The BRB Bottomline: Coming off a much-hyped phase 4 announcement and a record-breaking end to phase 3 with Avengers: Endgame, The Marvel Cinematic Universe (MCU) is on a roll like no other. Not many expected this back in 2008, but with a few macroeconomic strokes of luck, the MCU has changed the face of the box-office.
The Marvel Cinematic Universe and the 2008 Crash
Look, nobody likes talking about the financial crash over and over again. But it really did have some far-reaching implications, sometimes in ways you wouldn’t expect.
Imagine yourself as a bigshot financier working for Merrill Lynch in the early 2000s, right around 2005. You’re approached by executives from Marvel Studios, who have decided they want to start making their own movies, rather than just license their top superheroes to other studios. (like Spiderman and the X-Men) Keep in mind, this is a company that recently filed for bankruptcy and has licensed out most of it’s A-list heroes. In a bid to iron out (pun intended) their past mistakes, they’re asking you to finance two C-list superhero movies, Iron Man and the Hulk. What do you do?
Give them a $525 million loan, of course.
Merrill Lynch’s decision didn’t make any financial sense – it was an extremely risky move, but in those extravagant times preceding 2008, it was perfectly normal. Unlike the other big bets that banks underwrote, which led to billions of dollars of losses and the financial crisis, Merrill’s loan paved the way for the highest grossing movie franchise ever, spanning over 23 films (so far) and grossing more than $22 billion.
Going to the movies isn’t necessary for survival like food or water; most people and would consider it a luxury good—demand decreases when incomes fall. So why did consumers flock to Marvel movies, throughout the recession and against the consumption patterns of other luxury goods?
The Box-Office During Economic Downturns
Iron-Man came out in the latter half of 2008, around 6 months after the financial crash hit, which, as Vulture noted, was precisely when movies about billionaire playboys became uncool (at least temporarily).
However, Marvel possibly rode on the coattails of a much larger, box-office wide trend. In 2009, just a year after the crash, ticket sales were up by 17.5% and attendance up by 16%.
Notice the spike between 2008 and 2009. That’s a sign of families under heavy financial pressure turning to movies perhaps because they offer a relatively inexpensive form of escapism. Patrick Corcoran of the National Association of Theater Owners, while speaking to Entertainment Weekly, said that “Generally, when economic downturns hit, we have seen an increase in box office and attendance in six of the eight last recessions.”
But the desire for an “escape” isn’t strong enough to get people to watch every movie that hits the theatres. According to IMDB, there were 47 flops (movies that failed to break-even) in 2009 – this suggests that Marvel movies had managed to hit a special sweet spot between nostalgia, escape, and moviegoers’ pocketbooks.
It’s challenging to pinpoint what exactly decides whether a movie connects with the audience or not. However, recent behavioral economics research shows that, on average, there are some movie-types that perform better in downturns than others. In her thesis titled “What Movies Do You Watch During Bad & Good Economic Times,” Lin Yi measures the relationship between CSI (Consumer Sentiment Index), a metric that shows how consumers feel about the economy, and movie sales by genre. Yi finds that ‘drama’ and ‘action’ movies perform the best during recessions, two tropes that Marvel movies frequently rely on.
The MCU’s Longevity
The “escapism” argument does help explain the MCU’s success right after the crash. The franchise’s biggest wins, however (The Avengers series, Black Panther, etc), came several years after the crash. There are a few possible explanations for this longevity:
Research from the Economic Policy Institute shows that wage growth since the recession has been below inflation, meaning that the average person’s purchasing power is a fair bit lighter than what it ideally should be. So even in a seemingly healthy economy, the “escapism” mentality might still apply.
The MCU also took advantage of a new wave in Hollywood, a wave that it helped create. As Ben Fritz, a reporter for the WSJ, said on a podcast with Knowledge@Wharton, the movie business is now dominated by Fast and Furious, Transformers, the DC Extended Universe, and the MCU—franchises/sequels that rely on the overall brand, rather than star-power in standalone films.
But it would be unfair to pin Marvel’s success solely to changes in macroeconomic variables. Creatively, they’ve made some great decisions— many of their character have their own fully fleshed-out storylines that they’ve successfully managed to translate onto the big screen and their casting choices, for the most part, have been right on the money.
Is the Box-Office Recession Proof?
Recessions may not cut down the lines at theatres, but they have the potential to sucker-punch many entertainment businesses. Massive layovers, plummeting share prices, and debt problems all crippled several entertainment companies during the 2008 crash. But as long as people keep watching movies, movies will keep being made. That sounds like a recession-proof business model, right?
Ok well not really “everything,” but what good would an article on the MCU be without a Thanos meme?
A study by EY shows that people who watch a lot of Netlflix also watch movies at theatres a lot. But streaming definitely has had an impact on the box office. While big budget, cinematic spectacles like the Avengers movies still attract large audiences (possibly because people deem these movies worthy of the “full” experience), light-on-the-pocket streaming services are slowly changing how the average consumer watches movies and TV shows.
Gauging how recession-proof the Hollywood is is complicated. In the last five of eight recessions, box office revenues have increased. However, film studios now have to deal with streaming services that are increasingly investing large production budgets in original content (for instance, Netflix’s Bright reportedly cost $90 million to make), yet offer original content at relatively low prices.
Streaming has also impacted pay-TV – over 33 million households have cancelled their cable subscriptions, meaning that retransmission fees (revenue earned from licensing movies to cable operators) could potentially flatten out.
Take Home Points
The MCU has had a lot of luck going for it in terms of timing and brand loyalty. Combined with some great marketing and creative decisions, it has emerged as the dominant franchise of the decade. While its success does not necessarily mean the box-office is immune to macroeconomic fluctuations, it is a reminder that regardless of how the business- cycle is doing, everyone loves to see a spectacle.
Varun is a freshman at UC Berkeley intending to study Economics and Data Science. He has a keen eye for all things Economics and Finance, from fiscal and monetary policy to stock market movements, and as a writer for the Economics column at BRB, he’s always on the lookout for new avenues to explore. If you have a sudden urge to play a quick game of badminton, want to grab some Indian food, or just simply want to complain about the falling inr-usd exchange rate (international student problems :/ ), feel free to hit him up!
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