Re: [dvd-discuss] 2001 Best year ever for movies

["Peter D. Junger" <junger(at)samsara.law.cwru.edu>]

Scott A Crosby writes:

: On Wed, 6 Mar 2002, mickey wrote:
: 
: >
: >
: > http://www.foxnews.com/story/0,2933,47200,00.html
: >
: > How many films did the major film studios make in 2001? By the "two out
: > of ten" guide,  around 100?
: 
: Both sets of numbers are completely believable. Most films flop.  Only a
: few films actually make money, but those that do, make it BIG. Same thing
: with large-scale commercial music. Most bands lose money, but those ones
: are funded by the ones that make money.
: 
: So, if we have 10 movies. All cost $10M to make. 2 make $50M, the rest
: make $3M, then it is perfectly true that we can have a great year,
: making a profit of 24%, yet, have 80% of our movies make barely a third of
: their money back. :)
: 
: So, Valenti is complaining about the risks of the movie business. But in a
: self-serving fashion in front of congress, cause its ALWAYS been that way.

The economics of the motion picture industry is wierd:

See <http://hypatia.ss.uci.edu/econ/personnel/devany/BESummary.html>

\begin{quotation}
Motion pictures are fragile products whose lives are unpredictable 
and brief. Less than one out of six films lasts more than two weeks 
on theater screens and only one in twenty lasts longer than fifteen 
weeks. More than 80 per cent of revenues earned by 300 films were 
earned by just four films. Stars and big budgets guarantee only 
that a film's run will begin on many screens; from there on a 
film's run is like a parachute jump---if the film doesn't open, it 
is dead.

This paper quantifies the stark uncertainty of motion picture 
revenues and shows how the industry is organized to deal with it. 
The industry is geared to adapt the number of engagements and the 
prices charged to theater operators to the information revealed in 
weekly revenue reports. There is no other way to discover how good 
a film is than to put it on screens and let the audience decide. 
As audiences discover their preferences and spread information, 
they produce complex revenue dynamics. Information cascades can 
carry a film to explosive growth or to swift failure. This dynamic 
demand discovery requires adaptive supply and pricing and the 
industry's contracts and licensing terms are designed to support 
these adaptations.

The statistical model reveals that the distribution of revenues 
among competing films follows a dynamic path so complex and variable 
that the only model capable of accounting for them is the 
Bose-Einstein distribution of statistical physics. Audiences tend to 
behave over the course of a film's run like the particles falling 
into urns in a statistical physics model. In the Bose-Einstein 
process it is equally likely that the particles (audience) will fall 
into a few urns (movies) as it is for them to be distributed in any 
other way.

Ultimately, the probability that a new viewer will go a particular 
film depends positively on the number who have already seen it and on 
the distribution of viewers over all the other films it is competing 
with. These dynamics let films leverage early successes (in revenue 
terms) into greater success in later trials. The Bose-Einstein 
process leads to extreme inequality in the final distribution of total 
motion picture revenues, resulting in a so-called power law also known 
to economists as the Pareto distribution.

These results show that conventional thinking about the revenue 
expectations of motion pictures is misleading. Revenues do not follow 
"normal" or bell curves; the revenue distribution has no 
characteristic scale, so it is wrong to speak of an average or 
expected revenue. Big stars and budgets affect the number of 
opening engagements and shift the revenue distribution to the right. 
After the opening though, a film must make it on its own and a large 
number of engagements can as easily lead to rapid death as great 
success. Genre has no predictive value. Present antitrust policy 
regarding motion pictures is challenged by this work. Antitrust 
analyses based on market share averages and industry concentration 
measures are an unsuitable basis for policy because they are unstable, 
reflect only the recent past, and have no predictive value. It is 
dangerous to think in terms of averages about this industry.
\end{quotation}

--
Peter D. Junger--Case Western Reserve University Law School--Cleveland, OH
 EMAIL: junger@samsara.law.cwru.edu    URL:  http://samsara.law.cwru.edu   
        NOTE: junger@pdj2-ra.f-remote.cwru.edu no longer exists