Warcraft Reveals How the Film Industry Is Changing—and Studios Need to Take Note!

We're coming to the end of the summer box office season, and, although this has been a record-breaking year, there are causes for concern. This summer saw a lot of box office twists that nobody could have expected - for example, Alice Through the Looking Glass earned just $77 million in the US domestic market. This wasn't the only film to perform poorly in the North American box office; Ben-Hur, Ghostbusters, Teenage Mutant Ninja Turtles: Out of the Shadows, The BFG, and Warcraft all had poor showings.

Although The Hollywood Reporter has published an article discussing the North American market in particular, I want to focus in on Warcraft. This film — perhaps more than any other — reveals how Hollywood need to change in order to deal with the world as it is.

How Did Warcraft Do in the Box Office?

On a production budget of $160 million, Warcraft only earned $47 million in the domestic box office. When you just look at the domestic market, that makes Warcraft a very expensive flop; however, cast your eyes to the global market, and you get a very different picture. Warcraft exceeded $386 million in foreign markets. In the US, Warcraft was barely discussed. In China, it was one of the most hotly anticipated films of all time, and had record-breaking box office takings.

It's worth noting that this makes it very difficult to get a measure of Warcraft's financial success. Where the studio receives 50% of US box office gross (meaning a film has to double its budget in the domestic box office in order to break even), different tax regimes mean that international markets see different returns. In China, for example, a US studio only receives 25% of the box office gross. The financial issues in play are very different.

Why is This Important?

Although Warcraft is the most dramatic example, you can see this pattern in a lot of the films that are being viewed as 'flops' in the US domestic box office. Only 10% of Warcraft's worldwide box office takings were in the US. Alice Through the Looking Glass may have only made $77 million in the domestic market, but it made $218 million in the international markets. These were two extreme examples, but it wasn't unusual to see 'flops' in the North American market that performed fairly well internationally.

The reality is that the film industry is changing. The majority of Hollywood analysts focus on the domestic box office, but there's an increasing disparity between domestic and foreign markets. What's more, the foreign market is increasingly lucrative; last year, Ernst & Young predicted that China would be the world's biggest film market by 2020.

This means we're going to see changes in Hollywood — although, ironically, Hollywood seem to be figuring that out pretty slowly. With the foreign markets becoming increasingly important when evaluating a film's performance, we're likely to see studios greenlighting ideas that are geared more towards the international market. Studios will then target their advertizing away from the US, and into the markets where they believe their products will perform better.

In the most extreme cases, it's possible that some films will skip the US box office altogether — meaning the studio doesn't commit to expensive advertizing in the US, but instead focuses entirely on markets where the film should be more successful. There's already strong speculation that Warcraft 2 will do just that.

Here's the truth: the film industry is changing. The international market will become increasingly important, making it harder for anyone but the studios to truly know how a film performed. That's going to mean that some decisions will be inexplicable to traditionally-minded Hollywood insiders, who focus only on the domestic box office. But those decisions will make perfect business sense in the context of a changing world.

2016 has been an interesting year for Hollywood. It's not been as difficult a year as The Hollywood Reporter argues; instead, it's simply been a year where the market has changed. It's going to be fascinating to see what the future has in store!