Why Incubate Stories?
The business of story is big. It’s also risky.
Last year, when you include books, comics, games, movies, television, toys, merchandise, and theme park attractions, the business of story totaled more than a trillion dollars.
With budgets soaring, it’s also risky. After all, a single event tentpole film can cost more than a hundred million dollars.
Studios try to mitigate some of that risk by turning to sequels and remakes. They’re perceived as safer, because they come with bulit-in brand awareness. Nonetheless, literally every executive we interviewed agreed with this analysis from Financial analyst Vasily Karasyov of J.P. Morgan and Susquehanna Financial Group:
“The cycle of sequels and remakes have played out,” and “films based on previous intellectual properties present a growing risk to film industry profitability.”
“The nature of any IP re-exploitation cycle (be it DVD, CDs, iTunes, or superheroes) is such that despite how long it lasts, it ultimately fades,” Karasyov reported.
The problem? Hollywood is now “at the tail end of the process. The studios have milked their most appealing titles. Their remakes are losing their punch, while companies find themselves now turning to second-tier franchises. As a result, the risk to profits is increasing fast.”
What year is it?
At the same time, capital allocated to companies and producers to develop new material is disappearing. Films, books, games, pay-per-view events, and television pilots are green lit—and with budgets that seem astronomical—but the investment to develop the next wave of hits is not there.
- In an industry where content will always be king, the pipelines for new, original development are drying up. For investors, that imbalance equals opportunity.
- Hollywood remains risk averse. Mitigating that risk offers a significant opportunity.
- In the meantime, Hollywood’s attempt to move into new media has scarcely begun to tap the potential for brand development and revenue generation.
The irony is, original content is viewed as inherently risky, since it has never been vetted by an audience and has no brand awareness. Only three of the top 25 films of 2015 were based on original stories — the rest were sequels, remakes, or based on books, comics, television series, or true-life events (in the case of Straight Outta Compton). Two of those three were Pixar films, which almost doesn’t count since Pixar is essentially its own franchise.
Literally every executive we talked to agreed: The original 1977 Star Wars would never be greenlit today — it was not based on existing content with a built-in audience, it didn’t have bankable stars, and it wouldn’t generate significant foreign pre-sales.
The Gramarye team believes that is a problem. There will always be a need for those core generational stories. They all begin with the written word.
“There have been great societies that did not use the wheel, but there have been no societies that did not tell stories.”
—Ursula K. Le Guin, author
With production and P&A (prints and advertising — the costs of distribution) budgets soaring, and modestly-budgeted films disappearing from screens, it’s natural that studios and production companies are looking to mitigate risk.
As a part of our work at Georgia Tech’s Flashpoint, one of the world’s most consistently successful and exclusive business accelerators, we talked to Matt Mardola, Chief Analytics Officer at Legendary Entertainment, who told us:
“We are one of the few studios that still takes a chance on original stories, as we did with Pacific Rim. But more and more, even we are relying on new takes on familiar brands. We have new King Kong and Godzilla projects coming soon.”
When Legendary does produce original content, it leans heavily on what Mr. Mardola calls “the fire hose,” the vast amount of social data available from Facebook and Twitter, and on “comps” — comparisons to similar films in similar genres, and on the recent track records of attached talent, the actors and directors. The latter, in fact, is crucial to foreign presales, a key component of funding most films of all budgets. But as Mr. Mardola told us:
“When a story is truly original (such as Inception), it’s almost impossible to apply meaningful comps. Focus groups are useless — we don’t use them at all. Even the big data is skewed. We found that when people go to a movie with another person, 75 percent of them believe they are the who decided what to see. Of course that math doesn’t work. (Studios) spend anywhere from $250,000 to $5 million on predictive analytics (for a single film), and they’re not getting any meaningful information. It’s biased and unreliable. If they were, you wouldn’t see as many box office failures.”
Traditional analytics are not mitigating risk to any significant degree. Film investor and Technology Angel Brad Zataut told us: “If there was a way to get the kind of data you get from a test screening before the film is shot, that would be gold. But of course there’s no possible way to do that.”
The Gramarye Media team seeks to prove that there is a way to gather that data, and that it can help in the decision-making process.
“Why was Solomon recognized as the wisest man in the world? Because he knew more stories than anyone else. Scratch the surface in a typical boardroom and we’re all just cavemen with briefcases, hungry for a wise person to tell us stories.”
