Jason Blum’s Blumhouse Productions

Jason Blum’s Blumhouse Productions

        Blumhouse Productions is a film and television production company. Regarding business-level strategy, the company uses cost leadership strategy and implements low-cost value proposition better than most companies in its industry. The company creates its own competitive advantages by performing their activities more effectively than its industry competitors. Specifically, Blumhouse has various cost advantages, for example, more affordable sources, more efficient procedures, more favorable location, and so on. Meanwhile, they can still guarantee their film productions at value parity, which means they can make films without decreasing customers’ willingness to pay. Therefore, when it comes to the value creation, Blumhouse has abilities to create a larger gap between the customer’s perception of the values of their products and the cost of bring products to market. The company can increase their competitive advantage (equals to the sum of consumer surplus and producer surplus) by keeping the same amount of consumer surplus (equals to value minus price) while increasing the amount of producer surplus (equals to price minus cost). The Blumhouse is known as “micro-budget films” because the company films cost an average of $5 million to make, compared with an average of $60 million for the industry. In terms of price of their products, Blumhouse needs to negotiate with Universal Pictures. Universal and Blumhouse have a close business relationship. Universal is the buyer of Blumhouse’s products. Universal not only helps Blumhouse distribute and market Blumhouse’s films, but also pays Blumhouse’s production budgets. However, if Blumhouse go over the spending plan on their films, they need to pay for that themselves. In return, Universal can receive 87.5% of total revenues generated by Blumhouse’s films across all distribution channels, while Blumhouse can receive 12.5% of the remainder.

        When it comes to Blumhouse’s business choices across various aspects, the company makes every effort to ensure that choices are consistent with the firm’s value proposition, which is a 100% cost leadership strategy. First of all, Blumhouse focuses on the horror genre because it is much cheaper to produce horror movies than action movies. In addition, most characteristics of huge spending films have a tendency to be imperfections of horror films. For example, if you put too many special effects and stunts in a horror movie, customers’ feels will be removed. A horror movie is attractive and exciting because of its drama, but too many special effects and stunts can be distracting and redundant. Therefore, less expensive is better with horror movies. Secondly, Blumhouse implements strict cost control. Jason Blum, the founder and the chief executive officer of Blumhouse, is crazy and enthusiastic about holding budgets down. He said that the reasons why the company has freedom to hire anyone they want and make any content they want is that the risk is low, which comes from low cost of their movies. Blum always abides by his discipline and does not compromises with directors who ask for extra budget, even though filming is underway. Moreover, Blum changed his old van into a mobile office because he spends hours each day on the road. In order to save costs, Blum decided to use inobtrusive headquarter close downtown Los Angeles, far from the zone’s more glamorous neighborhoods and tremendous studios. Because it will be ironic that if Blum asks directors and actors to strictly control budget, and at the same time spends a lot of money on using or building an extravagant office. This is also an example of mutually reinforcement, which means each aspect fits with others to strengthen each other. Furthermore, Blumhouse’s overhead is very low because universal will help the company pay most of its overhead costs, such as those related to office space and employee wages. The company also uses sequels with a budget of close to $10 million to hit movies, and costs far less than the major studios. In addition, Blumhouse enjoys the benefits of economies of scale because they make a huge amount of films for a production company of their size. One of ways to get profitable and successful movies is to make a number of them. As long as the company can keep the costs low, they can try new and unique movies and ultimately have a chance to get a hit in the market. Blumhouse also depend on some following methods to reduce their costs. One is to choose convenient and cheap sets. There are a large number of their movies basically occur inside a house. Another way is to stay away from special effects and costly action orders in their films. Blumhouse also uses different kinds of techniques to reduce their budgets. One of the techniques is to try to spend as little time as possible to direct and shoot a film. The company takes an average of 25 days to direct and shoot a movie, compared with an average of 60 days for competitors in the industry. Another one is to control the number of talking parts in their films, which can also help reduce the shooting time. There is no doubt that the ability of a director plays an important role in lowering various costs and making a profitable movie. Directors have to know how to use their time and actors efficiently, and must understand and present a story vividly. Therefore, Blumhouse not only likes to partner with experienced directors but also to work with inexperienced but undervalued directors. Blumhouse is willing to bet on an inexperienced director if he knows how to tell a story properly. Additionally, the company avoids judging filmmakers by the last movie they made. Blumhouse would be willing to evaluate and buy finished movies if there are excellent and undervalued movies in the markets. Last but not least, since Blumhouse can keep their budget down, they can enjoy the benefit of asymmetric risk, which means Blumhouse can make a film with less risk than industry rivals.