How Hollywood Beat the Odds and Broke Box Office Records in 2016

What Did the Studios Learn From
Courtesy of Disney/Lucasfilm

When it comes to movies, nobody expected much from 2016. Most of the major franchises were sitting this one out — there were no sequels to “Jurassic Park” or “The Avengers” or “Transformers.” Yet even without the heavy hitters, the year is poised to shatter the record for North American ticket sales, with an estimated $11.4 billion in revenue.

“The movie business is incredibly resilient,” says Paul Dergarabedian, senior media analyst at comScore. “People have been sounding the death knell for the theatrical experience for a long time, but if the movies deliver, people show up.”

Still, not everything broke in the movie business’ favor, and not everyone would claim that the pictures were the best that Hollywood has to offer. Attendance for the year will be flat or down slightly, buoyed by rising admissions costs. Globally, a slowdown in China took a chunk out of ticket sales; box office in the Middle Kingdom slipped roughly 5% after years of explosive growth that saw routine jumps of more than 20%.

Final numbers are still being tallied, but analysts believe the worldwide box office will fall at least $800 million short of last year’s $38.8 billion haul. Disney’s share of worldwide profits will be 57%, according to estimates by Cowen and Co., drawn from studios’ earnings reports.

Domestically, many studio executives and Wall Street sages are pleased that the box office didn’t fall by 4%-5%, as the most bearish analysts had initially projected. Much of the unexpected success is attributable to Disney, which loomed large, racking up nearly $3 billion in domestic receipts from blockbusters such as “Finding Dory,” “Rogue One: A Star Wars Story,” and “Captain America: Civil War.” Among Disney’s accomplishments in 2016: Four of its films will likely shatter the $1 billion mark globally; it had six of the 10 top-grossing domestic releases; and it controls more than a quarter of North American market share, despite releasing fewer films than each of the other major studios.

Disney executives insist there’s more at play than simple brand recognition. Distribution chief Dave Hollis says the company owes its hot run to quality control: Every Disney-produced film in 2016 had an audience CinemaScore in the “A” range and enjoyed average “fresh” scores of more than 80% on Rotten Tomatoes — increasingly a guide for audiences trying to choose from myriad entertainment options.

The studio’s success can also be chalked up to old-fashioned salesmanship. The conglomerate’s marketing team makes each film an event, so people feel compelled to go to the theater.

“We are creating almost this fear of missing out,” says Hollis. “You can’t create that feeling unless you make something that has spectacle and action … something where [audiences] can’t settle for just having the experience on a tablet.”

Imitation may be the highest form of flattery; other studios have attempted to replicate the Disney model of releasing a few special-effects heavy, tentpole films.

“Everybody is trying to do it, but there is only so much room for big-budget franchise pictures,” says Doug Creutz, a Cowen & Co. analyst. “And when others try to do it, they often fall on their faces.”

Creutz says the industry is trapped in a “tragedy of the commons,” with six major studios and Lionsgate overcrowding a theatrical field that is bringing out fewer viewers. Even as budgets balloon and risks escalate, no studio wants to be the one to back down. The year’s costly flops, such as “Ben-Hur” and “Gods of Egypt,” are a reminder that a big budget isn’t enough to guarantee success.

“It would probably be a healthier industry if we had five studios instead of seven,” Creutz says. “We need 20% fewer big, expensive movies. But if you are the one who blinks and stops making them, or you make fewer of them, it takes you out of the running for big hits.”

Many studios in the last year discovered the hard way that audiences will return to the well only so many times. Popular series such as “Teenage Mutant Ninja Turtles,” “Ghostbusters,” “Independence Day,” and “Divergent” saw new installments stumble, contributing to widespread fears of sequel-itis. Executives acknowledge that many follow-ups are greenlit as a reflex. Gone, it seems, are the days when simply tossing a roman numeral onto a familiar title was enough to mint money.

“The theme of this year is that nothing can be taken for granted,” says Megan Colligan, Paramount’s distribution and marketing head. “When you have sequels, there is a biorhythm to them. You have to force yourself to break that and do things differently.”

Other execs say it’s becoming harder to capture audiences’ attention. “Whatever the picture may be, it has to be something that becomes a call to action,” says Rory Bruer, Sony’s worldwide distribution chief. “You’ve got to get them really quickly, because people’s attention spans are much shorter.”

Disney may have established itself as a cinematic superpower, but many of its competitors still had something to celebrate in 2016. Following a period in the wilderness after popular series “The Hobbit” and “The Dark Knight” had reached their conclusions, Warner Bros. stepped up to second place in the 2016 domestic box office derby. But it was a quixotic journey for the studio, which ironically took heat because its biggest hits weren’t even bigger. Bested only by Disney’s record-breaking performance, WB captured more than 15% of North American receipts, led by “Batman v Superman: Dawn of Justice” and “Suicide Squad.” The two films landed solidly overseas, but their worldwide totals — $873 million and $746 million, respectively — did not match the $1 billion some had forecast.

Those numbers, and the films’ critical evisceration, left Warner in a defensive crouch. Jeff Goldstein, president of domestic distribution, calls the situation “a little bit of a head-scratcher,” given that “both of those movies were widely accepted and embraced by the public.”

The riches of 2016 were somewhat equitably distributed among major releases, following a year in which “Star Wars: The Force Awakens” and “Jurassic World” accounted for a disproportionate amount of domestic ticket sales, earning $936.7 million and $652.3 million, respectively. In 2016, no film passed the $500 million mark Stateside, but nine films topped $300 million — three more than hit the mark in 2015.

Studio executives may talk up the importance of new and fresh projects, but audiences continued to flock to superhero movies and animated fare. Of the 10 highest-grossing films, nine were comic-book adaptations or family-friendly offerings; the other was a “Star Wars” spinoff.

The entertainment industry threw in its lot with costumed vigilantes more than a decade ago, but it’s showing ever-greater interest in animated fare. Disney has long prospered from its library of cartoon classics, but now it has more competition. Universal is wading deeper into animated waters, fielding hits such as “The Secret Life of Pets” and “Sing” through its partnership of Illumination Entertainment and shelling out nearly $4 billion to buy DreamWorks Animation. In Illumination, which made its name with the “Despicable Me” series, Universal is banking on establishing an animation brand that may one day rank alongside Pixar.

“The quality that it stands for has become a trusted thing,” Nick Carpou, Universal’s domestic distribution head, says of Illumination.

The animation boom could have far-reaching benefits for the business. For years, concerns have mounted that the theatrical model is fatally out of step with a younger generation of consumers. To this way of thinking, big-screen entertainment cannot compete with myriad other options, from premium cable sensations such as “Game of Thrones” to Netflix and other streaming-service revolutionaries. The animation renaissance has left some executives hopeful that a rising group of moviegoers is being weaned on the pleasures of the cinema.

“The younger we get as an audience,” says Fox domestic distribution head Chris Aronson, “the stronger a foundation we build for the business going forward.”