The 'Smashing Machine’ Bomb and A24’s Big-Budget Burden

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1:52Just go to linkedin.com slash the town. That's linkedin.com slash the town. Terms and conditions apply. It is Monday, October 6th. There aren't many meaningful brands for a movie studio. After all, what does it mean to be a Warner Brothers movie or Paramount or Lionsgate? But you hear A24 and you kind of know what it's going to be. Quality, boundary pushing, cool even. For more than a decade, A24 has built a brand as the studio that releases the indie movies that, if you care about such things, people you know are talking about. They've had two Best Picture winners, Moonlight and Everything Everywhere All at Once.

2:30And they've cultivated a hip New York image, complete with the viral marketing stunts, the logo hats, they just bought a performance space in the West Village and they're opening a restaurant. But that's kind of changing. In reality, as we've discussed on the show, 824 has always been a private equity play. Initially backed by Guggenheim Partners, where co-founder Daniel Katz worked, it's raised millions from institutional investors a few times over the years, launched its own production studio and TV division. Got backing from Josh Kushner and Thrive Capital a few years ago. That gave the company a$3.5 billion valuation last year.

3:06That was up 40 % from a 2022 raise by investment firm Stripes. And with that new money has come a slightly new and different mandate, namely bigger movies, more produced in-house rather than simply picking up U.S. distribution, as was the model for the most part. Since then, there have been hits. Civil War last year cost about$50 million and grossed more than$120 million. This summer, The Materialist grossed more than$100 million and cost in the 20s. But some of those bigger budget bets haven't worked. Eddington, the Ari Aster Western grossed just$10 million domestic and cost around$30 million.

3:40Death of a Unicorn with Paul Rudd did$13 million domestic and cost around$20 million. And the big one, The Smashing Machine, starring Dwayne The Rock Johnson and directed by Benny Safdie, that one cost between$50 million and$70 million, depending on who you believe. And it absolutely tanked this past weekend, grossing$5.9 million domestic. So what does that say about the A24 strategy? Hollywood cemeteries are littered with small distributors that overextended themselves. Is 824 on that path or is this just a blip? Lucas Shaw is here to discuss. It's the smashing machine box office aftermath, a pricey lesson for 824 and the strategy when an indie power decides to go bigger.

4:21From The Ringer and Puck, I'm Matt Bellany and this is The Town.

4:29okay we are here with lucas shaw from bloomberg welcome back lucas how much money did you spend this weekend on various limited edition copies of the life of a showgirl 475 and 26 cents uh it would be the best bloomberg expense report ever if you had to buy them all just for research You know, now that you say that, I should have done it. And then on the side, although I would get in real trouble if I did this, like sell them for more on the Internet. You should. I know you say this is normal and every artist does it. But Taylor Swift is especially good at milking her core fans for all they have on these physical copies.

5:15I mean, I know she does it so she can pad her opening weekend stats and say that she is, you know, potentially breaking Adele's record for the most sold in the first week. But I mean, I would love to see stats on the number of people that are buying these things, because I am betting it's the core group of 75 ,000, 100 ,000 super fans that are spending hundreds of dollars to make sure Taylor Swift breaks a record on opening weekend. All right, enough Taylor Swift. We are talking about A24 today, and Craig was shocked that the Smashing Machine cost as much as it did. $60 million is what I have heard.

5:57The official budget they put out there is$50 million. I've heard as high as$70 million. It's$51.75 million, right? They have to be really specific now to make sure that you don't question it. The box office spin has to be very specific for people to buy it. But regardless, it's a giant disaster. I mean, you do not want to open a Dwayne Johnson movie to$5.9 million. And they can blame Taylor Swift. She took some of their large format screens, but the demos on those movies were very different. Taylor Swift was 90 % female this past weekend, and Smashing Machine was more than 70 % male. So different demos.

6:37And had there not been the Taylor Swift movie, I bet the PTA movie would have taken a lot of those larger format screens. Even if it was Weekend 2, that movie did better than Smashing Machine, and that does have a lot of the same demo. A lot of middle-aged men who want to go see it. Yes, and there was a B minus CinemaScore on this, so shocker, people who went to a Dwayne the Rock Johnson movie and got a very gritty wrestling drama where he doesn't even look like himself were disappointed, so not good. But I want to talk about the larger implications here because A24 has shifted its strategy. They got a bunch of money.

