Sunday, December 9, 2018

Chaos in the Movie Biz: A Review of Hollywood Economics [#DH]

New bump, this time for Tyler Cowen and those interested in "the great stagnation". On Nov. 9, 2004 De Vany gave a presentation at Harvard Business School, "Hollywood Economics: Dealing with 'Wild' Uncertainty in the Movies and Pharmaceuticals". The pharmaceutical industry is one of three case studies in a recent paper, Are Ideas Getting Harder to Find? De Vany argued that both industries, movies and pharmaceuticals, had broadly similar characteristics despite their very different underlying natures: many 'ideas' are proposed, a few make it into production, of those some break even and then become profitable and among those a very few become blockbusters (and keep the boat afloat). Success is as much a matter of luck as of positive knowledge and deliberate intent. Among De Vany's wry observations: "It's not a Gaussian world out there."
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I'm bumping this to the top of the queue for my friends in computational criticism (aka distant reading). When they analyze a corpus, they tread all books in the corpus alike. All are linked to their publication date and all are treated as though they had the same sales and readership. Yet some were read by a few and forgotten a year or two after they were published while others were read by thousands and tens of thousands over many years. DeVany tracks movies that came out in the 1990s. Most all but disappear within weeks of release. But some go on to make a profit and a few of these become blockbusters. (And who knows how many of those 1990s movies will be watched in 2030?)
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Arthur De Vany, Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry, Routledge, 2004.
De Vany presents a profound and imaginative treatment of the economics of the movie business, one that has implications, not only for similar businesses such as publishing and music (and even pharmaceuticals), but for our understanding of the dynamics of culture. When Richard Dawkins coined the term "meme" he unwittingly paved the way for tons and tons of sexy but shallow commentary on human culture. Though that is not what he set out to do – "meme" never shows up in the book – De Vany has given mathematical form to the behavior of movie memes and has demonstrated that it is the people who are in charge, not the memes.

I want to underscore this point as many of my humanist colleagues have spent the last several decades castigating Hollywood for its hegemonic hold over the subject masses who have little choice but to submit to having their brains scrambled by Hollywood nonsense. It’s not that simple. Hollywood would dearly love to have such control over the audience, for it would make for a much more profitable business. Alas, as De Vany demonstrates, the Hollywood suits and moguls don’t have that kind of power. The oppressed masses do, in fact, have quite a bit of autonomy in their actions. No movie can succeed without word-of-mouth recommendations, and those words cannot be dictated from on high.

Nobody Knows

In the words of [the later] screen writer William Goldman, “nobody knows anything” about what happens to movies once they are released to the theatres. Most movies don't even break even, much less make a profit – not in theatrical release, which is what De Vany investigates. (These days, movies make money on DVDs and TV, but that's another story, told by Jay Epstein.) That's no way to run a business, but the problems are inherent in the nature of movies as a business venture. The deep and ineradicable condition of the business is that there is no reliable way to estimate the market appeal of a movie short of putting it on screens across the country and seeing if people come to watch.

Does having “bankable” names on the marquee guarantee that the movie will make bank? No. Does opening big on thousands of screens with PR from here to the moon guarantee that the movie will make bank? No. Does a small opening mean the film is doomed? No. Hence Goldman's remark.

But all is not chaos. Or rather it is, but chaos of the mathematical kind. De Vany shows that about 3 or 4 weeks into circulation, the trajectory of movie dynamics (that is, people coming to theaters to watch a movie) hits a bifurcation. Most movies enter a trajectory that leads to diminishing attendance and no profits. But a few enter a trajectory that leads to continuing attendance and, eventually, a profit. Among these, a very few become block busters.

And these few come to dominate the statistics of movie economics. From the point of view of statistics based on the normal distribution those few movies are outliers and should be discounted. De Vany develops a statistical framework – he calls it the stable Paretian model – that gives proper attention to those block busters. The model is stable in the sense that it exhibits the same structure at all scales.

Structure of the Industry

De Vany devotes particular attention to the structure of the movie business. During its glory years from the 1920s through the mid-1950s the industry was organized by the so-called studio system. The studios owned both the means of production and the means of distribution. Stars, directors, writers, and craftspeople, all were on staff at the studios. When it came time to release films, a studio's distribution system went to work and the films went out to theaters owned by the studio and to independent theaters with long-term booking arrangements. The system worked well.

But in the 1950s an anti-trust action was brought against the studios and they were ordered to divest themselves of their theaters and stop the cozy booking arrangements. In consequence the studios lost the stars, directors, writers, and producers – all of whom became independent contractors – and the costs of production went up. Those increased costs were passed on to the movie-goer.

De Vany argues, convincingly, that the studios were not a cartel that drove up prices for their own benefit. Rather, their ownership of theaters helped them cope with the extreme uncertainty of the business. They had just enough direct control over exhibition practices to stabilize their income so that they could afford to keep the talent on staff. Once that stability was taken from them, they had to let the talent go. And that, in turn, required that, each time a film was to be made, someone had to go out into the marketplace and put the team together, thus incurring transaction costs that didn't exist in the studio system.

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This is an excellent book. Note that it is thick with mathematics. But it also has lots of charts. You can read those even if you can't make sense of the equations.

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