Walker & Dunlop, Inc. (WD) Earnings Call Transcript & Summary

Good morning. I'm Susan Weber. And today, we have a special Walker Webcast guest to get you into the Halloween Spirit. Joining Walker & Dunlop's CEO, Willy Walker today is Jason Blum, Founder and CEO of Blumhouse. If you miss an episode of the Walker Webcast, you can find all our replays on our YouTube channel. Just search for walker@walkerdunlop. Thank you for joining us today, and now over to Willy.

Thanks, Susan, and hello, everyone, and welcome to another Walker Webcast. Before I start with Jason, I want to make a quick comment on the ongoing conflict in Israel, as I did at the start of last week's Walker webcast with Peter Linneman. We're still shocked and saddened by Hamas' terrorist attack weekend before last, and the loss of life and peace in Israel. Pleased to say that all 4 Walker & Dunlop employees that were in Israel with their families when the terror attack happened are safely back in the United States. But we have many colleagues with family and friends in harm's way inside of Israel, and we're here to support them at every turn. Finally, the discrimination and anti-Semitism that is appearing across the country and around the world, has no place in the free society, and we must be vigilant in pushing back against it in any and all forms. With that, to start things off to my friend, Jason, who has just jumped on the video feed. Jason Ferus Blum, middle name is Wild or Savage in Ferus, son of an art dealer and art history professor. Founded Blumhouse Productions in 2000, and after its first breakthrough success with Paranormal Activity, he has spent the last decade making global box office hits such as The Purge, Insidious, The Invisible Man and M3GAN. Is that -- is it M3GAN, Jason? Or M3GAN?

Oh, Megan, Megan, Megan.

Megan. See, you got -- these are things that you're under 24 demo understands that your 56-year-old buddy really doesn't. What Fortune Magazine writer deemed "a little more than the catering cost on a Marvel movie" Blumhouse has created tense thrillers such as BlacKkKlansman, Whiplash, and Get Out that all received Oscar nominations. Blumhouse has produced over 200 movies that have grossed over $5.7 billion at the box office. Blumhouse was a fast company list of brands that matter in 2023, companies that forge an emotional connection with their customers. Jason is graduate of Vassar College, where he was the 2020 commencement speaker. I would highly recommend that speech to anybody who wants to have a fun time listening to a great commencement speech, it's on the board of the public theater of New York, the Sundance Institute, Vassar College and the Academy Museum of Motion Pictures. He has 315,000 followers on X. He is a fitness nut. He is known as the Santa of Halloween. And I'm super honored to call a friend. So, Jason?

That was a good intro. I like that. Wow.

Thanks, man. I tried.

All right. So there are so many places to start. Let's start here. A lot of people who are listening in today have read Michael Lewis' book, Moneyball about the Oakland As, and how their general manager, Billy Beane use different stats. And other major league baseball teams. What's that?

Right. Very familiar with it.

I know you are. Such as on base average to build a championship team, essentially having a low-cost roster that produced exceptional results. And a lot of people have compared your model at Blumhouse to Moneyball, and saying it's the Moneyball of the movie industry. I don't think that's right. Do you think you're the Moneyball of the movie industry?

I actually do.

You do?

It's a much more -- Yes. We get compared to Roger Corman who I love, and I think that is the -- we're totally different. Our model is totally different than his. But the Moneyball model is very applicable to our -- to the way we operate our business. And the most applicable part, I think, is that what I mean, Billy, he did so many things that were so interesting, but what he really did was look at these focus on things that weren't sexy, but like the stats that weren't like the sexy stats. And I think in that way -- and it's different now. But when we started, horror was kind of in the ghetto. Just doing horror generally was not -- was kind of not cool. And very specifically, especially in the early days of the company, we chose directors -- I mean, this is a very specific example of -- Hollywood and the studios are set up in such a way, that they either choose first-time directors or directors who have only had success, which is in our business almost impossible. The studio would -- and it's still today even true, a studio would prefer to choose a first -- a director has done a few shorts, and it's like there's a lot of buzz around, than a director who's made 4 movies, 2 of which have worked and 2 of which haven't. We would always choose the director who's done the 2 movies that worked and 2 haven't, and that's kind of a very Money Ball thing. And then I think the other thing that's akin to Money Ball is the fact to having your self model, like our movie business is based on if the thing you make works, everyone gets paid. If it works really well, everyone gets rich. And if it doesn't work, you don't make very much money. And that's also very unusual in mainstream Hollywood, but it's also a concept that Billy Beane would have loved.

