Horror Films Cost Very Little to Make and They Make a LOT of Money

With a new sequel to Halloween opening this Friday, courtesy of director David Gordon Green and, um, Danny McBride, it’s hard to ignore that horror has made a huge comeback over the past decade. And a great deal of that comeback has come courtesy of man: Halloween producer Jason Blum, the wildly successful force behind Blumhouse Productions.

Here on the TheLending Financial Sense blog, we write a lot about how to make your money go farther. That’s why we’re taking some time out of our busy schedule to review Mr. Blum's money-making achievements. With Halloween poised for some major box office returns, it's becoming impossible to ignore:  Jason Blum has cracked the Hollywood code.

The horror formula: popularity + frugality = profit.

Compared to the hundreds of millions of dollars it costs to produce an action blockbuster (like, say a Marvel movie or a Star War), horror movies are relatively inexpensive to make. In fact, the horror genre has never been one that racked up massive production costs. Rubber masks and shadows are both quite cheap.

For instance, the original Halloween from legendary director John Carpenter only cost a paltry $325,000 to produce. And when you add in the fact that it made $47 million at the box office—almost 150 times what it cost to make—that’s quite the return on investment!

Jason Blum has taken this approach and filed it down to an exceptionally sharp, stabby point. In an age where Hollywood is increasingly relying on a few massive tentpole films to turn a profit—films that can lose boatloads of money if they aren’t mega-hits—Blum does the opposite: Blumhouse produces a lot of movies at a very low-cost, oftentimes giving young up-and-coming directors a degree of artistic freedom to do their thing.

The results have been stupendous, so much so that many of their films have turned into successful franchises. Did you go and see The Nun? That was a Blumhouse film. Big fan of The First Purge? Blumhouse. Do you remember how scared you were walking out of Paranormal Activity? Guess what? That was Blumhouse.

Blumhouse films are oftentimes very well-made, going to show that budget doesn’t always translate to results. And with horror films being an increasingly popular genre, they have made money hand-over-fist at the box office. It’s a formula that’s starting to catch on, as seen by the success A Quiet Place earlier this year.

Want to see some evidence? We're happy you asked! Let’s take a walk down movie memory lane and marvel at Jason Blum’s success.

With blockbusters, it takes money to make money. 

Before we get to Blum, let’s talk a little bit about Hollywood in general. Right now, studios don’t really aim for mid-budget successes: movies that cost $40 million and make just under $100 million at the box office. Instead, it’s all about action blockbuster franchises—many of which are based on pre-existing intellectual properties like comic book characters (Marvel), Y.A. novels, (Harry Potter), or older movie franchises (Jurassic World/Star Wars).

When they’re successful, these movies make a lot of money, with more films crossing the billion-dollar worldwide box office mark than ever before. But when they fail, even a box office haul in the mid-hundred millions can be a failure. For one example, see last year’s Justice League, which made over $650 million worldwide, but on a $300 million budget plus the hefty cost of a giant global marketing campaign. Well over half-a-billion dollars, and not a smiling Warner Bros. exec in sight.

Blockbusters have the potential to make hundreds of millions, possibly even billions of dollars—far more than any Blumhouse film has a made (yet). But the cost of making these films is so high that the return on investment is actually much lower.

The ROI for horror movies is much, much higher.

Let’s say you had $1,000 to invest in a movie and you are given two choices: You can buy a tiny piece of a future Marvel film versus a tiny piece of the next Conjuring movie. Contrary to what you might think, you should choose the Conjuring film over the Marvel one. The return on investment will be much, much greater.

To give you an idea, here is some data regarding the year’s top five movies (box office numbers current as of 10/12/18), as well as the top five movies from each of the past five years. Using data from Box Office Mojo and The Numbers, we've laid out each film’s domestic, international, and worldwide grosses; plus their production costs (not including marketing).

We also include the films’ return on investment (ROI), or their worldwide grosses divided by their production costs minus one and then expressed as a percentage. The “minus one” part, by the way, accounts for the movie making back its original budget. A film that grossed exactly the amount it cost would have a zero percent ROI, a film that made twice its budget would have a 100 percent ROI, and so on.

For each year, we also tallied the total worldwide grosses and production costs for all five films combined plus their overall ROI. Enjoy...

Top 5 highest-grossing movies of 2018

Top 5 highest-grossing movies of 2017

Top 5 highest-grossing movies of 2016

Top 5 highest-grossing movies of 2015

Top 5 highest-grossing movies of 2014

Top 5 highest-grossing movies of 2013

What's the average ROI for a Hollywood blockbuster?