7:13They got a$3.5 billion valuation. And since then, they have started to release and make more of these bigger budget movies. So first explain to us why 824 is doing this, because they got to that valuation based on a model that was pretty disciplined. They didn't spend a whole lot to release these movies. They picked up mostly North American distribution for these movies. They hit a lot of singles. Unorthodox marketing campaigns. Their whole shtick was we can make a movie feel like it's a studio release with a marketing budget that's considerably smaller. So why not? Why change that? Because they want money.

7:54They're at this point an investor-backed, venture-backed company, right? Well, they always have been. It was Guggenheim from the beginning. No, but I mean, have continued to raise money. And so if you want to be worth the$3.5 billion, and I think they would like to one day be worth$5 or$8 or$10 and sell for some huge sum, you have to grow to get there. And the truth is, is that their valuation when they were just a distributor was also inflated, right? Because they released a lot of movies that got positive attention and buzz, not a lot of big commercial hits. Everything Everywhere All at Once was, I believe, their first movie to cross$100 million at the global box office.

8:34And if you spend more, and you also are the studio, meaning you're financing the movie, it is a higher risk, higher reward strategy. And you're hoping that you can make a bunch of movies that gross 100, 200, 300, far more, right? You cast The Rock in an expensive movie because you believe that much like Warner Brothers did with Leonardo DiCaprio in the PTA movie, he can deliver a bigger hit than you're used to getting for that type of movie. That's why they have a Timothee Chalamet movie opening later this year that also is at a much heftier budget than A24 usually does. And if you're the studio that finances it from the beginning, you can control it.

9:11You take worldwide rights. You just, you're building a library of some value. And it's a big, risky swing that they've taken. And the early results this year are kind of middling at best. Yeah. I noted the materialists did well, but that was more of an international hit. and Sony has that international. By the way, I mentioned last week that Sony would kill for a movie like The Materialist. They actually had international on Materialist. So apologies to Sony for that one. But they have had others like the Ari Aster movie, Eddington, that was a big expensive miss. They did the Paul Rudd movie, Death of a Unicorn.

9:50That was a big miss. How dare you forget about the legend of Ochi? Oh, I did forget about that one. What is that one? It was the movie with the little animal. It had Willem Dafoe in it. Anyways, I'm going to admit that I did not see that movie. All right. Well, first of all, A24 has always released a bunch of turds that nobody hears about, knows about, but they didn't cost anything. And they could get away with that because they had others that did hit and others that were buzzy and got awards. So, like, the only difference now is that they've upped the budget. And the landscape of Hollywood is littered with the corpses of studios that tried to do this.

10:34Like Overture Films won Best Picture with Spotlight and was out of business a couple years later. Even Miramax with the Weinsteins. I mean, they started as the low-budget art house place and then all of a sudden bought by Disney and they're making 50, 70,$100 million movies and they got over their skis. So is this what's happening here or am I missing something? Is it just that A24 is now playing a different game? Or is the kind of shine off of the toy? I think it's a little early for that. I mean, the thing to remember about A24 is they have a deal with Apple that pays them a good amount of money to produce movies, put them in theaters, and then Apple puts them on the streaming service.

11:18The new Spike Lee movie was one of those titles. They have a television division that has had a few decent hits. And no matter what, given the way the television business is structured right now, you have limited upside, but you're not losing money on those. Yeah, they got Paramount to buy a new package with Nicole Kidman today. Some of the trade announcements were pretty euphoric about that deal. I have heard that it was actually a struggle to sell that project and that they packaged it up with so many elements that it was so expensive. It was hard to get anyone to bite. but they have had hits in TV and it's just a really, really tough business.

11:56But I think it's too early to say that the bloom is off the rose or whatever your preferred adage is. Did I say shine toy? What does that mean? I don't know what you were going for there. But there are real reasons to doubt whether A24 can pull off this transition because it is really challenging to go from being a company that is thriving in the 50 million box office range to a company that's going to release, you know, be, I don't know, Lionsgate. We're going to be releasing. They're probably never going to get to the level of, you know, making movies that compete with Disney or Universal or Warner Brothers.

12:30But can they get to the level of movies that make 100, 200, 300 million dollars at the box office? That's that middle is really tough place to be. Lionsgate itself has had a pretty terrible couple of years. Yeah. And then you get into the star business. The Rock is an interesting one here because A24 had actually been laying the groundwork for a few months. It felt like that this was going to be a commercial play. Spashing Machine was going to be a commercial, try to get it to a big opening weekend, which you kind of have to do at that budget. And then boom, it goes to Venice. and it's positioned as a art house awards contender type movie.