It's -- so I concur with everything you're saying. I guess, as I looked at what you've done, I view you as a venture capitalist, more than as a producer. And the reason I call you a venture capitalist because you've created a business model that allows you to invest in ideas, just as venture capitalists do, but do it in a portfolio manner, where if something hits, it hits and you get massive returns off of it, but you've limited your downside by the size of your initial investment. And I guess, the only other thing that I saw a little bit different from that is just your focus really on -- not that Billy Beane didn't focus on talent and trying to find talent, but you have a business model that is so prescriptive as it relates to what you're looking for, what you're looking for in a script, what you're looking for in a director. And then how you manage the money around it, that I just sat there and sort of said, yes, there are some things, but I kind of viewed what you do much more along the venture capital model and the way that you can make so many wide bets, have some paid off famously, but then also -- and we're going to get in this in a moment, but because of your distribution model, Jason, you have the ability to sit there and say, "We're not going wide with this. We're going to put it on to streaming, and we're going to recoup our costs." And I thought that, that is sort of downside protection and the way you built your business model is much more relevant to kind of an investing strategy rather than an operating strategy if that makes sense.

Yes. I think that's true. And we are like a venture capitalist. We take 6 to 8 bets a year, and we keep the bets small unless it's a proven property, right, unless it's a sequel or IP that already exists. But on the originals, which we hope will create IP and create franchises, we take small bets. And my favorite stat about the company is we have the highest ratio of -- if you take our budgets against our gross, we're about 10x, which is more than anybody else. It's more than Marvel. It's more -- because our costs are so low. It's more than anybody else. So that's my favorite stat of Blumhouse and the statistic, I'm probably the most proudest of, of the company.

Talk about the sequels for a second. I'm jumping way ahead, but you just raised it as it relates unless we're making a sequel. A, you spend more on the sequels. But B, something I heard you say that I thought was so interesting was, if you're going and making a Marvel movie and you're going to spend $300 million making it, you better damn well have a sequel ready behind it because you've invested so much to make the first one, that you have to have an ending that sort of leads into the next one. Whereas with the way that you make movies, the movie better stand on its own. And one of the directors that you had on a panel that you were talking to, maybe at Sundance, where you asked, "What's the most important thing to do," and he said, "Get the ending right." And I was like, I was assuming they're thinking about in my world, and the fact that when we go make pictures, we try and make sure that the whole picture goes well. But as I heard that, get the ending right, it made me think about like every picture we go do, forget about what the story is leading up to, make the ending right. But you end your movies right. And then if you have the opportunity to make a sequel, you do, but you don't invest in the first one, thinking about the second one. Is that correct?

That's right. We end most of them right. It's true. The ending is so much more important than the rest of the movie. We don't end all of them right. The biggest -- Exorcist definitely underperformed for us. And the reason is we didn't end it right. We tried, by the way, we tried, we worked on that ending over and over and over and over, but we couldn't get it right. And the movie really, really, it's really good and really works for the first hour, and then the next part just doesn't work as well. And that is the -- it's like -- to your point, it's much better to have it the other way around, first of all. And then the second thing is, yes, when we're making an original, directors are very used to and writers are very used to talking to studios who are always thinking about what's the sequel going to be. And I try and erase that from the creative person's mind because it is so hard to make an original movie that connects with an audience. To make an original movie that connects with an audience and also as a setup for a second movie. First of all, it's like counting your eggs before they -- counting your chickens before they hatch. And second of all, it's too much. It's too many parameters around the creative process. And the example I always use is Paranormal Activity, which is the greatest example ever of, if something works, you can make a sequel no matter what. It's a found footage movie. So just the notion that, oh my gosh, they found another set of -- we made 6 Paranormal -- we had 6 or 7 Paranormal Activity movies. But just the very notion that, oh my gosh, they found more footage, is so absurd, but the first movie worked so well that the audience gave us that. The audience allowed us to take that huge leap, and we made 6 more movies behind it. So I always tell our filmmakers to figure out what the best version of your movie is without thinking about a sequel. And there are a lot of other things, too, that I think they feel pressured to do. The thing that I do put a lot of pressure on them about is you got to keep the cost very low on an original. That's very, very important. And for us, got to keep it very scary. But don't worry about the next one.