Remember, these are the numbers for the top-five grossing movies of the past six years. Basically, these films were the best of the best (or at least the most profitable of the profitable).

Once again, here are the overall ROI’s for all six years that we surveyed:

• 2018: 540.27%
• 2017: 549.83%
• 2016: 436.23%
• 2015: 760.37%
• 2014: 364.95%
• 2013: 555.76%

So in general, the top five films in every given year make a little over five times their budget at the box office. 2014 was a bit of a down year, with only the number five movie, The Hunger Games: Mockingjay (Part I) grossing more than five times its budget. Likewise, 2015 was a great year, with two movies crossing the 10x mark, and Minions (which only cost $74 million to produce) grossing over 14 times its relatively modest budget.

As a quick sidebar: the performance of the Despicable Me franchise is truly legendary. From this list, we have:

• Despicable Me 2: 1,177.32%
• Minions: 1,466.75%
• Despicable Me 3: 1,193.50%

Neither of these three films failed to gross less than 11 times their budget. Amazing. And that’s not even counting the money made on merchandising. As you may have noticed, people love those dang Minions.

But back to the task at hand: Overall, a box office gross that’s over five times your budget is the standard being set by these top-performing films.

Now let’s see the kind of ROI that Blumhouse is producing. Here are the same sets of numbers for the The Conjuring, The Purge, Insidious, and Paranormal Activity franchises, plus three other noteworthy Blumhouse films from the past few years:

The Conjuring

The Purge

Insidious

Split, Get Out, and Happy Death Day

If you had a bunch of M. Night Shyamalan stock that you purchased in 2002 and had been holding onto ever since, waiting for its value to recover, then you were a huge fan of Shyamalan’s intimate, James McAvoy-starring Split, the best movie he had made since Unbreakable, which is ironic for reasons we won't spoil here.

Oh, and judging by Split’s superb box office performance, Shyamalan diehards were not the only ones who dug the film:

Churning out low-budget horror movies is not a viable path to Oscar gold, right? Wrong. Blum has been nominated for two Best Picture Oscars, the first for Damien Chazelle’s Whiplash—which doesn’t quite count as a horror movie—and Jordan Peele’s Get Out—which definitely does.

In addition to being a critical and zeitgeist-conquering success, Get Out also did gangbusters at the box office:

If you don’t remember Happy Death Day, that’s okay. The 2017 Groundhog Day-style slasher film was pretty fun, but not exactly groundbreaking. We decided to include it because, frankly, it was a film that did pretty well. Not great, just pretty well.

Then again, “pretty well” is all that Blumhouse needs to make a lot of money:

Paranormal Activity

Finally, we’re taking it back to where it all started: Paranormal Activity. Did you know that this movie was shot by filmmaker Oren Peli in only seven days on a budget of ... wait for it ... $15,000?!

Blum saw the film at a festival, loved it, and joined up with Peli to get it released. $193 million in box office receipts later, a business model was born.

The worst film in this franchise still had an ROI of almost 700 percent. Meanwhile, the franchise's best film (the first one), had an ROI of 1.29 million percent.

We're going to repeat that: 1.29 million percent!!!

Now, it’s not as though Blumhouse went around trying to produce every movie for only $15,000. But the success of Paranormal Activity paved the way for a decade-plus of great scares and scary big profits, with more of both likely to come.

Horror movies: the best investment in Hollywood.

Real quick, let’s recap the total ROIs for the Blumhouse’s major franchises:

• The Conjuring: 1,285.09%
• The Purge: 1,264.95%
• Insidious: 1,985.33%
• Paranormal Activity: 4,405.30%

As time has gone on, the ROIs for these films have decreased. This isn’t due to them being any less popular—the Conjuring films have brought in over a billion dollars—but to rising budgets. Paranormal Activity required a bedroom and stationary camera, whereas The Nun needed an entire monastery. One was shot for $15,000, the other for $22 million.

But still, The Nun only cost $22 million and it’s made almost $350 million worldwide! A couple extra million upfront can translate to tens of millions in box office on the other end.

And even with an ROI of “only” 1,285%, The Conjuring and its ilk dwarf their blockbuster brethren in terms of profitability. They have a return of almost 1,300% versus an average Top-5 blockbuster return around 500%. If any broker were to tell you he could get you 13 times your money versus five times your money, it wouldn’t be any choice at all!

And while any fund manager promising you those kinds of returns is almost certainly running a Ponzi scheme, Blum makes his money the legitimate way: with good old-fashioned spooks and scares. The key to building any business is to make something that people want to buy. And until people stop wanting horror movies, Blumhouse is going to remain the best in the biz.

What's the one thing that could possibly unseat him? That's right. Minions. People love Minions.