Derek Thompson talks to Harvard Business School professor Anita Elberse about her new book, Blockbusters:
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.
I don’t actually agree with that generalization. Often in (company) investing, bigger bets are also “safer” because the companies that are able to command larger investment dollars are much further along in their business life cycles. Hence, discussions like this one this past week.
Thompson: 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?
Elberse: 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].
Except that they do raise prices — they just raise them across the board for big movies and small movies alike. It’s why the reporting of box office numbers is so fucked up. Yes, movies are making more money, but they’re often not actually selling more tickets. The tickets just cost far more than they should at the normal rate of inflation.