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The contrarian approach that continues to bloom in Hollywood

We may not be rushing out to see it ourselves but film producer Jason Blum, the embodiment of a value investor operating in the most anti-value of worlds, has another movie in cinemas this week

05/07/2021

Andrew Williams

Andrew Williams

Investment Director

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If you ever felt the only thing missing from Freaky Friday was a knife-wielding serial killer, then your wish has been granted. Freaky – a new horror-comedy that takes the classic 2003 Disney remake where mother Jamie Lee Curtis switches bodies with daughter Lindsay Lohan and adds in elements more in keeping with the Lee Curtis slasher series Halloween – is now playing in a cinema near you.

This might not seem an obvious movie to highlight, here on The Value Perspective – notwithstanding the  eclectic tastes of various members of the team – but regular visitors may recognise the identity of its producer, the prolific Jason Blum. As we have noted before in article such as Why Oscar-winner ‘Get Out’ resonates with us, Blum is the embodiment of a value investor operating in the most anti-value of worlds.

Even if you have not seen any, the chances are you are aware of a number of Blum’s films – as this MentalFloss article, which was updated in 2020, shows, he has produced six of the 35 most profitable movies of all time, based on return on investment, including The Purge, Insidious and not one but two instalments of the Paranormal Activity franchise. In addition to Get Out, he has also enjoyed Oscar success with Whiplash.

According to The Numbers, Blum now stands as the 37th highest-grossing producer ever, with his 90-odd films to date raking in more than $4.5bn at the box office – even before the launch of Freaky. We first came across his name a couple of years back while listening to a Planet Money podcast – The Scariest Thing in Hollywood – which initially focused on the Hollywood rule of thumb that bigger is better and biggest is best.

Blockbuster mentality

This blockbuster mentality is embodied by the Avengers and Fast and the Furious franchises, which now cost hundreds of millions of dollars to make but have on occasion taken billions at the box office. That feels a very growth-oriented way of doing business whereas, here on The Value Perspective, our own preferences are naturally more contrarian.

Until we came across Blum, it was not obvious that word even existed in the Hollywood dictionary and yet he would appear to have turned the Hollywood business model on its head. The secret to his great success, apparently, is his adherence to three ‘golden rules, which are all designed to keep a very tight rein on costs – clearly the very embodiment of contrarianism in the context of Hollywood.

First, Blum does not use many locations – and, if a scene can be filmed indoors, so much the better. Next, he does not give speaking parts to extras as even a single word of dialogue will inflate their daily rate by a factor of five. Finally, and in a similar vein, he is very careful about his overall wage bill, opting to align the interests of his cast and crew with an element of performance-related pay by way of box-office bonuses.

‘Sunk costs fallacy’

To illustrate just how far removed this unwavering focus on costs and alignment differs from the traditional Hollywood ‘bigger = better’ philosophy, just consider how the ‘sunk costs fallacy’ continues to inform the thinking of many film-makers. This is the idea that, if things are not going well, you actually spend more money – just blow up one more building, make that car chase one-minute longer and so on.

This instinct to throw good money after bad – or, in investment terms, to make poor capital allocation calls – means of course that, while the Avengers and Fast and the Furious films may be thriving – movie history is littered with examples of huge-budget films that became huge flops. The 2002 Eddie Murphy vehicle, The Adventures of Pluto Nash, for example, cost $100m to make and yet took just $7.1m around the world.

Blum, on the other hand, operates a very strict budget he is happy to spend – but not a penny more. The Planet Money podcast, for example, tells the story of a director who only needed a small injection of extra cash to complete his film but Blum refused to oblige. Much like value investors, he has a very disciplined process and he knows that, if he abides by it, he will make money more often than not.

Much of Blum’s output is low-budget horror and, as such, many films will be destined for the darker recesses of Netflix. Unlike most in Hollywood, however, Blum is unafraid of failure and knows not every movie can be a hit – indeed some two-fifths of his do not make money. Yet he also knows sticking to his disciplined process means he should come out ahead on average – a fact value investors do not see as the least bit freaky.

Author

Andrew Williams

Andrew Williams

Investment Director

I joined Schroders in 2010 as part of the Investment Communications team focusing on UK equities. In 2014 I moved across to the Value Investment team. Prior to joining Schroders I was an analyst at an independent capital markets research firm. 

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