So on that, that's the business model today. But when you started out, Jason, that model, which you now have nailed, was not the reason that you created Blumhouse. So let's just back up for a second. You were an executive at Miramax, you worked for the Weinsteins, you missed investing in the Blair Witch project, which you were never allowed to forget about. But talk about for a second, why you started your own business, because it wasn't because you had this great business model. What we've just talked about as it relates to being a venture capitalist in the movie industry, if you will, or being the Moneyball of the movie industry, was not why you jumped out on your own to begin with. Why did you jump out to create Blumhouse to start with?

No, I definitely didn't. And I'm very skeptical when we hear -- we hear business plans of entertainment companies relatively often. And I'm very skeptical of like, we're going to attack this in a new way. I think, I suppose this is true in all industries, but certainly in the entertainment business, actions speak louder than words. So make hit movies. And if you've made a few hit movies, then I'm interested in your process. But don't talk to me 0about your process before it's delivered hit movies. It's not -- it's just the BS. That's just ridiculous. So to that end, what -- and to answer your question, I had worked at Miramax and there were things that I learned that I -- were very helpful, and a lot of things that I saw that I thought, if I -- when I have my own company, I'm going to do this very differently. And I was on one mission, which was get a hit movie because that opens up every door for everything else. You're exactly right. It wasn't like, I'm going to make a low budget movies, we're going to give directors greater control. Like to have those words come out of someone's mouth who has never really produced a movie, even though I've been -- had experience in the business for so long, is absurd. So I was looking for any way to figure out a hit movie in any genre. And what I learned, I was 30 years old in 2000, and that's when I left. And I made a handful of independent movies, none of them really worked in any serious way. And what I thought I actually wanted at that time, I thought the quickest way to do a hit movie was to make a big studio movie. I thought that -- and by the way, the odds of a studio movie working versus an independent movie are much higher. You're much better off with a studio movie, much, much better. So that's what I was trying to do. And it just so happened that we're in the mid 2005, 2006, in my mid-30s, I wound up doing 2 movies at the same time. I did the Tooth Fairy, which was the only traditional studio movie I have ever produced, which was at that time, a much bigger budgeted, very traditional, down the middle studio movie. And I started producing Paranormal Activity. And the movies came out at the same time, and I had these very interesting experiences through both movies, which was when I was finished producing the Tooth Fairy for Fox, all the things that I thought it was going to be, it wasn't, and it turned out to be a very frustrating experience. But the distribution, the studio distribution of the Tooth Fairy was amazing. And it was everything that I hoped for and more. Paranormal Activity was made like the other independent movies that we had made, and it was terrific when you're making an independent movie, it's great, because you're free. There's not a lot of voices. You can take chances, do whatever you want, which is a totally different experience making an independent movie because there's less people involved in the decision. So it's just more fun. But it was distributed by a studio. Again, it was an independent distribution, which I think is very, very challenged and not -- and very unsatisfying. And what happened was, with the experience I had on both of those movies, I realized, wait a second, there's a way to make independent movies, which I love doing, and way to have studios release those movies, which is what Paramount did with Paranormal Activity. And that's to make low-budget horror movies. And that's how we hit on our -- that's one of the ways we hit on our model. The other way we hit in our model to be fair is -- one of the biggest mistakes that young people make in the movie business is when they have a success, this goes for a writer, a producer, a director, when they have a success, and they are 26, which is very rare, but their movie gets bought, and it's a big deal at Sundance, and it's whatever it is, it's a comedy. Immediately, they say like, I want to make something different, and show I can be successful in something different. And it almost never works. And luckily, I didn't -- Paranormal Activity didn't happen until I was, like I said, in my mid-30s. I've been doing this a while. I knew what to do with success. And that's so profound. I always think back how lucky I was. If Paranormal Activity, it happened to be when I was 25, Blumhouse would not exist. I wouldn't have owned it. I would have thought so much of that success had so much more to do with me than it actually did. When you do this for a while, you realize, when you make a successful movie, it has to do with a lot of different things, many, many different pieces. I was a small part of the piece of the success of Paranormal Activity. But I knew what to do with it, which was to just keep making low-budget horror movies. And that was kind of the birth of the company.

