Blumhouse: The Hollywood Horror Hit Machine

How Jason Blum turned "constraints breed creativity" into a business model.

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Today, we are talking about the film and TV studio Blumhouse Productions (it pioneered a unique business model and gave us films like Paranormal Activity, The Purge, Whiplash and Get Out).

Also this week:

• Jack Dorsey and Jay-Z

• Meet the world’s top ghostwriter

• And some wild memes (including Starbucks)

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Paramount

Green Eggs and Ham is one of the best-selling children’s books of all time.

It is also one of the best examples of the aphorism “constraint breed creativity”.

As the story goes, Theodor Seuss Geisel — aka Dr. Seuss (who was def not a doctor) — wrote The Cat in the Hat in 1957. The book had 236 different words. Enter Bennet Cerf, Geisel’s publisher and co-founder of Random House. Cerf challenged Geisel to write a children’s book with only 50 different words. They also bet $50 on the outcome.

In 1960, Geisel delivered his orange-covered classic with exactly 50 different words. He won the bet and the book has sold ~10 million copies (personally, I prefer Hop on Pop).

What if constraints were applied to an entire business model, could the results be just as creative?

The answer is “yes” and the best example is Blumhouse Productions, the TV and film studio founded by Jason Blum in XXXX. Paramount

You’ve either seen or heard about one of the studio’s projects.

The hit list is absurd. And the key thing to note is the final column: box office return on the budget.

history (blair)

Full disclosure: I hate scary movies and refuse to watch any of these. Instead, I’m the guy that reads the Wikipedia film summary.

Either way, I can appreciate these outrageous returns. So many of the films were made for under $5 million and notched double-digit returns. The biggest home run was Paranormal Activity, which is probably the most profitable film on a return basis. Made on an original budget of $15,000 — which jumped to $10m+ when you include some re-shoots and marketing — the film grossed $193 million worldwide.

The Blumhouse story actually traces back to another low-budget horror film that went wild: The Blair Witch Project (which I was tricked into watching). When that film came out in XXXX, Blum was working under the now very disgraced Harvey Weinstein at Miramax.

In the mid-1990s, Miramax was a powerhouse independent studio studio that produced such iconic films as ……

But Blum says it was Blair Witch Project that changed course of his career. Why? Miramax passed.

A former real estate agent and art dealer, Blum had an entrepreneurial streak and the burn from missing out on Blair Witch led to Blumhouse Productions.

In XXX, Blum spotted the “found footage” horror Paranormal Activity and bought the rights. The film’s outrageous successpointed the way for Blum: make a lot of low-budget horror films ever year and hope a few go wild at the box office.

For this model, producing 10 films a year at $5m each is the goal as compared to a major film studio putting $200m behind one blockbuster. The approach is comparable to an angel investor — who is trying to find the next unicorn — cutting $10,000 checks for dozens of startups instead of giving a single $500,000 check to one.

Why horror, though? Because it is the best fictional genre for low budget. You don’t need special effects because gritty and raw is actually scarier. You don’t need superstar talent because an A-list actor could just as easily distract from the scariness (you’re distracted by their superstar-ness).

Contrast this with a $200 million Marvel films, which needs to have special FX and A-list stars as table stakes.

Further, horror travels internationally much better than low-budget alternatives like drama or comedy (as much as I love The Big Lebowski, the jokes would not land in Southeast Asia).

In a 2017 NPR interview, Blum explained how budget constraints influenced specific filmmaking decisions. He called it the “three rules” of cheap films:

• Fewer speaking parts: “Extras are a union. And extras are paid - I think they're paid $80 or $90 - $100 a day. Now, the funny thing is if an extra speaks, you have to pay an additional $400. So you'll notice - and not just in our movies but definitely in our movies, too - like, when the waiter doesn't say anything or, like, this post office clerk doesn't say anything, there's a reason. 'Cause as soon as they do say something, you got to give them a check for 500 bucks. So you don't want extras to talk 'cause it really costs you.”

• Not too many locations: “The most economical way to shoot a movie location-wise is to have it take place all inside a house. And you will notice a lot of our movies, in fact, do. But I would also say that that's where you're most vulnerable.”
  
  PS. Films that fit this bill include Insidious, Ma, Get Out, Invisible Man, Unfriended and Paranomal Activity (and, yes, I’ve read all these Wikipedia summaries).

• Pay as little salary as legal (but offer lots of upside): “So what we do is we have box-office bonuses. So if you have made a million dollars on a movie in the last two years upfront, I say to you - if the movie makes X amount of money, we're going to get you to your million dollars. If it makes beyond that, we'll get you more than a million dollars.”

