If you were offered a chance to invest in a movie, with either Incredibles 2 or Insidious being your options, presumably you would choose The Incredibles franchise, as investing in a much more popular film is sure to generate more return on your investment. This is far from the truth. The ROI (worldwide grosses minus production costs as a percentage) for Incredibles 2 was 510.7% as compared to Insidious’ ROI of 2139%. While Incredibles 2 is a far more popular film, it also costed a great deal more to make than Insidious. Due to this, Insidious is the far more lucrative investment. In pursuit of high ROI, film executives have made many low-budget horror movies a hallmark of their production cycle. Yet no one has made this a staple of their work, and that is what signifies Jason Blum and his production house, Blumhouse.
Blumhouse was founded in 2000 and has since disrupted the movie industry. Many of Blum’s films have become quite successful: Paranormal Activity, Sinister and The Purge, all of which have spawned various high-performing sequels. While these films often win few awards, they are financially successful, and are very inexpensive relative to the rest of the movie industry in terms of production costs. Blumhouse specializes in the production of horror movies, and through the usage of B-list actors, the same shooting location and little CGI, Blumhouse films consistently generates very high ROI. According to budget numbers from The Numbers (A website that examines the financial data behind movies), 5 of the 20 highest ROI films of all time were produced by Blumhouse.
The strategy that underpins the success of Blumhouse is their focus on risk diversification. Portfolio theory — a mathematical approach to finance that maximizes expected return for a given level of risk — looks at risk diversification as the process of identifying unsystematic risk as opposed to systemic risk. Unsystematic risk is the risk of a single company’s stock, while systemic risk is the risk of the entire industry. In diversifying one’s holdings throughout the industry, the portfolio is now dependent on the industry’s risk, rather than being beholden to a single company.
This theory is exemplified in Blumhouse’s work; by producing many horror films, all at low costs, the firm has made it so they are only dependent on the systemic risk of the horror genre, rather than the unsystematic risk of one film. This makes it so that no single film can bring about their collapse while one successful film can generate massive returns. Blum says that “the budget is reverse engineered to thinking that if the movie isn’t in wide release, at least we get our money back and keep our doors open.” Blum has made a calculated risk assessment of the horror movie industry, and this has allowed him to produce “weird stuff” as the cost benefit calculus upon these projects has demonstrated that the expense is low enough to justify the risk taken.
The tremendous success enjoyed by Blumhouse films enables the firm to take risks on smaller, more niche projects, which in turn can create further success and lower risk for the firm. This is best seen in the production of Whiplash and Get Out, both of which offer poignant social commentary. While Get Out is a horror film, it is far from the standard slasher or haunting film that Blumhouse makes. Yet because they have generated such an excess of profit from the prior horror films, they have been able to justify riskier films, and as a result, generate award-winning films.
Blumhouse is both a product of the movie industry and an agent of change within it; the basic principles of stock assessment are at use, just instead applied to the scripts and filming costs of horror movies. Jason Blum made a calculated bet on the systemic risk of the horror genre, and it has been thoroughly successful, in the process producing some of the modern day’s best horror classics. Blumhouse has brought the B-Movie tradition that popularized horror into the 21st century, and through the process of properly identifying the risk of each investment, has been a pioneering force within the movie industry.