13:10The Rock cries after the screening, 15 minutes standing ovation, yada, yada, yada. We've discussed all the nonsense at the film festivals. I wonder if The Rock demanded that. Demanded what? The Venice hoopla and the Oscar campaign and the entire thing around that movie. Well, don't you think this was always going to also be an awards movie? Also, the key is also. They want it to open. and then I think, based on opening, go for the awards. And now they're in a predicament because they probably promised Dwayne Johnson an awards campaign. They're going to lose a bunch of money on this movie and then he's going to want them to spend five to$10 million more on a big splashy campaign that can reposition him as a serious actor.

13:57Yeah, that is the problem with working with talent. You need the movies to deliver. I should note that the movie did have a bunch of foreign presales, so they got some money back because of those. But clearly, A24 spent on marketing, not enough, but they did. I think they bought additional TV spots when they saw the numbers kind of cratering. And they did run during football and other sports stuff trying to get that male demo. And this is also an interesting year for them because the Safdie brothers, who they've had a close working relationship for a while, have split and made two different movies.

14:31And it'll just be really interesting if one of them hits and one of them doesn't. Two different movies, yet both star-driven sports dramas about obscure sports that are coming out within three months of each other. Kind of amazing. Marty Supreme is a ping pong movie. You know, they may not want to co-direct anymore, but they clearly have similar tastes. Yeah, I have heard they are feuding. I think it's probably more nuanced than that, but I don't expect to see them hugging it out on a red carpet any time this season. But yeah, Josh is probably kind of loving this. If they are feuding, I'm sure Josh is loving that he doesn't have to live up to some huge opening weekend where The Rock delivered$25,$30 million to an arthouse movie.

15:14If you're a 24, and I'm sure one or both of us will hear from them after the pod, will they look at it and say, Because you talked earlier about how hits can disguise misses, right? Well, they say, look, we had the materialist. That was a huge win. We had warfare that did okay. And that makes up for the fact that we had three or four movies that didn't work. Yeah, we're not talking about that. That's every studio. Every studio has hits and misses. We're talking about the strategy. And this is a company that took a moderately successful strategy, certainly a successful brand building strategy. strategy.

15:47Tremendous brand building, which enabled them to get a valuation that far exceeded what a company with similar financials would have got. Absolutely. They sent Craig an A24 hat and he wears it. Those are cool. That's not easy to build over 10 years. A company where 30-something urban dudes want to wear your hat. That's what my Twitter bio says. 30-something urban dude. 30-something urban dude. You know what I'm saying.

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16:54This episode is brought to you by Accenture. When your advertising operations fall out of sync, campaigns slow down, insights get buried, and opportunities get missed. That's why Spotify and Accenture are working together to reinvent the rhythm of ad sales. Using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. To learn more, check out Accenture.com slash Spotify. All right, so let's get to the point here because the distribution landscape in movies is pretty interesting right now.

17:37I mean, we've been told that other than A24 and maybe Neon, that this area of art house, lower budget movies is kind of screwed. That all those movies are going to streaming. The traditional studios are focusing on their IP plays. And if you want to make money, you got to at least get a streaming output deal. By the way, HBO does have A24 movies. So A24 has an output deal with HBO Max, which is pretty lucrative. HBO kind of stepped up there and that is another big revenue stream for them. And a logical brand fit for them. Yes, exactly. So the question I have is why are these other distributors getting into the game?

18:16We see Mubi now distributing movies. They're the streamer that has, you know, they released the substance and they're getting into more distribution. This new company, Roque, which is private equity backed, they are launching and they want to release 10 movies a year. I've heard there's a couple other distribution plays that are in the works that have not been announced yet. Why are people gravitating towards this challenged space? For the same reason people always gravitate toward it. It's sexy. It's fun. I think the primary reason is vanity, which is that because in terms of the money coming in, yeah, you want to be around movie stars and famous directors and get invited to film festivals.

19:00And it's not that if you have a lot of money, starting one of these companies doesn't cost you that much. I also think there's a feeling that there's not enough movies. Like you can get away with arguing that there are not enough movies being released right now. And so do you want to be one of the companies to come in? And also think about where we started, A24, whether or not they get the exit, the fact that A24 does not get the exit. valued at billions of dollars. You have neon out there that's worth several hundred million dollars. People see an opportunity. Yeah. What the hell do they know that I don't know?