These constraints unlock creativity in two major ways. First, Blumhouse can take chances on many more scripts and directors (a $5m flop won’t hurt as much as a $200m flop). Second, Blumhouse gives its directors final cut in exchange for coming in under budget and weighting compensation towards a box-office bonus (which means a lower guaranteed salary).

One case study from the NPR episode is the film, The Boy Next Door, a thriller starring Jennifer Lopez. Its director — Rob Cohen — had previously worked on big budget films like The Fast and The Furious and explained the challenge of working with much less money (in this case: $4m):

“You're going to have to be clever. And that cleverness stretches you and makes you think outside the box because the money panacea isn't in your arsenal anymore. You have to fix the problems another way.”

Final cut is hugely important for creativity. In Hollywood, the studio and producers typically have final say in the end product. This is the reason why the HBO show Entourage has so many people complaining about “bean counters” and “suits”. This is And the reason why so many “director’s cuts” exist; because the film that initially made it to theatres was the product of numerous compromises.

Last week, I wrote about how Rick Rubin and Steve Jobs both shared similar thoughts on the creative process. One common theme is the importance of being stubborn in one’s taste and seeing it through to the final product.

“Jason gives us final cut, which is unheard of,” says Veena Sud, a showrunner for a Blumhouse TV show The Lie. “It means he trusts the artist 100%. And when you trust us, you teach us to not work in fear.”

Another decision that helps with creativity is that Blumhouse doesn’t guarantee a theatrical release. It promises that the film will find an audience, but that may just be streaming. Theatrical releases cost more — especially on the marketing front — and that additional financial pressure can unduly influence the creative process.

Now, not every Blumhouse film is a critical and/or box office hit. But the model maximizes the odds of that outcome and is how you get films like Get Out (Jordan Peele), BlacKkKlansmen (Spike Lee) and Whiplash (Damien Chazelle). These three were passed up by traditional Big Studios and went on to win various Academy Awards.

The Blumhouse model reduces financial risk…which allows it to take more shots…which lets directors express their taste…which creates unique films…which increases the odds of finding another hit.

A large check also hampers creativity in the film business because the financier has every right to influence the creative process On The Town podcast, Blum tells Matt Belloni that it is “morally objectionable” to not listen to someone who has already paid you $100m. Directors in this situation — without final cut — have to make compromises and integrate dreaded studio notes.

More money equals less control equals less creative risks.

In 2022, Blum wrote an op-ed for the New York Times on why the major streaming platform — which will spend a combined ~$50B on content in 2022 and 2023 — should adjust their business model:

The Blumhouse model is just an exaggerated and more clear-cut version of the classic system of sharing in success — the same deal that the publishing industry offers with royalties and that traditional Hollywood studios always have used and still do. When the financial incentives of the people paying for the movies and TV shows are aligned with those of the creators, the overall system is much more cost-effective — and often the movies and TV shows are better.

So what does this have to do with Netflix and streaming? The streaming platforms have, until very recently, balked at any kind of visibility into the success of movies and TV on their platforms (though that could change at Netflix if it adds an advertising-supported tier). This is understandable: Having spent hundreds of millions of dollars building their algorithms and distribution platforms and billions more licensing Hollywood’s movies and TV shows to draw subscribers, they absolutely have the right to protect that proprietary information.

But the system leaves creators with precious little visibility into whether their works succeed in drawing viewers. By typically paying an upfront flat fee, Netflix buys out the usual success-based incentive compensation (known as the back end in Hollywood). This effectively treats every creator as a part of a hit movie or TV show before the camera ever rolls. An actor who might typically make a million dollars upfront with a healthy back end if the film does well will instead get $3 million upfront and no back end participation. This system makes the business of movie and TV show producing very expensive.

The advice looks particularly salient now with the ongoing Hollywood writer’s strike, which is happening in part because streaming services are squeezing writers to make up for irresponsible spending.

A fiscally-responsible approach sets the table for creativity in any industry. In the early 2000s, Jobs said a “risk-taking creative environment on the product side” required a “fiscally conservative environment [on the business side]” because “creative people are willing to take a leap in the air, but they need to know that the ground’s going to be there when they get back.”

If Hollywood goes austere, expect more Blumhouse-type operations and different creative content. And also expect me to keep “watching” blockbuster horror films by only reading the Wikipedia summary (I’ll make an exception for a scary adaptation for Green Eggs and Ham).

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Because I co-founded an AI-powered research app called Bearly AI. And I really like putting blue buttons in this email. If you press this blue button below, you can try AI-powered tools for reading (instant summaries), writing (ChatGPT) and text-to-image art (literally type some text and get a wild image).

