Monday, January 04, 2010

Avatar – the marketing success of an expensive blockbuster

During the first weekend of 2010, Avatar passed the US$ 1 billion mark. This milestone has only be reached by a handufl of other movies.

This latest 20th Century Fox’s blockbuster was costly and complex to make. The accountants at the movie studio will be crunching numbers for the next few months to find out if investing in James Cameron’s Avatar will turn a hefty profit.

It is hard to determine the final cost of the movie – various numbers are flying around. The New Yorker quotes $230 million, while the New York Times estimates the total cost to be close to $500 million. Quite likely, the official budget lies somewhere in between – at $280 million for the production, plus marketing costs.

James Gianopulos, co-chairman and C.E.O. of Fox Filmed Entertainment, told CNN in early December: “it is the most expensive film we’ve made, but now, having the luxury of hindsight, it is money well spent, so I’m not concerned about it.

However, a movie budget is limited to the production costs. In other words, it comprises of the wages of the actors, crew and special effects people. Marketing expenses, such as advertisements (billboards, trailers, etc.), promotion (events), merchandise (action figures, apparel, etc.) are not included in the movie budget.

In the case of Avatar, Fox cleverly shared the production costs with investor groups Dune Capital Management and Ingenious Film Partners to hedge the risk. They also took advantage of a tax credit in New Zealand (similar to Lord of the Rings), where they shot the live-action footage that comprises about a third of the film. These savings are estimated at $30 million. Fox is however responsible for the marketing (around $150 million).

Avatar has its unique selling point (USP) – it boasts its own 3D technologies, courtesy of Cameron who invested his own money, and backed by investors. They already got their investments back: the 3D cameras have been licensed for use in other films. Steven Spielberg and Peter Jackson are making their 2011 film, The Adventures of Tintin: The Secret of the Unicorn, using Avatar’s motion-capture tools.

From the movie industry’s perspective, much of Avatar’s value lies in the film’s ability to motivate cinema owners to convert to 3D screens, which would translate into an additional price increase of a movie ticket by $3-to-$5. Furthermore, blockbusters Star Wars and Titanic are slated to be released again in 3D at an investment of $30 million per movie, and an increase in consumer electronics sales of flat-screen 3D TVs is anticipated.

Anticipating the profitability of Avatar, Cameron already has the next two Avatar sequels plotted out. A lot will depend on Avatar’s global appeal. Although the US media are focusing on the earnings in the domestic market, it will be Europe, Russia, India, and China that will contribute to the movie’s bottom line. In its first three weeks, Avatar has earned twice as much overseas as domestically.

Avatar's foreign success is contributed to the marketing genius of Cameron, who zoomed in on the anti-American feelings abroad.

As it looks now, Avatar will enaable 20th Century Fox and Cameron to laugh all the way to the bank.

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