I've listened to you speak about that so many times, and I've never heard you explain it that succinctly, about that moment where those 2, the $65 million Tooth Fairy movie converge with Paranormal Activity, and how that then led to the business model.

It was such a lightbulb moment.

But to that, Jason, what I don't quite get is, Paranormal have been kicking around for a long period of time. And I guess, what led you to then say low budget? Because the Tooth Fairy, $65 million to make, $40 million marketing budget, you saw the value of the $40 million marketing budget, which you've kept in place. And that's been obviously a key part and your partnership with a number of studios, but most importantly, Universal. And at the same time, sitting there and saying, well, let's see if we can replicate what happened on Paranormal by creating a new business model. I mean, that's the piece that I don't quite get, of like, we're going to just -- I'm going to sit there and look for -- rather than a $65 million budget movie, I'm going to look for a $4 million budget movie. What was that?

Yes. Well, there were a few factors, but here's the main factor. Movies beget movies. Making movies beget making more. When you're making movies, you're going to make more movies. Developing movies does not beget movies. Making movies begets more movies. And to your point, what we were talking about at the top of the interview, the more add bats you have, the more hits you're going to get. So from the minute Paranormal Activity happened, I was into volume. And the way to get volume is bring your cost way down. So if you have a horror movie and you can make it for $1 million, 20 people, if it's the right -- I mean, this is -- making it simplifying a little bit. But if you're getting people with experience to work for way less money, if you could bring the cost down, you're going to get the money for that movie. So the way to make many movies quickly was to keep them cheap. That was the initial thing that drove that desire to make low budget movies. Now what happened is, as I started making more and more low budget movies, all these other benefits accrued to it, not financial benefits. Your interests are aligned with the creator, which is probably more important than anything else. Now I didn't do it for that reason, but I discovered it. When you pay someone upfront to direct a movie, which we do, also do, it just never -- the movie is never as good. It doesn't go so well. The process isn't is fun. That's why streaming is just not good for the quality of movies. It's just not. It's not a good model. When the director gets paid, if what he or she makes works much more than if it doesn't, clearly, the thing is better. So anyway, all these other benefits of our model became apparent. But the initial reason was, that was the way to get movies made. So I think one of the things -- I think, one of the things that -- one of the mistakes younger producers make is that they are way too precious about the decisions that go into making a movie. Meaning, they get so caught up in, if it's not this actor, the movie is not going to work. If it's not this, it's not going to work. If it's not this, it's not going to work. And I learned early on, because I saw they're in reverse, I'd see all these movies, especially when I was working in my 20s, as an executive at a couple of different places. All these movies, where there were all these arguments over who should be in it with the director, what they should wear, what the wing should look like, what the prosthetics should look like. And 9 times out of 10, it wouldn't matter. And they fight for this one actor, and the actor would turn out not to be good. And so when I had my own company, I was able to let go of a lot of decisions and keep my eye on getting what I was doing greenlit. And I think that was a big advantage to me early on.

What was it that Donna Langley saw in you, because you tell a story about having gotten kicked off a lot at Paramount. And your agent, [ Bryan Lourd ] heading over and meeting with Donna Langley, and saying, you got to meet with Jason. And the partnership that you've had with Donna and Universal has been incredible. But what do you think it was, Jason, that made her take a bet on you in this model?

That is that. That is what happened. Paramount just way, way undervalued, like I said, a small contribution to Paranormal Activity, but they undervalued it. And what happened -- so the reason I started at Universal is Donna had a lunch with Bryan and said, "I want to revive the long tradition of horror at Universal." And Bryan said, "I know the guy to do it. And it's Jason Blum." And that's how we met. And that was like 15 years ago. And we've done like 60 movies with them now, and we have a great, great, terrific partnership. And we really -- we understand the DNA of each other's companies. My company is 1 millionth to the size of obviously Universal. But there's so many tentacles of Universal. And it's been a great -- it's just been a great partnership, and it's something I'm really proud of.

