Rising interest rates could change the film industry for the better. Interest rates have steadily declined between 2008 and 2021, and with cheap capital, film studios have invested billions of dollars in CGI-based franchises. Adjusted for inflation, 29 of the 40 most expensive films ever made since 2008.
Disney is the studio responsible for the transition to mega-blockbusters. The top five most expensive films are either Pirates of the Caribbean or Marvel, franchises owned by Disney. Filmed in 2011, Pirates of the Caribbean: On Stranger Tides is the most expensive film ever made, costing $456 million to make in 2021 US prices.
In fact, 13 of the 40 most expensive movies of all time are Marvel, Pirates of the Caribbean or Star Wars. When money is cheap, investing so much capital in franchises makes sense because the potential returns are significant. The first Avengers movie was very expensive, but spawned one of the most profitable franchises in movie history.
But this comes with risks. Disney’s Mulan remake cost $200 million but failed and lost over $130 million. This is the other side of the risk reward coin, and this year people have given up risk. With interest rates rising, investors need cash now, which is one of the reasons Bob Chapek was ousted as Disney CEO earlier this week.
Chapek replaced longtime CEO Bob Iger in 2020. At the time, interest rates were low and the stream wars were raging. Chapek wanted to get as many customers as possible to Disney’s streaming services at any cost, and he succeeded. In the fourth quarter of this year, Disney had 235.7 million streaming subscribers. That’s more than 221 million in Q3 and more than competitor Netflix. Chapek’s problem is that operating losses from streaming have increased from $800 million to $1.5 billion.
A few days after these results, Čapek was replaced by Iger. It was reported that one of the first things Iger did upon his return was to fire Kareem Daniel, head of the company’s media entertainment division and a man involved in Marvel’s 2009 acquisition of Disney. Iger announced Daniel’s departure in an email to employees, along with a “new structure”. this puts more decision-making power in the hands of our creative teams and rationalizes costs.”
Like Amazon and Meta Platforms, Disney’s board of directors decided it needed to cut costs and stop pouring billions of dollars into potentially successful ideas that won’t generate cash flow for years. The difference with Disney is that instead of laying off 10,000 white-collar workers, the company fired its chief executive. So far, Capek is the most visible victim of the media and technology cull.
It’s good for film buffs. Spending more money on films didn’t make them any better. None of the 40 Most Expensive Movies has an IMDb rating of 8.4, and most of them languish on sixes. The hugely popular Back to the Future cost only $48 million inflation-adjusted and currently has an 8.5 rating. The original Star Wars movies were made on a tight budget compared to the Disney reboots, but The Empire Strikes Back has an 8.7 rating compared to a miserable 4.1 for Star Wars: The Last Jedi.
The concern with falling interest rates is that by chasing cash now, companies will lose sight of the long-term projects that will make our lives better in the future. But the truth is that having a lot of cheap capital does not guarantee better innovation. In the movie industry, all this money has only spawned an endless supply of Fast & Furious movies and disappointing remakes of movies we used to love.
Unsatisfactory innovation is also evident in the economy as a whole. Most of the largest companies in the world are nothing more than billboards. Any poet will tell you that limits are necessary for creativity to flourish. It’s time for the business world to face some financial constraints, and our innovations will help them.
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