Economics Can Help You Understand Why Warner Bros. Sunk $90 Million Batgirl Movie
August 17, 2022 | Tags: FEE
Warner Bros. Discovery (WBD) recently made headlines when they canceled the release of their upcoming Batgirl movie, starring Michael Keaton, J.K. Simmons, and Leslie Grace in the title role.
Movies get canceled all the time, but what shocked many was the fact that Batgirl was already finished filming. In a statement, Warner Bros. Discovery (WBD) explained that shelving the project was part of a “strategic shift.”
“The decision to not release Batgirl reflects our leadership’s strategic shift as it relates to the DC universe and HBO Max,” the statement read. “Leslie Grace is an incredibly talented actor, and this decision is not a reflection of her performance.”
The decision led to confusion and criticism from many. One of the actors in the movie went as far as to call WBD CEO David Zaslav an imbecile.
The response from fans was one of bewilderment. Why cancel a movie that you’ve already spent $90 million on? After spending so much, why not try to make back that money?
Without realizing it, many who argued the movie should be released did so by invoking one of the most common economic fallacies.
Sunk Costs are Sunk
People, whether in business or just daily activities, make their decisions based on whether they think the benefits will outweigh the costs.
When a studio greenlights the creation of a movie, the studio heads must believe the benefit they get is more than what it will cost to make the film. If a CEO expects only 100 people are willing to spend $10 for a particular movie, and hiring the actors costs them $20,000, the movie won’t get made.
It’s possible studios may even receive some intangible benefits from making a beautiful artistic movie, but those intangible benefits still wouldn’t warrant extremely high costs.
In a similar way, when people buy stocks, they’ll only do so if the benefit outweighs the cost. If a stock costs you $75, and you’re absolutely certain the stock will be worth $100 tomorrow, you’d almost certainly buy that stock.
So people will do something if the benefits exceed the costs. But it’s important to note that we’re talking about future benefits and future costs. Past costs have no place in future decision-making.
To understand why, let’s return to our stock example.
Say after buying your stock the price actually fell the next day from $75 to $50. Even worse, you now have a strong reason to believe the price will fall to $25 tomorrow. What should you do? Well, assuming your intuition is right you should certainly sell.
While there may be a temptation to hold on to the stock to “make back what you lost,” it’s important to note that if you do hold the stock when it drops from $50 to $25, the final result is that you’ve lost $25 more dollars. The fact that you already lost money does not change the fact that selling at $50 leaves you richer than “riding it out” and letting it fall to $25.
The initial loss when the stock falls in value from $75 to $50 is what economists call a “sunk cost.” It isn’t recoverable and shouldn’t change the decision to sell the stock before it falls to $25. While people may dislike the idea of “selling at a loss,” it’s superior to an even bigger loss.
When people believe they should act on sunk costs rather than future costs, economists call this the “sunk cost fallacy.”
And the sunk cost fallacy applies to movies too.
The question on whether releasing Batgirl is a good idea has nothing to do with the $90 million already spent on production. That money is a sunk cost.
What matters for the studio is whether the release of Batgirl will bring in more money than the release would cost in the future.
Cancel or Cost
So what would be the relevant costs of releasing Batgirl?
First, as IGN points out, WBD might lose out on tax write-offs if the movie is released. But this isn’t the only cost.
Whether company resources are used to put Batgirl in theaters or on a streaming service, those resources could be used to promote and place other projects instead. Each dollar spent making Batgirl available to viewers is a dollar not spent on a different project.
Finally, and maybe more importantly, WBD could have an enormous cost imposed on their brand if Batgirl turned out to be a bad movie.
The “DC Extended Universe” has already experienced its fair share of troubles. Critics and audiences have been disappointed by several portrayals of DC heroes.
From personal experience, I haven’t paid to watch a DC movie in theaters since the total dud portrayal of Superman that was Man of Steel.
I’m not interested in watching a DC Universe that can’t get its flagship hero right. And many fans may decide a bad Batgirl movie is the straw that breaks the camel’s back.
So even if DC already spent $90 million producing the movie, what good would it do to release the movie if it alienated more fans than it satisfied?
Although I’m not privy to any insider information, my suspicions are strongly towards this last explanation. The Marvel Cinematic Universe stands as an example of how valuable the comic book movie brand can be, and it’d be no surprise if WBD executives were trying to raise the bar on DC movies to reach that level.
So WBD’s decision to cut the already-finished Batgirl isn’t some crazy mistake where a corporation is abandoning a valuable movie.
The company likely believes the cost is greater than the benefit. And given the recent track record of DC movies, I don’t doubt they’re right.