You talk about getting the right director, having directors incented to have an alignment of interest, if you will, in the commercial viability of it. Not guaranteeing them wide distribution, which I think is something that people -- for people like me don't really understand that. But many directors get a commitment by a studio to take a movie that they make and put it out on 2,000 screens. You do not give that guarantee because of exactly what I talked about at the top, which is if you've got a movie that you don't think is going to go wide, you have the option to not put the promotional dollars behind it, put it on to streaming and recoup the $4 million or $5 million that you've invested in the actual movie. Whereas if you've invested, as you did in Tooth Fairy, $65 million, taking the damn thing, you better well put another $40 million behind it.

You got to release it.

You've got to release it. So that's one of the interesting things. You also mentioned that you very rarely use first-time directors. Although Jordan Peele was one of the few first-time directors in boy oh boy, Get Out turned into being a great one. An interview that I...

I would refute that, though. He was -- when I say I'm not using first-time directors, and it's true in the movie side of the company. But shorthanding for people who are just out of film school and made 3 shorts. We are -- the best people for our model, who are technically first-time directors, are show runners, and Jordan was a show runner. So he is not - I would not.

Explain to my audience what a show runner is. Is that a...

A show runner is the director of a -- I mean, there is an actual Director of Television. But the person with the most creative power in movies is the director. In television, it's the show runner. And the show runner is a writer, producer, overseer of the whole operation of multiple episodic television. So he hires the director. He hires the directors of each episode. He's -- he or she is involved in the writing, overseeing the writer's room, so the story, the actors. It's -- if there's one single voice in television production, it is the show runner. And what show runners are incredible at is thinking on the fly and going fast. And that's what our movies are. But show runners who are good at their job, their job is incredibly lucrative. So most of them don't -- aren't interested in directing movies. But every so often, we're able to lure one away. And Jordan, with Key & Peele was incredible show runner, now an incredible movie director, too. But I wouldn't say, we broke our rule by hiring Jordan Peele. We have broke -- a few times, we have hired very young people who really qualify as first-time directors, I just wouldn't put him in that category, when we hired them on Get Out.

And when you hire a first-time director, or somebody who's touched on a couple, you typically get options for their future work?

Yes, we always try and get options. Some people hate that. A lot of people hate that. I feel like, if you give someone that kind of a shot and it works, they should work with you a time or two again. Sometimes we get them, sometimes we don't. They're not that affected because of the person -- if you have a bad experience, they're not going to work with you again. If you have a good experience -- the reason for an option is, if you have a bad experience, and you have options, no one's going to want them to do them anyway, even if the thing that, that person made is successful. If you have a good experience, you should really work with the person again, you shouldn't need the options to do it. And oftentimes, someone's representation will say, "Well, don't work with that company again" and options protect against that. They're like moral ethical code enforcers. And I guess, I have mixed feelings about them. I guess, I have mixed feelings about them, obviously.

What happened on La La Land?

Ha ha! That's what I was thinking about.

I know you were.

Yes. So we did Whiplash, that was a great example. And we should have been the producers on La La -- we were the producers on La La Land, and it was -- the agreement wasn't signed, and I wouldn't have sued the director. But Whiplash, once it became successful...

You didn't go to lunch in Sundance, Jason. You skipped the lunch in Sundance. That's how the movie walked away for you, right?

No, no, no. Actually, it's funny, that you say that. No, it was in December, and I was going to have lunch with Damon and...

You thought everything was done.

And I thought, I thought everything was done, and I didn't have the lunch, which I hit myself for. But that is not an excuse for not doing the movie with it. They were doing -- I was told -- I knew we wanted to do La La Land, and I was told -- now it's hard to blame this person. His name is Cooper [indiscernible]and he runs our movie company. He's one of our most greatest executives. He has equity in the company.

When you try to...

