he term began to appear in the American press in the early 1940s, describing the largest of aerial bombs: single bombs capable of destroying a city block, also known as "cookies" during the firebombing of Hamburg. Later figurative use referred to anything making a public impact: "Broadway reacted to the request of War Mobilization Director Byrnes to close all places of entertainment by midnight Feb. 26 as if a blockbuster had landed on Manhattan" (Chicago Tribune, February 2, 1945). Some entertainment histories cite it as originally referring to a play that is so successful that competing theaters on the block are "busted" and driven out of business, but the OED cites a 1957 use which is simply as a term of "biggest", after the bombs. Whatever its origin, the term quickly caught on as a way to describe a hit, and has subsequently been applied to productions other than plays and films, including novels and multi-million selling computer/console game titles.

Eventually, the focus on creating blockbusters grew so intense that a backlash occurred, with critics and some film-makers decrying the prevalence of a "blockbuster mentality" and lamenting the death of the author-driven, 'more artistic' small-scale films of the New Hollywood era. This view is taken, for example, by film journalist Peter Biskind, who wrote that all studios wanted was another Jaws, and as production costs rose, they were less willing to take risks and therefore based blockbusters on the 'lowest common denominators' of the mass market. An opposing view is taken by film critic Tom Shone, who considers that Lucas and Spielberg's reinvention of blockbusters as fast-paced entertainment reinvigorated the US film industry and deserves greater artistic and critical recognition.

Film producers – in an era where producing blockbuster films runs a high risk due to the budgets exceeding $200 million – have been distributing small but promising, low-budget films with the hopes of capitalizing on the modern market's film consumption. The term 'sleeper hit' may not always apply to films that take in large gross sales, but films that yield extreme profits based on investment. A number of films have been produced at extremely low budgets that have had proportionately high ticket sales, producing a very high return on investment to their respective studios.

Examples of this are the 2004 documentary film Tarnation, whose budget weighed in at $218 and whose ticket sales totaled $1.16 million, a profit margin of 266,416.97%. A more famous example is the 2009 thriller Paranormal Activity, which operated on a budget of $15,000 and took in over $196 million in worldwide ticket sales. Other low-budget-high-gross films include The Blair Witch Project, American Graffiti, and Napoleon Dynamite.