elaborate settings.

9) They cast actors who are not ranking stars—at least in the sense that they do not command gross-revenue shares. (For his role in Spider-Man, Tobey Maguire received only $4 million and a share of "net profits," which do not divert from the revenues flowing into the studios' coffers.)

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The success of the DVD has propelled the Midas-formula sequels to dazzlingly high earnings. A studio with a successful franchise now assumes it will sell over 30 million units per sequel, harvesting for itself between $450 million and $600 million. (When Shrek 2 sold a mere 30 million copies this year—and had 7 million in returns—it wiped out a good portion of DreamWorks Animation's quarterly earnings.) The studios, looking at a half-billion dollars or so in the DVD take alone, often decide to produce multiple sequels at the same time, as New Line did with The Lord of the Rings and Disney is currently doing with Pirates of the Caribbean.

While this is an enormously high-stakes game—Disney's double helping of Pirates of the Caribbean is budgeted at over a quarter of a billion dollars—even a single successful licensing franchise can put a studio in the black. A top Paramount executive pointed out to me, after Paramount gambled on the Lara Croft: Tomb Raider series and lost, that if Paramount had made Spider-Man instead of Sony Pictures, Paramount would be leading the studio pack instead of dwelling in last place. So, the studios, no matter how steep the losses when these movies bomb, must gamble to stay in the game. (Paramount's consolation prize with Lara Croft was that it reduced most of the cost through  German tax shelters and other gimmicks.)

Why doesn't every studio have a Midas-formula franchise? Much of the territory is already staked out. Disney controls the sequel rights to six animated Pixar films (even if Pixar decides to partner with another studio) and Pirates of Caribbean; Time Warner has both Harry Potter and Lord of the Rings; Sony owns Spider-Man; DreamWorks has Shrek; and, finally, there's the indefatigable George Lucas and his Star Wars. The space at the playground is limited by available slots at the multiplexes on holiday weekends, by established long-term merchandising tie-ins, and by scarce shelf space at Wal-Mart and other stores. Succeeding at this game is anything but child's play.

Edward Jay Epstein is the author of The Big Picture: The New Logic of Money and Power in Hollywood. (To read the first chapter, click here.)

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