But hold on, hold on. Cooper found Whiplash. So we never would have Whiplash without Cooper, so I can't really have any high ground blaming Cooper. But Cooper said to me, "Don't worry. We're producing La La Land. It's all set." You don't -- don't worry about that lunch. So I blew it off, which -- and I know there was a voice inside me that knew it was a mistake. Now, who knows, if I had the lunch, maybe the same thing would happened. Anyway, Whiplash came out, and then they threw us off La La Land, and that was a bad thing to do.

So if anyone wants to know how important Cooper is to Jason, when Jason was asked, what movie took away his title of having the lowest gross, widest release movie ever, which was a badge of honor, I guess.

Jem And The Holograms, which is...

I thought it was the Empty Man. I thought that's what they came up with...

No, we helped direct the Jem And The Holograms and then...

Oh, I'm sorry. Yes. And then the Empty Man beat it.

It beat it. We lost that crown.

Oh, I'm sorry. Great, exactly. What do you -- I want to know, because you're an incredibly competitive person, incredibly competitive person. What did you do when that movie came out and broke that record? I mean, how did you deal with that? Because I know you, and you're wildly successful and you look really relaxed and all that kind of stuff. But when that happened, I mean, you're releasing on 2,000 screens, and what was the gross over the weekend, $1.1 million or $1.5 million?

Yes, it was -- whatever it was. I was...

Whatever the number was, it was not what you had expected.

Well, to answer your question more broadly, like I -- there -- that's happened to me. I've been doing this long enough. That's happened to me, luckily, not that many times, but certainly more than a handful of times. And look, I mean, how do you deal with failure? I don't know. It's very hard. I'm done going through 2 things right now that are at that level. And I don't know. I don't -- I mean, I find it really hard. I find it like, it's like I beat myself up or taking it so badly, then I'm like, well, that's why I'm successful because I take it so badly, then I'm like, I go through a crazy thing. I mean, I don't know, it's very, very difficult. I think it's important. I think one thing that drives me crazy is when people don't acknowledge failure. And I think people in the movie business are so guilty of that. They're so scared to say, we tried something, it didn't work. One of the big disappointments of Jem And The Holograms was the movie -- I'm very quick to say, when movies we make aren't good or don't work or parts of them don't work or whatever. Jem and the Holograms is and was a great movie. And Jon Chu turned out to be one of the great directors of our time. So when it's something like that, we had the same situation on The Hunt. The Hunt is a great movie that my friend and colleague, Kim Masters torpedoed. I'd -- still hurts when an artist does some -- there are artist works for you, and does a movie that doesn't work, and the movie doesn't work, I can take it. But when an artist delivers, when your partner delivers, you can understand this, your partner delivers for you, Jon Chu delivered for us. Craig Zobel on The Hunt delivered for us, and we didn't deliver for them, it drives me insane to this day. It drives me insane.

So you talk about final cut. And you talk about one of the reasons -- no.

I like we're moving past that.

I think there's a really good point, though. I mean, I want to give people, Jason, a sense of how you do what you do. So you get these great directors. First of all, you find scripts, they have to be small, not too many actors, not too many scenes and not too many special effects. Is that a fair kind of when a script comes along, and you guys say, go, no go, it needs to kind of have those characteristics. You're not doing...

Yes. But the most important characteristic you're forgetting is, the above-the-line talent, meaning the actor and the director have to agree to work for back end. They can't -- we can't pay them upfront.

Right.

Those 4 things. Not too many -- too many speaking parts, not too many locations, stunts and special effects, the above-the-line talent working for back end, those 4 things.

Talk about not too many speaking parts because there's a little piece there. You got -- all your movies are union movies. You're a big fan of the [ SAG ]. But?

Yes. But if we have -- this is not so true anymore, but it's still -- to a certain degree, it's true. If you're doing a party scene, and there's someone serving an order, you have them to serve it and don't say anything, because if they speak, you got to pay them an extra $1,000. We're not so crazy about that anymore. But when I started, we were really -- we even looked at that stuff. But I would say we're -- if there's 100 speaking parts in your movie, we're not making that movie.

And then as it relates to how you actually control costs, once you've got the director and the talent to go above the line, if you will. So they're not taking a big guarantee upfront. They've got a percentage of what you're going to make in the back end of the movie, and your client...

And obviously, us, too. We don't make -- we make 0 fees on our theatrical movies. 0 0 0.