Hollywood Economics: putting math to memes

From: William Benzon (bbenzon@mindspring.com)
Date: Fri 12 Aug 2005 - 17:15:37 GMT

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    A review of

    Arthur De Vany, Hollywood Economics, 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, 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 change, not the memes.

    In the words of 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 find out whether or not your movie has a market other than putting it on screens across the country and seeing if people come to watch.

    Does having "bankable" names of 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 movie dynamics (that is, the dynamics of people coming to theatres to watch a movie) hit 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 those few come to dominate the statistics of movie economics. From the point of view of statistics based on the normal distribution those few are movies outliers and should be discounted. De Vany develops a statistical framework he calls is 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.

    * * * * *

    De Vany devotes particular attention to the structure of the movie business. During its glory years the industry was organized by the 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, the studio's distribution system went to work and the films went out to theaters owned by the studios and to independent theaters with long-term booking arrangement. 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. The result of that was that was that they lost the stars, directors, writers, and producers who became independent contractors and the costs of production went up. And 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 arrangements, 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, meant 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.

    * * * * *

    An excellent book. Note that it's thick with mathmatics. But it also has lots of charts. You can read those even if you can't make sense of the equations.

    * * * * *

    De Vany's blog:

    http://www.arthurdevany.com/archives/uncertainty/index.html

    The following paper is chapter 4 in the book:

    Arthur De Vany and W. David Walls. "Uncertainty in the movie industry: Does star power reduce the terror of the box office?" This paper appears in Journal of Cultural Economics, 1999.
     http://www.wu-wien.ac.at/am/Download/ae/star.pdf

    -- 
    William L. Benzon
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