Gravity, the space thriller released last week, features two of Hollywood's brightest stars: George Clooney and Sandra Bullock. It rocketed to an October record $55 million gross in its opening week, well on its way to returning a profit on its $100 million production cost. Meanwhile, The Walt Disney Company expects to lose up to $190 million on its summer fiasco The Lone Ranger, another star vehicle featuring Johnny Depp and Armie Hammer.
Welcome to the risky strategy of "blockbusters," practiced increasingly by movie, TV, and recording companies; video game developers; advertising agencies; and even nightclubs, among other industries. The idea: Invest big money in a few top talents or brands—think Jay-Z, LeBron James, or Marvel Comics—to create buzz for a "tent-pole" product that produces most of a company's profit and holds up the rest of the organization.
While quite risky—a few blockbuster flops can bring a company to ruin—the strategy is the best bet for entertainment companies to succeed over the long run, according to Anita Elberse, the Lincoln Filene Professor of Business Administration at Harvard Business School.
Her new book, Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment, demonstrates that such a strategy usually beats the more cautious approach of spreading around lower-amount investments in a larger number of projects, a recipe for mediocrity that seldom captures the public's imagination.
We asked Elberse to expand on her ideas detailed in Blockbusters.
Sean Silverthorne: What is a blockbuster strategy?
Anita Elberse: I define a blockbuster strategy as one in which a content producer makes huge investments to acquire, develop, and market concepts with strong hit potential, and then banks on the sales of those titles to make up for the middling performance of their other content. Today's leading film studios, television networks, book publishers, music labels, video game publishers, and producers in other sectors of the entertainment industry live by this approach.
You might think that spreading resources evenly across product lines is the safest approach, especially because no one seems to know for sure which products will catch on. Or you might think that making big bets in general is too risky a strategy, and entertainment businesses should vigorously try to save costs in an effort to increase profits. But in my research I have found that betting heavily on the most likely blockbusters and spending considerably less on the "also-rans" is in fact the surest way to lasting success in show business.
“The battle for star talent is one of the most fascinating aspects of today's entertainment business”
In my book, I show that the biggest investments have the highest average returns. Take the example of film studio Warner Bros. When I analyzed the performance of its films over a five-year period, I found that the studio's 10 percent most expensive films—its so-called tent-pole movies—accounted for roughly a third of its production budget and nearly half of its revenues. There can be big flops, of course, but in general the blockbuster strategy works.
Q: Why is it so effective?
A: A wide range of factors explains its success. For one, strong brands and high production values matter. Scale also brings marketing advantages: It is relatively cost-efficient to advertise those tent-pole bets. And trying to create blockbusters fits the way in which consumers make choices: We like to talk about the latest films we've seen, or the latest books we've read, which makes us converge on the same choices. Finally, big bets become self-fulfilling prophecies in that they attract the best efforts from people who are involved in production, distribution, and marketing. Retailers, for instance, will be inclined to give bigger bets more shelf space, and we know that in itself is a key driver of sales.
Q: If you were to pick a manager to execute a blockbuster strategy, what attributes would he or she have?
A: That's an interesting question. I can think of five characteristics.
First, nerves of steel are critical: Any manager who executes a blockbuster strategy will have to be willing to make big moves that, if they don't work out as planned, could really hurt the company's bottom line. Betting on blockbusters is not for the faint of heart, that's for sure.
Second, being able to pick the most likely winners is incredibly valuable—this probably is both an art and a science. An ability to analyze information on market trends and past winners and losers is very helpful, but in the end being able to listen to your gut also is paramount. Some of the biggest entertainment hits were green-lighted based on a gut feeling and little "hard" data.
Third, being able to make friends in high places is a valuable characteristic; with that I mean being able to work with A-list talent. Most blockbuster bets come about only because of the efforts of superstar talent, so any manager hoping to make blockbusters needs them on his or her side.
Fourth, an entrepreneurial streak is essential, I think. Every product launch effectively involves groups of people coming together to build something truly novel.
Finally, great communication skills are helpful: Someone needs to deal with the press when one of those big bets inevitably fails!
Q: How does the winner-takes-all nature of markets for talent affect blockbuster strategies?
A: In my view, the battle for star talent is one of the most fascinating aspects of today's entertainment business. In Blockbusters, I describe that markets for creative talent are highly concentrated, and that the top actors, musicians, authors, athletes, and other creatives can earn huge amounts of money. Content producers can see great advantages when they bet on stars. That's why enlisting star talent is such a key element of the blockbuster strategy. But the competition for the few stars at the top is so severe that the pressure on entertainment businesses is getting pretty intense. The truth is that often they can barely afford to compete for the most sought-after performers, but at the same time they cannot afford not to do so.
I present several case studies, such as on basketball's LeBron James and actor Tom Cruise, that vividly illustrate the ongoing tug-of-war between stars and entertainment companies, with each party vying for a bigger piece of the revenues and profits generated by blockbuster products. We're in a very interesting time—how the power struggle plays out will have great consequences for the future of media and sports.
Q: Does the advance of digital technologies bolster or threaten the blockbuster approach?
A: I think it only bolsters the importance of blockbusters. That's not what most people thought when digital technology first started to gain a foothold in the entertainment business. Chris Anderson's "long-tail theory" was very popular. Anderson argued that when online channels enable consumers to find and afford products more closely tailored to their individual tastes, they will migrate away from hit products. He thought companies should therefore stop relying on blockbusters and focus on the profits to be made from the "long tail"-niche offerings that cannot be offered profitably through bricks-and-mortar channels.
But I have found that actual data on how markets are evolving tell a much different story than what Anderson predicted. As demand shifts from offline retailers with limited shelf space to online channels with much larger assortments, the sales distribution is not getting fatter in the tail. On the contrary, as time goes on and consumers buy more goods online, the tail is getting longer but decidedly thinner. And the importance of individual bestsellers is not diminishing over time—it is growing. That explains why Netflix, YouTube, and other online businesses that once proclaimed to be focusing on the long tail now have switched to blockbuster strategies.
Q: Looking forward, which industries will surprise us by adopting blockbuster approaches?
A: Most people will be surprised to learn how many leading companies outside the world of entertainment already have great success by borrowing key aspects of the blockbuster approach. In the book, I provide several examples, from Apple to Red Bull and from Victoria's Secret to Burberry. And I describe in depth how the blockbuster strategy is increasingly carrying the day in the hospitality sector, where the nightlife industry now is dominated by big bets on large-scale clubs and superstar DJs. But I think we'll see many more business-to-consumer markets where smart executives will adopt blockbuster strategies.
Q: What are the main takeaways you hope to leave with readers?
A: Well, I can't give away too much—we want Blockbusters to be a blockbuster, after all—but I think the book holds four important lessons.
First, the blockbuster strategy works.
Second, bets on star talent bring important advantages but also major headaches, and the power of those at the very top will likely only increase.
Third, advances in digital technology do nothing to lessen the need for big bets—in fact, blockbusters and superstars only gain power in a digital landscape.
And finally, the strategies that are so effective in the world of entertainment will increasingly pervade other industries. So it's important for managers in a wide range of sectors to know their way around show business.
Q: What are you working on next?
A: I just released a new case on fashion magazine Vogue, which I can't wait to teach later this month, and have a few other exciting case studies in the pipeline. I am also thinking about a follow-up to my recent case study and Harvard Business Review article with legendary soccer coach Sir Alex Ferguson, on his team management and leadership lessons. (It was so well received that it deserves a sequel!) But I am mostly very hard at work on the release of Blockbusters—it's my first book, so everything is new—and I look forward to discussing it at alumni events in the United States and abroad.