Increasingly it feels like more and more of the entertainment biz headlines are about companies trying to find a “franchise” (harry potter, high school musical 2, etc). Which made me wonder, what’s the right behavior for a company once it believes it has a “franchise?” In film for example, let’s define that as something like a movie which makes >$100m and has some sequel potential. I’d conjecture that there are two downsides to “having a franchise” –

1) Often(?) subsequent films get less profitable as production costs get driven up by salaries [counter: given the % of unprofitable films, having a release which is likely to make money is better than rolling the dice on a non-franchise film, even if it’s relatively less than the original]

2) Franchises consume lots of time and energy – do they distract studios from new efforts and dull production/marketing skills – i.e. you’re not searching for new talent or new ways of promotion [counter: franchises create money which can then be reinvested in new vehicles and add luster to a studio which attracts talent]

So would the best strategy for a studio be to invest minimal resources in the franchise sequel figuring regardless of reviews it will attract some halo effect from the first. i.e. – don’t put your best team on the sequel, put an average team. And then if you make a follow-up to that, put your worst team on it.

e.g. let’s say it was the talent of a particular director or producer who made a movie which opened big and is labeled a “potential franchise” by the studio. Should you have that director make a sequel to the Franchise Movie or assign lesser talent to the sequel while the talent goes and creates another “potential franchise.” i.e. After something becomes a hit, is the NPV of its extensions within a pretty narrow band. For example:

Potential Franchise Well-Executed: $100 NPV ($200 rev – $100 cost)
Potential Franchise Adequately Executed: $75 NPV ($100 rev – $25 cost)

then if my A-list talent or the addition $75 i saved in cost by taking the “adequate road” can be better spent creating another potential franchise, i’m able to get much more overall revenue – i should never pursue making good sequels to a franchise.

I guess one reason you wouldn’t want to do this is the repeated game aspect of this prisoner’s dilemna – although i think that’s more about the above the line talent that participates rather than the studio since outside of Disney/Pixar, most don’t have any consumer-facing brand image.