The 87th annual Academy Awards kick off this Sunday evening in Los Angeles.Credit: The Academy via Facebook.
Hollywood royalty gathers again on Sunday night to celebrate the best the movie industry had to offer in 2014. Some call it a vanity exercise. Not me. I follow the Oscars because, as an investor, I know that winning films tend to earn more and studios that do deals with winning filmmakers tend to produce more profits.
Oscar's golden touch
But don't take my word for it. Ask Rupert Murdoch why he isn't pressing filmmaker James Cameron to finish writing the sequels to 2009's Avatar. Hollywood's all-time highest grossing film ($2.79 billion worldwide) also won Oscars for Art Direction, Cinematography, and Visual Effects.
Of course, Oscar night isn't just about business for me. A few years ago I started putting on a small party for my wife, laying out snacks, drinks, and brackets as we prep for the big event. She enjoys the fashion as I check in on what's working in a business I've followed for decades (first as a fan, then as a business analyst).
Part of my annual "pregame" ritual, if you will, is to estimate the box office profitability of the year's Best Picture contenders. Here's what I learned about the current crop of nominees:
| Nominee | Studio Distributor | Worldwide Gross | Estimated Box Office Profit | Margin % |
|---|---|---|---|---|
| American Sniper | Warner Bros. | $393,078,136 | $101,539,068 | 25.83% |
| Birdman | Fox Searchlight | $72,230,755 | $9,115,378 | 12.62% |
| Boyhood | IFC Films | $44,364,016 | $16,182,008 | 36.48% |
| Selma | Paramount Pictures | $48,514,386 | ($15,742,807) | (32.45%) |
| The Grand Budapest Hotel | Fox Searchlight | $174,600,318 | $42,300,159 | 24.23% |
| The Imitation Game | The Weinstein Co. | $157,231,507 | $45,615,754 | 29.01% |
| The Theory of Everything | Focus Features | $98,439,004 | $21,219,502 | 21.56% |
| Whiplash | Sony Classics | $11,426,092 | $863,046 | 7.55% |
| TOTALS | N/A | $999,884,214 | $221,092,107 | 22.11% |
Sources: Box Office Mojo, author estimates.
Yet the Oscar narrative doesn't end on Sunday night. Thanks to the generous team at Box Office Mojo I was able to analyze the financial impact on Best Picture nominees from 2011, 2012, and 2013.
As you can see below, movies that get the nomination for Best Picture reap the rewards at the box office:
| Year | 2011 | 2012 | 2013 |
|---|---|---|---|
| Pre-nomination gross | $518,667,067 | $620,403,134 | $645,162,653 |
| Final gross | $628,287,077 | $1,002,184,615 | $813,115,481 |
| Oscar impact % | 21.13% | 61.54% | 26.03% |
Sources: Box Office Mojo and author estimates.
To be fair, it's impossible to know how much of the added gross is due to the Best Picture imprimatur. Timing can be as much a factor as anything. For example, a late December release is always going to have a big "post-nomination" run because the bulk of its theatrical run comes after nominations are handed out. That said, theaters around the country set aside special screenings for nominees. It's also not uncommon for low-budget limited releases to get additional distribution after nomination. Among this year's crop, Whiplash found its way into 148 more theaters after getting the nod, Box Office Mojo reports.
Give these tables a closer look and you'll notice three things:
- More nominations don't necessarily lead to higher profits. For example, while Birdman's nine nominations speak to the film's supposed quality, its 12.6% estimated gross margin is less than half that of American Sniper, which has earned six nods while putting up huge numbers for Time Warner (TWX +0.00%).
- One studio has more to gain than others on Sunday night. I'm talking specifically about 21st Century Fox (FOXA +0.00%). The studio's Fox Searchlight subsidiary for funding independent projects has two films up for Best Picture: Birdman and The Grand Budapest Hotel. Both are profitable by my estimates, but with low budgets an Oscar win could add a meaningful chunk of cash to the studio's coffers.
- Smaller budgets tend to be better for studios. Of all the findings in my study, the most startling might be the amount production studios spend on Oscar-worthy projects. In 2014, the average Best Picture nominee cost just $20 million to produce and another $14.5 million to market and distribute. Seven of the eight are profitable as of this writing. As an investor, it makes me wonder if rising tentpole budgets are a serious risk for Disney (DIS 0.20%), Warner, Sony (SNE 0.69%), and the rest.
Why every investor should be tuning in
Watching the Oscars isn't likely to make you millions. Heck, I can't even guarantee you'll be entertained. But if history proves anything it's that the Oscar effect is real and the studios backing the winners tend to enjoy a windfall. In the business of investing, that's as close to a crystal ball as you're going to get.
