Media Blog

Do Markets Matter in Hollywood?

March is traditionally a weak month for new movies. (10,000 B.C.? Shutter? Drillbit Taylor? Any takers?), but box-office watcher Paul Dergarabedian of Media By Numbers told AP he think it should be called “Blue Sky Month.”

Blue Sky, the AP reports, had the biggest opening of the year so far with Horton Hears a Who; in total, the firm has been behind four of the six biggest March openings ever: Ice Age, its sequel, Robots, and Horton.
The mystery is: Why aren’t there more G-rated movies?
The Christian Film and Television Commission studied 2007′s general-release films and found that G-rated films took in an average of $92 million, compared to $17 million for R-rated movies. And that excludes the take from PG films that were pretty tame but not quite G material: Shrek the Third broke $300 million, while Alvin and the Chipmunks and National Treasure: Book of Secrets each broke the $200-million mark.
It’s common to meet people with kids who go to see practically all of the G-rated movies that come out in a given year–and maybe, maybe one other film a year, without the kids. Depending on which study you credit, the average G-rated flick is five or ten times more profitable than the average R-rated feature. And though the numbers have been changing a bit in the last 10 years, Hollywood still makes a lot more R-rated pics than G-rated ones. Why?
Economist Arthur de Vany, a while back, took a look at 10 years’ of movie data (hat tip to Cafe Hayek), and concluded that the Hollywood studios were making decisions about films that were, in fact, contrary to their own financial interests. The evidence suggests that they would have made more money, perhaps a lot more money, if they had offered more G-rated choices. (De Vany later wrote a book called Hollywood Economics.) De Vany’s argument is, in part, that film studios operate in conditions of extreme uncertainty, i.e. that there’s not really a good way to understand the underlying value of a film the way an investor can understand, to some extend, the value of a stock or a bond or a piece of real estate.
In stocks and bonds, you know what a share’s price-to-earnings ratio is, what the company’s balance sheet looks like, &c. You have something to go on. The nearest thing film execs have is, “Well, other than Vanilla Sky, Tom’s movies have been pretty solid.” So they greenlight Lions for Lambs, and get a box-office catastrophe. In an environment of extreme uncertainty, there’s a lot of room for personal bias to influence major business decisions. “Gut instinct” is just another way of saying “minus data,” so it seems likely that Hollywood’s bias toward R-rated material, at the expense of their own profits, is a reflection of personal preferences and inaccurate worldviews, e.g. that sex and violence sells, when apparently talking cars and incubating elephants sell.