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Links and Memes

Jack Dorsey & Jay-Z cut a bad deal: Remember when payments firm Block (formerly Square) bought Jay-Z’s streaming service Tidal for $306m. Turns out Block founder Jack Dorsey was the only one on the board or management who wanted the deal. Dorsey negotiated the deal by himself while vacationing with Jay-Z in The Hampton’s and then Hawaii.

Investors sued Block saying the acquisition made no sense and that there was a conflict of interest. But the Delaware court ruled in favour of Block. Bloomberg’s Matt Levine has a great explainer — titled “Companies Are Allowed to Make Bad Mergers” — which highlights this passage from the Delaware courts:

Under Delaware law, however, a board comprised of a majority of disinterested and independent directors is free to make a terrible business decision without any meaningful threat of liability, so long as the directors approve the action in good faith.

Tidal’s business was faltering and didn’t have long-term deals in place for song rights. Jay-Z personally loaned it $50m. There was no clear synergies with Block (the stock fell 7% on news of the deal). The funniest chirp was that Dorsey basically spent $306m on a bar tab to hang with Jay-Z. But the board did approve the deal and the bar to prove “bad faith” is quite high in Delaware. Also, the transaction was relatively small — only ~0.3% of Block’s $100B at the time — which kind of let the board off the hook from needing to conduct greater due diligence.

Meet the world’s best ghostwriter. J.R. Moehringer is the man behind three of the most successful biographies: Andre Agassi’s “Open”, Phil Knight’s “Shoe Dog” and Prince Harry’s “Spare”. 

He was reportedly paid $1m for “Spare” and someone very knowledgeable of the industry told me that Harry was lucky to have Moehringer (and not the other way around). The New Yorker has a lengthy profile on Moehringer with lots of nuggets: 

• The process: Moehringer Zoomed with Harry for dozens of hours and wrote down hundreds of thousands of notes. They met in person a few times and constantly exchanged texts on books ideas (Harry really wanted to address the perception that he isn’t intelligent).

• Why not anonymous? Moehringer’s contract with Harry has a clause where he can stay anonymous but gossip rags outed the ghostwriter before the book was published .

• Job of a ghostwriter? Moehringer calls himself a “professional listener” but that one of the main ghostwriting jobs is to have a “big mouth” to push the subject of the biography (and not just be a sternograher).

• Stumbled into it: His first ghost job was for Andre Agassi, who cold-called him after reading Moehringer’s memoir. A few years later, Phil Knight asked Agassi for advice on a memoir and he linked him with Moehringer.

• Turns down a lot of jobs: But also took on two ghostwriting roles with prominent billionaires (who both spiked their books after Moehringer had written hundreds of thousands of words). 

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Some other baller links:

• AI is coming to Google products. Check out The Verge’s 16-minute wrap of the Google I/O event announcing the features, which will roll out through the rest of the year. It is definitely an “Empire Strikes Back” moment. When you have as much distribution as Google does — nine products with at least 1B users (Search, Android, Chrome, Gmail, Drive, Maps, Play Store, YouTube, Google Photos) — you can catch up quick.

• Big Technology

• Elon says he found a new CEO for Twitter…and she will start in 6 weeks (while he takes on the role of Exec Chairman and oversees product and engineering as Chief Technology Officer). Rumor has it the new CEO is _______, head of global advertising at NBC Universal. Her background can help to refocus Twitter’s ad business and built out multimedia

• On a related note: my Twitter strategy of “smart threads, dumb memes” was the topic in this week’sCreator Economy newsletter.

• Elite podcasts are struggling while the masses — aka podcasting middle-class — are thriving, per Semafor.

• What if Wes Anderson made Lord of the Rings? Here is an AI-generated trailer.

• Ikea with a great ad campaign called “Proudly Second Best” (took me a second 30-seconds to figure out the hook but — if you’re a parent — check it out).

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…and here some fire tweets:

The New York Times wrote a very weird piece on Theranos founder Elizabeth Holmes, who is set to start a 10+ year prison sentence for defrauding investors in her doomed blood-testing startup. The article — titled “Liz Holmes Wants You to Forget About Elizabeth — focuses on her motherhood and a redemption arc. Of course people should have a second chance, but she hasn’t even started her sentence yet.

A “deep” reading of the article shows Holmes to be manipulative but the problem is that 99.9% of people aren’t doing a deep reading. They are seeing this headline and thinking “WTF is the NYT thinking?”.

The NYT has been writing fairly puffy pieces on white-collar criminals (the last one was SBF)…which makes this next tweet very funny: