Universal Broke Box-Office Records This Year. Meet Hollywood's Oldest Studio in Six Pictures

What we see are blockbusters like Jurassic World and Furious 7, but Universal's trademark also includes a run of low-budget films.

Few would deny that this is a big year for Universal Pictures. Jurassic World, which reboots a classic franchise from 22 years ago, has grossed nearly US$1.4 billion worldwide. Before it, Furious 7, helped by an exceptionally strong showing in China, took in US$1.52 billion.

Beyond these two mega-blockbusters, several of Universal's low-budget films have also done well. Pitch Perfect 2, made for US$29 million, grossed US$278 million worldwide. Fifty Shades of Grey, which looks lavish but cost a mere US$40 million, did even better: US$569 million worldwide.

With these films standing guard, Universal has set several box-office records this year. It broke the record Paramount set on June 22, 2008, for the fastest studio in a calendar year to pass US$1 billion at the North American box office. Universal also became the fastest studio in a year to pass US$3 billion worldwide, breaking the record 20th Century Fox set on June 30, 2010.

Did Universal plan results this good, or were they an accident? In fact, chance played a large part in Universal's breakout year. Paul Walker's death nearly made Furious 7 impossible to release, yet Universal turned the misfortune to its advantage and found a way of marketing the film that audiences could not resist.

Furious 7

In recent years Universal has had no especially famous "hit" franchise of its own, unlike Disney with Frozen, Warner Bros. with Harry Potter or Paramount with Transformers. That has made Universal look rather ordinary in Hollywood. It also means that for many years, in the contest among Hollywood's six major studios, Universal never did particularly well and kept hovering in the lower half of the pack.

Universal may not shine as brightly as the other major Hollywood studios, but it is still a film company that makes more than US$100 million a year in box-office profit, is valued at more than US$10 billion, and ranks among the largest in the world. To understand how Universal became the giant it is today, the story has to start with its founding years.

Hollywood's Earliest Pioneer

Carl Laemmle, Universal's founder and its early controlling owner, made his start running nickelodeon theaters. In Chicago he built his own film distribution business, supplying theaters in the American Midwest and Canada. But in the early 20th century American film distributors had a hard time. The Motion Picture Patents Company, set up by Edison, controlled the patents on almost all filmmaking and projection equipment, and independent film businesses, whether in production or distribution, were bullied by this monopoly.

To stand up to Edison's monopoly, Laemmle concluded that the only way to beat the exploitation was to found his own production company. He rented an old commercial building on East 14th Street in New York and set up a film studio there. This was what Laemmle called an "independent production company," and it was the forerunner of the Universal Pictures we know today.

On April 30, 1912, Laemmle and several partners formally founded The Universal Film Manufacturing Company in New York, and that July he became its president. Over the following years Laemmle bought out his partners one by one and became Universal's sole owner.

California offered enough sunshine to shoot all year round and lower wages, so the whole film industry began to move west. Laemmle and Universal were among the first to go, and the land where Universal put down roots in California is today's Hollywood.

The studio that later grew into Universal Studios

Two years later, to make films more effectively, Laemmle bought a tract of land near Hollywood and built an enormous studio and production lot. Universal shot its films there, but Laemmle also decided to open the lot to visitors. As more and more of them came, it eventually became today's Universal Studios, a large theme park that receives more than 5 million visitors a year.

For a dozen or so years after settling in Hollywood, Universal was the biggest studio in town. Yet its films did not quite match its standing: it liked to make cheaper fare such as soap operas and comedies, aimed mainly at small-town audiences.

That strategy, power struggles inside the company, and the rise of MGM, United Artists, RKO and others gradually cost Universal its lead. Still, it held on to a place among the "eight major Hollywood studios," with a market share of around 7%.

Throughout the 1930s Universal turned out large numbers of low-budget films, mostly Westerns, musicals, horror films and slapstick comedies. They were cheap, but they did fairly well at the box office, and they were the foundation on which Universal kept its place in Hollywood.

By the mid-1940s Universal had gone through a series of mergers and acquisitions, ending with the British businessman Arthur Rank and an independent production company, International Pictures, jointly forming Universal-International. William Goetz, one of International Pictures' founders, became head of production. Under him Universal dropped its low-budget strategy and began making big pictures such as Great Expectations and Hamlet.

The strategy failed. By the late 1940s Goetz had been pushed out, and low-budget films were once again Universal's focus. Several classic horror series returned, and its soap operas did quite well. It looked as if Universal would go on like this, neither hot nor cold, indefinitely.

Universal Changed Hollywood With Spielberg's Blockbusters

Had Universal carried on that way, Chinese audiences today would probably know little about it. Low-budget films are rarely imported into China, and the horror films and soap operas Universal excelled at would probably not interest Chinese viewers anyway.

That Universal became the Hollywood powerhouse Chinese audiences know today is thanks to one of the most famous names in film history: Steven Spielberg.

In 1967 Spielberg was only 21 and had not yet finished college. That year he landed an internship at Universal, the start of a relationship with the company that would last more than forty years.

The next year, a friend gave Spielberg US$15,000 to shoot a 22-minute film on 35mm stock. Spielberg finished the road movie Amblin' in 10 days. It won over Sidney Sheinberg, head of Universal's television production, and Spielberg signed a seven-year contract with the studio.

For those seven years Spielberg worked hard for Universal, making a string of television shows and films, none of which stood out. Perhaps he was building up his strength, because seven years later, in 1975, Spielberg and Universal stunned the world with Jaws. The great white shark, shot using a mechanical model, became one of Hollywood's earliest special effects, and the thriller formula Jaws pioneered was copied all over Hollywood.

The shark model from Jaws

For Universal, though, the box office may have mattered more. That year Jaws grossed a staggering US$470 million worldwide. The figure no longer seems so remarkable, but at the time it made Jaws the highest-grossing film ever, and US$470 million then was worth far more than it is now.

More important still, Jaws created an entirely new release window for the North American market: the summer season. Before Jaws, the film business had no such thing. Every summer, screens were filled with all kinds of cheap films and duds. It was the success of Jaws, released at the start of summer, that established the summer season. Today it is a battleground every major studio fights over.

In 1982, seven years after Jaws, Spielberg stunned the world again with E.T. the Extra-Terrestrial, whose US$792 million worldwide gross once more set the record for the highest-grossing film ever. Then in 1993 he released two blockbusters: the popcorn-friendly Jurassic Park and the more artistic Schindler's List. Together they grossed US$1.715 billion worldwide, and Jurassic Park broke the box-office record yet again.

A still from Schindler's List

With the help of these blockbusters, Universal secured its position in Hollywood and its seat among the six major studios.

In 1994 Spielberg left Universal and founded DreamWorks with Jeffrey Katzenberg and David Geffen. But his ties to Universal were not cut. As a newly founded company, DreamWorks received strong distribution support from Universal, and Universal kept Spielberg's office for him all along. During this period DreamWorks also made many films with Universal, including A Beautiful Mind and Gladiator.

In 2006 DreamWorks walked away from Universal for a time and handed its distribution rights to Paramount. The partnership was not a happy one. In 2008 Spielberg announced that the agreement with Paramount was void and went back to sign a seven-year distribution deal with Universal. For Spielberg, returning to Universal really did feel something like coming home.

Universal's Own Blockbusters Are Pretty Good Too

But if you think Universal's success rests on Spielberg alone, you are being naive. Universal has built many successful franchises of its own.

The Fast & Furious series is one of its most successful. From the first film, The Fast and the Furious, in 2001 to Furious 7 in 2015, the seven films have grossed more than US$3.9 billion worldwide, seventh among all film franchises. Those ranked above it include the Marvel Cinematic Universe, Harry Potter, Star Wars, 007, The Lord of the Rings and Spider-Man.

The Bourne series and the Mummy series are also big Universal successes, earning US$1.225 billion and US$1.256 billion worldwide respectively. Universal also has a low-budget comedy series, Meet the Parents. This trilogy with the goofy title grossed US$1.13 billion worldwide, and in North America it actually outearned both the Matrix trilogy and the Terminator series.

Comparing these figures alone, you may not see how impressive Universal is. Films such as Marvel's or the Harry Potter series are adapted from comics or novels. With a ready-made fan base, they would have to be truly terrible to fail.

But most of the Universal franchises above are not adaptations; they are entirely original. Building franchises from scratch, without a fan base, and matching the success of those adaptations shows that Universal's creative ability is very strong.

Because they are original, Universal's franchises also last longer than adapted ones. Peter Jackson's Lord of the Rings series is without doubt one of the most successful franchises of our time, but since J.R.R. Tolkien, the author of the novels, is dead, the series has no room to extend further. Fast & Furious, by contrast, can be adjusted at any time, which is why it has reached a seventh film and may well have an eighth and a ninth.