— Alan Kay, vice president at the Walt Disney Company
With original content perceived as risky with success essentially unpredictable, studios are turning more to content with a built-in audience — published books, comics, and even games (including Legendary Entertainment’s adaptation of the World of Warcraft massive multiplayer online game). There are problems there, too. As literary manager and executive producer Eddie Gamarra (The Maze Runner) said:
“Publishers don’t market, except in rare circumstances to bookstores — unless you’re (a best-selling author like) Stephen King, they never market to consumers. They don’t collect any meaningful data about their audiences. We can’t even get real sales figures. I know one (executive) who sends his assistant to Barnes and Nobel and few times a week, and tells her to buy copies of ever book turned cover out in certain sections, and then tries to option those. He’s literally judging books by their covers.”
Mr. Gamarra added that even when sales figures are available, they don’t mean much. He pointed out that while superhero movies are usually huge hits, the comics upon which they are based seldom sell more than 200,000 copies per month. If only the people who read the comics bought tickets, the films would be box office disasters. Mr. Gamarra pointed out:
“The core fans have an intense enthusiasm and passion for the source material that seems to scale beyond what the sales figures suggest. We need a way to measure that passion.”
Emmy Award-winning and Golden Globe nominated producer Matt Battagila (Brothers and Disney/Marvel’s Thor) told us:
“I’ve been trying to get the Big Five publishers in New York to hire a development executive to mine their own content for years, because they’re leaving literally hundreds of millions of dollars on the table every year. They just keep saying, ‘it’s not our business.’”
The Gramarye Media team perceives an opportunity in the disconnect between publishing and Hollywood.
Hollywood is not the only group impact by soaring budgets, limited screen real estate, and the growing reliance on blockbusters, sequels, and remakes.
As a part of our work at Georgia Tech’s Flashpoint Accelerator, the Gramarye team spent a great deal of time taking to independent film investors. These are the unsung heroes of independent and lower-budget studio cinema — the fuel for the engines of creativity. But as smaller budget films are pushed off the screens and are becoming harder to find on streaming services, the independent film investors are being squeezed out of the game. This change seems to have occurred within the last year.
While the rewards for investing in film can be enormous, the risks are equally high.
In recent years, independent investors might diversify by investing, for example, $20 million, either individually or as a part of a group, in a slate of films. That slate might allocate $10 million to one film, $5 million to another, and $1 million each to five smaller films. Today, independent investors are finding that they must allocate the entire $20 million to one film — or bundle that investment with others to finance a single film. In short, it is becoming increasingly difficult to diversify an investment in film.
Film is one of the few investments that is literally all or nothing. If a film doesn’t find its audience, the entire investment is lost. For most independent investors, one miss can take them out of the game.
Without exception, the investors we talked to who had a bad experience investing in film had invested in only a single project. Without exception, the ones who had a generally positive experience had invested in multiple projects in each round. Diversification is important.
The “holy grail” in Hollywood is the transmedia franchise. More than just merchandising, a transmedia franchise tells a consistent and unified story across various media channels, including, for example, novels, film, television, games, graphic novels, and even toys. Each channels offers a new entry point for new audiences, each channel promotes and supports the others, and, most significantly, each channel generates revenue.
While the risks are high, transmedia franchises can be worth billions of dollars.
While virtually every investor would love to own even a piece of a transmedia franchise, the “cost of entry,” and the inability to diversify the investment, locks most independent investors out.
Through our Flashpoint interviews, the Gramarye team was surprised to learn that most film investors aren’t looking just for a financial return — although they all certainly hoped for one. They are looking for an experience — to be a part of the creative community and the “red carpet” Hollywood magic. We call them the “passion players,” because they are looking for a return on their passion as well as their investment.
They’re looking for an experience. They want to be a part of that story-telling magic.
We also realized that the passion investors have more to offer than simply writing checks. They have years of business experience and acumen. That wisdom is an untapped asset.
Gramarye Media is a story incubator discovering the next great story franchises. We add value to diversified portfolios of stories by building that one key element studios demand: a built-in audience.
An investment banker recently described the Gramarye solution as: “data analytics and collaborative social/multimedia utilization as risk management and pre-market concept validation.” We like to say simply that our goal to prove a methodology to validate stories with audiences — primary tests that involve direct observation — to see which ones inspire passion and gain traction.
The Gramarye story incubator connects communities of investors, writers, producers, mentors, technologists, and artists to identify annual portfolios or slates of stories when their value is lowest, vet them in the market with audiences and build brand awareness, and then partner to develop the ones with the most traction as films, TV pilots, toys, merchandise, location-based entertainment, and more.
Our vision: to employ exclusive non-subjective selection criteria to mitigate risk from potential franchises by discovering, nurturing, and vetting content, and building measurable brand awareness and buzz before a film, pilot, or other media adaptation is greenlit.
Investors crowded out of the film market by soaring budgets and unmitigated risk can own pieces of potential blockbuster franchises in perpetuity.