By Ryan Bradley
May 29, 2013

FORTUNE — Sharknado is a film about a tornado full of sharks. It stars Tara Reid and John Heard (the dad from Home Alone) and cost less than $2 million to make. It’s already profitable though hasn’t yet been released. It was big at Cannes — not the prestigious film festival; the movie marketplace, one of the biggest movie marketplaces in the world. It goes on at the same time as the festival. “It’s like any other marketplace,” says Paul Bales, a partner at The Asylum, the production company behind Sharknado, “instead of selling vegetables it’s selling crappy films.” The Asylum is very good at making and selling crappy films, and at Cannes, Sharknado, Bales says, sold to video-on-demand and DVD distributors all over the world.

As the dog days of summer blockbuster season approach, it’s worth considering just how The Asylum churns out low-level hit after low-level hit: The production company averages two releases a month, shoots top out at about three weeks, most budgets never go past $200,000, almost none see theatrical release, all go direct to video, and they spend nothing on advertising and marketing. “We don’t make a movie unless we know where we’re going to sell it,” Bales says. “So we don’t even start to film until we have a good idea of getting money back. When an idea comes from one of our buyers, we have a good sense of things.”

One of The Asylum’s biggest movies — their breakout, crossover, mega-hit, in fact — came about just this way. A Japanese distributor (The Asylum is big in Japan) asked if they might make a film about a mega-shark battling a giant octopus. They said yes. And thus Mega Shark vs. Giant Octopus was born. “They give you a title, a poster, a cast, and a formula, and then we shoot it in 12 days. We go from the idea of the movie to release date in less than two months!” Jack Perez, director of Mega Shark vs. Giant Octopus told
The Guardian

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How often is it this way? “Oh, all the time,” Bales says. “I think the best movies are the ones where you know the plot based on title alone.”

Bales is also The Asylum’s director of operations, its numbers guy, and he puts the company’s Z-movies into three categories, based on budget: For network television (SiFi and Lifetime, usually) most hover around $1 million, either for bigger talent (like Tara Reid) or all the post-production CGI monster effects. “Ninety-nine percent of our movies are well under a million dollars,” he says. The $200,000 range is for “sexy comedies and horror films.” Found footage horror films are the last category and come in “well under $100,000.” If Bales had his way, they’d do far more sexy comedies and horror films. They cost so little and sell so well.

This summer The Asylum’s biggest release will be “a movie we’re calling 5,000 Fathoms Deep in most places, and in others we’re calling it Atlantic Rim.” The confusion is intentional. There’s a very big budget movie coming out this summer called Pacific Rim (about mega robots battling mega monsters), and The Asylum hopes to ride the big studios’ wave of publicity with its own — well, some would call it a knock-off, others might say it’s a tie-in. Regardless, it brings up the larger implications of The Asylum’s business model.

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In their book, The Knockoff Economy, law professor Kal Raustiala and Christopher Sprigman argue that, in some industries, loose intellectual property laws are a boon for business. Fashion is a key example — for how else could high design make it from the runway to the racks at Target? Film, rightly, has stricter IP laws than fashion, but it’s important to have companies such as The Asylum playing around on the edges of IP. Copying is a form of flattery, sure, but it’s also a means of rapid distribution — ideas and themes can spread from the originators to the masses.

Plenty of filmmakers got their start in ultra-low-budget films, and plenty more will see a cheap DVD of Transmorphers or Snakes on a Train before the original films. Is The Asylum taking money away from the creators, or simply expanding the film industry’s reach to the lowest common denominator?

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