Universal also handles its franchises flexibly. The clearest example is Jurassic World. The original Jurassic Park series, begun in 1993, ran to three films, each earning less than the one before, so Universal stopped making them.

Then, 22 years after the first Jurassic Park, Universal revived the series with Jurassic World. After so many years off, audiences were no longer tired of dinosaurs, and Jurassic World, playing the nostalgia card and paying homage to the original, swept the global box office with ease. Managing a franchise this way is simply very clever.

Universal's Low-Budget Films Shine Too

Still, huge as their box-office takings are, these franchises may matter less to Universal than we think, because in Hollywood blockbusters are not everything.

Last year Transformers: Age of Extinction and Interstellar were the two highest-grossing imported films in mainland China, and Transformers: Age of Extinction was also the year's top film worldwide. Yet for their distributor, Paramount, 2014 was a disappointing year. According to The Hollywood Reporter, Paramount's profit last year was only US$219 million, down 27% from the year before and the lowest of the six major studios. Blockbusters cost too much: according to Box Office Mojo, the production budgets of Transformers: Age of Extinction and Interstellar alone were US$210 million and US$165 million, and that dragged down Paramount's results.

Universal's situation this year may turn out similar. Furious 7 cost about US$190 million and Jurassic World as much as US$215 million. Even with grosses this high, once theaters' share, distribution fees, marketing and other costs are deducted, it is hard to say how much Universal actually makes.

By comparison, Universal's low-budget films may be a safer source of income. That is what Universal has done throughout its history, as the account above suggests.

Last year Universal released a batch of films that cost a few tens of millions of dollars each, films you may never have heard of, yet they earned decent returns. Neighbors cost US$18 million and grossed US$268 million worldwide; Non-Stop cost US$50 million and grossed US$223 million; Dumb and Dumber To cost US$40 million and grossed US$169 million.

Universal also seems especially good at dressing up low-budget films as blockbusters. Lucy, which took in US$459 million worldwide last year, cost only US$40 million. Fifty Shades of Grey, the glossy "domineering billionaire falls for me" romance released for Valentine's Day this year, also cost only US$40 million but earned US$569 million worldwide. Films like these are Universal's real mainstay.

In fact, Universal's 50-year focus on low-budget films may have been forced on it. Universal lacks a strong global distribution network, so conquering the world with blockbusters does not work well for it. That being so, it might as well rely on its traditional strength in cheap films, concentrate on North America, and make the comedies and horror films Americans love. The strategy may look like a fallback, but it has earned Universal decent returns.

In recent years Universal's spending has been creeping up. Take the Fast & Furious series: 2009's Fast & Furious, the fourth film, cost only US$85 million, but the budgets of the next three rose by an average of US$35 million per film. By Furious 7, the US$190 million budget was no small sum.

Still, Universal is fairly restrained. In 2015 its only blockbusters were Furious 7 and Jurassic World, and both landed in 2015 only because unforeseen setbacks delayed them. Compare Disney, which this year is releasing Avengers: Age of Ultron, Tomorrowland, Ant-Man, Star Wars and Inside Out, among other blockbusters, all at once. Universal's blockbuster slate really is not that big.

One of the World's Biggest Theme Parks: Universal Studios

Since we have mentioned Disney, let us compare Universal Studios with Disney's parks. Apart from both being theme parks, though, they seem to have little in common.

In character, Disney's parks are a fairy-tale dream. What people think of first when they hear "Disney" is the giant castle and the fireworks every night. All the classic set pieces aim to recreate the dreamlike scenes of Disney's films.

Universal Studios is different. It too recreates many film scenes, but because Universal's films are more adult, the parks have a tougher feel. At the attraction based on the Mummy series, for instance, visitors enter a dark, mysterious pyramid and go on an expedition themselves. The Terminator attraction combines 3D film with live actors to relive the Terminator's most frightening scenes.

Universal Studios in Orlando

Another difference is that Disney's parks draw mainly on Disney's own films: the princess series, classic fairy tales, Marvel superheroes and Star Wars. In recent years Disney has begun to bring in other studios' films, such as Avatar, but these remain a minority.

Universal Studios is far less fussy about whose films it uses. The Wizarding World of Harry Potter is one of its most popular areas, yet the Harry Potter films were made by Warner Bros. The Terminator is also Paramount's crown jewel. And the Shrek 4-D theater is built on DreamWorks' animated series. Oh, and Universal Studios also has rides based on The Simpsons.

Picture dinosaurs, magic, robots, monsters and the wisecracking Simpsons all gathered in one park. The mix feels a bit like time travel.

