Are Big Budget Movies Really the Best Investment for Sony?

Jacob Harper |

George Loeb owns seven percent of Sony Corp (SNE) and the hedge fund manager has felt that’s given him leeway to weigh in on creative decisions. Following two successive high-profile “flops” by Sony, Loeb started openly criticizing the studio’s choices, and wrote a letter recommending that they spin off their entertainment division to focus more on the electronics side of the business.

In an interview with entertainment news site Deadline, George Clooney made his feelings about hedge fund managers weighing in on the movie business clear– stay out of the creative process.  Clooney said, “What he’s doing is scaring studios and pushing them to make decisions from a place of fear. Why is he buying stock like crazy if he’s so down on things? He’s trying to manipulate the market.”

Clooney wasn't done there. He added, “[Loeb] calls himself an activist investor, and I would call him a carpet bagger, and one who is trying to spread a climate of fear that pushes studios to want to make only tent poles.” According to Clooney, when hedge funds get invovled, movie studios are only interested in making safe bets, often $100+ million blockbusters that don't carry the critically lauded heft of a mid-budget or indie. Clooney singled out critcal darlings Michael Clayton, Out of Sight, Good Night, And Good Luck, The Descendants and O, Brother Where Art Though? (movies Clooney was personally involed in) as being movies that would never get made if investors had more control over the creative process.

On the surface, the differing opinions on Sony's fate - one from a "bean counter," one for a creative - seem to be a battle over money versus art. But are Sony's big budget, safe investment "tentpole" movies really that much more economically sound? That is, of the movies Sony has released this year, regardless of big budget or small, untestedconcept or tent-pole, how did they do from a purely financial return standpoint?

Sony and their subsidiary TriStar have released a total of seven films this year. Here’s a breakdown of them:

Grown Ups 2

Production Cost: $80 million

Box Office $123,350,206 (still in theaters)

Profit/Loss Percentage (so far):  + 54.18 percent

Sequels are usuall a safe bet, and the Adam Sandler/Chris Rock/ Kevin James comedy is no exception. Though critically abhorred, this franchise epitomizes what a risk-averse executive is looking for: bankable stars, sequel, appeals to a young audience. The film could end up doubing its intiial investment by then end of its run, probably somehwre around September 2013.

This is The End

Production Cost: $32 million

Box Office: $107,800,422

Profit/Loss Percentage: +236.8 percent

This Seth Rogen/James Franco ensemble meta-comedy, besides its big name stars, has been a big success for Disney. The original concept movie had a modest budget and low-key advertising campaign. A film like This is The End - wherein fictionalized versions of various celebrities react to the ongoing apocalypse - is a film both the Clooneys and the Loebs could get behind. That is, the film has gotten both good reviews and good returns.

White House Down

Production Cost $150 million

Box Office $116,677,953

Profit/Loss Percentage: -22.3 percent

And sometimes studios take the "safe bet" and fall on their face. This movie, on paper, seem slike a slam dunk: highly bankable stars in Jamie Foxx and Channing Tatum; high concept summer blockbuster; a patriotic movie released on the July 4th weekend. But the risk was built right into the price tag: $150 million is a lot to recoup. And this big budget flick just couldn't overcome that, nor its middling reviews (47 percent on Rotten Tomatoes.)

White House Down is what results when investors and creatives try to compromise, and fail. In short, nobody at the studio is happy when something like this movie comes out.,

After Earth

Production Cost: $130 million

Box Office $242,304,315

Profit/Loss Percentage +86.3 percent

After Earth was one of the two movies cited by Loeb (along with White House Down) as being indicative of Sony's broken movie strategy. And while this Will Smith/Jaden Smith sci-fi flick was a tremendous bomb stateside, only bringing in around $65 million domestic, what people fail to count in is the film was a hit internationally, more than recouping its budget.

Evil Dead

Production Cost: $17 million

Box Office $97,542,952

Profit/Loss Percentage: +473.6 percent

Evil Dead was a safe bet all around: a remake of an established horror franchise, cheap to produce, young target audience. And the film was enormously profitable. Released by Sony imprint TriStar, Evil Dead isn't going to be winning any Academy Awards, but it proved to be a solid investment for the company, and percenta-wise was their most profitable venture.

The Call

Production Cost $13 million

Box Office $51,872,378

Profit/Loss Percentage: +299 percent

TriStar's second release of 2013, the Halle Berry-helmed high concept thriller is, like This is the End, the kind of movie taht keeps both creatives and investors happy. The story is original, the movie was cheap to produce, and while it had no international appeal, it did very repsectably at the box office, ringing in a ver healthy profit.

The Smurfs 2

Production Cost $115 million

Box Office : $80.26 million (still in theaters)

Profit/Loss Percentage: -30 percent

The sequel to the CGI smash The Smurfs has "tentpole" written all over it. Yet after just one week, pundits are already saying the movie is a big disappointment, and will have to (like After Earth) ring in big overseas numbers to recoup. Horrendous word of mouth is likely to sink this kiddie flick in the US: it's only got a 12 percent rating on Rotten Tomatoes.

It seems that, at least for Sony this year, the highest return seems to be original, high concept low-to-mid budget flicks. Of course, this list doesn't include tJames Bond movie Skyfall, Sony's smash tentpole that brought in more revenue than every movie on this list combined - 1.1 billion box office, to be precise.

But for 2013, Sony's biggest hits, percentage-wise, are the orginal non-tenpoles, albeit ones that actually have a healthy return. They're the movies that both creatives and investors love, giving hope that the Loebs and the Clooneys can one day find a middle ground.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BAMF BOWLMOR AMF CORP n/a n/a n/a 0
SNE Sony Corporation 30.36 0.15 0.50 308,515

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