19:29If I'm Megan Colligan, who's running this new company, Roque, it's like, well, I could do that. I know it's good. Sure. I could sell scented candles on a website. I think if you were to talk to the movie people, for example, they would say, as A24 goes for bigger and bigger projects, that creates an opening for someone to make the movies that A24 was making. Exactly. That's the thing is I think people see a potential lane here. I mean, Media Capital Technologies owns this company, Roke, and they're backed by MassMutual, which doesn't seem like the kind of company that would be into a vanity play.

20:06But Chris Woodrow, Raj Singh, like they are the principals and maybe they are, But you know what I'm saying? There is money coming into this space. And what I think is happening here is something that was on display this past weekend. There just aren't that many movies in theaters anymore. If the studios are going to back away, and if there are going to be fewer big titles, there are going to be weekends where there are opportunities. If Taylor Swift had not dropped onto this past weekend, the overall box office domestically would have been under$50 million. And I think these companies see that and say, okay, there are opportunities now.

20:46Whereas five, seven years ago, you couldn't get a release date that didn't have some big studio movie on it to compete with. And if the studios are going to abdicate that role, then others are going to come in, whether it be stunts like Taylor Swift or like Demon Hunters a couple of weeks ago where they Netflix put a movie out in theaters just for a stunt. And it was number one of the box office. We saw Disney do it with the Hamilton 10th anniversary. They're doing it with the Avatar re-release. If there aren't enough original movies, maybe there is a lane here. Well, we talked about I think it was last week we talked about Warner Brothers doesn't have another movie coming out for months.

21:23I know, five months almost. One of the biggest studios in the world has no movies for months. And we know why. It's financial shenanigans and they're trying to limit risk and all the other reasons why they... Or Paramount Slate is a shadow of what it once was. And so if you believe that there is still an audience in theaters, why not take a crack at it? Yeah, I know. It's kind of wild, though, because that's not what we have been told for the past five years. You know, Ted Sarandos tells us that audiences have largely moved beyond seeing movies in theaters. You look at the ads during football this weekend.

21:57Half the ads were for movies that are debuting directly on streaming. And that's where the audience is going for movies. Well, the audience is in both places for certain types of movies. That's my point, though, is that the movies that these new companies want to release and that A24 thinks there is a market for in theaters are not the kinds of movies we have been told work in theaters. Yeah. Well, Materialists, I'd have to triple check it. But when I was looking at the highest grossing movies for this year, I think Materialists is the only kind of quote unquote indie to hit$100 million. And it's technically right under.

22:33It's like 99.9. But pretty much everything else out there is a major studio release or like a couple of Chinese movies and a Japanese movie. Yeah. A24, by the way, picked up your favorite Chinese animated blockbuster, Nezha 2, and this movie completely flopped in American theaters. Yes. All right. So you are on the board of A24 and you see these initial results and you are looking at the landscape. You're a little worried. You're worried, right? Yeah. It's tricky, though, because on paper, they made the right decision. They took filmmakers that they'd had success with, gave them a bigger canvas and paired them with what they thought were bankable stars.

23:16Yeah, what they want is something like Nosferatu, which was a Robert Eggers movie, a filmmaker that A24 has had a relationship with. And he went to Focus and directed a genre movie that was high-end genre. Robert Pattinson, who's a star, but has also done A24 movies as well. And it grossed almost$200 million worldwide. They need that. And that justified the$50 million budget. but that is really tough. Yeah. Is the idea of an indie studio growing and increasing their budgets, isn't that kind of antithetical to the original mission statement? Of course, that's what we're talking about. That's why it's nuts.

23:59What's the natural progression? It's like you build a brand, you have success, you grow, you get more money, and then you sell. Like at a certain point, you lose the ethos of why you started the company. It's like there's kind of a natural life cycle to an indie studio, right? It's like 10 to 15 years. And if you're so successful, at a certain point, the budgets get bigger, the bets get riskier. And then is the goal ultimately that like, do you think A24 will be independent five years from now? Or will they be a subsidiary of a major studio? Good question. Their valuation is so high now that I don't know that a studio would want to pay that much for them.

24:33Maybe Paramount, if they want a pipeline of movies or someone like that, maybe they go there and say, this will be our lower budget movie arm. Doesn't seem like David Ellison's that interested in it. But look what happened to Summit. Summit Entertainment was a independent small studio that happened to release and get the rights to the Twilight books. And they rode that all the way to a deal to sell to Lionsgate. And that was their out. But they didn't sell for three and a half billion dollars unless I am. Yeah, I don't remember what the price was. I don't think it was. Maybe it was announced because it was Lionsgate was public.