For years Universal Studios' attendance has been no match for Disney's. Among the world's most-visited theme parks in 2014, Disney parks took the top four places, and Universal Studios Japan in Osaka only just made fifth. The combined attendance of all the parks Universal operates is only about a third of the total at all Disney parks.

The reasons are easy to understand. For one thing, there are only four Universal Studios parks worldwide: in Orlando, Florida; Hollywood, California; Osaka, Japan; and Singapore. The one in Tongzhou, Beijing, will not open until 2019. Disney, meanwhile, has five major resorts, in Los Angeles, Orlando, Hong Kong, Japan and Paris, and its Shanghai park opens next spring.

More important, Disney draws mainly families, plus adults who want to feel like children again for a while. Universal Studios' main audience is adults, a smaller group than Disney's, so it is natural that it draws fewer visitors.

Universal Studios has also been changing in recent years. Thanks to the success of the Despicable Me series, the parks have more and more Minions, which give them a somewhat more childlike feel, and the merchandise the Minions sell should not be underestimated. No figures have been released, but it is safe to assume the number is not small.

Universal's Art-House Studio: Focus Features

Besides Universal Studios, Universal Pictures owns several studios that attract less public attention. They are well known in the industry, though, and the most important is probably Focus Features.

Focus Features is the division that makes and distributes art-house films. It was formed in 2002 from the merger of USA Films, Universal Focus and Good Machine. According to Box Office Mojo, Focus Features takes about 1% of the North American market each year, meaning the films it distributes gross around US$100 million a year. For art-house films, that is a good result.

And these are not art-house films so obscure you have never heard of them. In 2005 Focus Features distributed Ang Lee's Brokeback Mountain, which took in US$83 million in the United States. In 2008 its Burn After Reading earned US$163 million worldwide. And The Theory of Everything, an Oscar nominee in 2014, also counted Focus Features among its producers.

A still from Brokeback Mountain

As these examples show, Focus Features does not give up on commercial success just because it makes art-house films. It is one of the few companies in the film business that strikes a good balance between art and commerce, which sets it apart in a field where films win awards but rarely earn much at the box office.

This is mainly for two reasons. First, Focus Features has solid distribution worldwide, so when it takes its films around the world it earns decent revenue at local box offices, which gives it a real edge. Second, that global reach lets it keep good relationships with directors everywhere. James Schamus, for example, is on very good terms with Ang Lee, so Lee's films all go to Focus Features for North American distribution.

In recent years, however, Focus Features has run into trouble. In 2013 its market share and box-office revenue were well below 2012's, and the decline looked likely to continue. So that year Universal announced it would merge Focus Features with another independent film company, FilmDistrict.

After the merger, Focus Features' choice of films shifted in style. Fifty Shades of Grey is one example. In May 2015 Focus Features announced it would revive the Gramercy brand (the predecessor of USA Films) to release action, science-fiction and horror films, including London Has Fallen, due out next year. Perhaps Focus Features, after a major shake-up of its leadership, wants to explore more genres.

Illumination Entertainment, Creator of the Cute Minions

Illumination Entertainment may be better known than Focus Features: it produced Despicable Me and created the Minions.

Illumination's importance to Universal is obvious. It took Universal into animation and made it a real player in the field.

In 2007 Chris Meledandri, who had worked on Ice Age, left his old employer, 20th Century Fox Animation, and founded Illumination. Before Illumination had produced a single film, Universal announced in 2008 that it would acquire the company, and since 2010 it has released one or two animated films a year.

Illumination did not let Universal down. Despicable Me (2010) cost US$69 million and earned US$543 million. Despicable Me 2 (2013) cost US$7 million more, but its box office reached US$971 million.

More important than the box office may be that the Minions have become beloved characters in their own right. In 2015 Illumination gave the Minions a film of their own. It has just opened in North America, and the industry forecasts an opening weekend of US$110 million to US$120 million, more than Pixar's Inside Out this year. In the markets where it has already opened, it has taken in US$130 million.

The Minions

What may matter even more to Universal is the Minions' merchandise business. On the licensing side, the Minions have launched mobile games, become the featured color this summer of Pantone, the authority on color, appeared on Amazon's shipping boxes, and helped McDonald's with promotions. Minion merchandise should also be selling well, from blankets to plush toys to T-shirts. According to an estimate by Variety, Minion merchandise sales could reach US$70 million a year.

Universal finally has an animated series it can be proud of, and one that continues its strategy of making small bets that pay off big. That could hardly be better news.