Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry (Routledge Studies in Contemporary Political Economy) [Paperback]

Arthur De Vany (Author)

Book Description

Publication Date: November 15, 2003 | ISBN-10: 0415312612 | ISBN-13: 978-0415312615

Just how risky is the movie industry? Is screenwriter William Goldman's claim that "nobody knows anything" really true? Can a star and a big opening change a movie's risks and return? Do studio executives really earn their huge paychecks? These and many other questions are answered in Hollywood Economics. The book uses powerful analytical models to uncover the wild uncertainty that shapes the industry. The centerpiece of the analysis is the unpredictable and often chaotic dynamic behavior of motion picture audiences.

Editorial Reviews

About the Author

Arthur De Vany is Professor of Economics at the University of California, Irvine and President of Ars Analytica, a consulting company specializing in energy, motion pictures and risk-return analysis. --This text refers to the Hardcover edition.

Product Details

• Paperback: 328 pages
• Publisher: Routledge (November 15, 2003)
• Language: English
• ISBN-10: 0415312612
• ISBN-13: 978-0415312615
• Product Dimensions: 9.3 x 6.4 x 0.9 inches
• Shipping Weight: 1 pounds (View shipping rates and policies)
• Average Customer Review: 4.5 out of 5 stars  See all reviews (8 customer reviews)
• Amazon Best Sellers Rank: #835,527 in Books (See Top 100 in Books)

More About the Author

Arthur De Vany was born in Davenport, Iowa in 1937. He graduated from Montebello High School in 1955 and signed to play professional baseball for the Hollywood Stars. Art was one of the very few pro baseball players to lift weights, a now-universal practice, which led scouts to give him the nickname of Superman in their scouting reports. The name stuck and recently the Times of London called Art Superman's slightly fitter granddad. Dr. De Vany went on to earn his Ph.D. in Economics at UCLA and to become a respected scientist who is known over the world through his articles and books. He is listed in Who's Who in America and Who's Who in the World and is the author of the acclaimed Hollywood Economics. Art is Professor Emeritus of Economics of the University of California, and is a member of their acclaimed Institute for Mathematical Behavioral Sciences and is an affiliate of the Evolution, Complexity and Cognition group of the Free University of Brussels. A lifelong student of metabolism and fitness, Art has lived as a Paleo/Athlete for some 30 years and is called a patriarch of the Paleo movement. He has blogged on the subject since the 1990s and continues to blog on the subject on his Evolutionary Fitness blog at www.arthurdevany.com.

Customer Reviews

Most Helpful Customer Reviews

15 of 15 people found the following review helpful:

5.0 out of 5 stars profound and imaginative treatment of the movie biz, August 12, 2005

By 

William Benzon (Jersey City, NJ USA) - See all my reviews
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This review is from: Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry (Routledge Studies in Contemporary Political Economy) (Paperback)

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 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 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 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.

* * * * *

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.

5 of 5 people found the following review helpful:

5.0 out of 5 stars A skeptic looks at the movie business, May 28, 2007

By 

Vincent Poirier (Tokyo, Japan) - See all my reviews
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This review is from: Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry (Routledge Studies in Contemporary Political Economy) (Paperback)

How can you predict the success or failure of a film? Even if you can't predict with perfect accuracy, can you predict which movies will probably be a hit? For example, does a star guarantee a hit? Do big budgets matter? Do ratings ensure a certain level of profit? Does a movie's gross receipts in its first week predict its total gross over the entire run?

The media clearly shows that movie makers go for big stars in expensive racy or violent films that are widely distributed from the first week they open. This is what Hollywood thinks creates true hits. But think twice about trusting Hollywood instincts: Arthur De Vany looks at the empirical evidence on movie revenue and concludes that this conventional wisdom should be rejected.

De Vany shows that while stars and big budgets do indicate a movie's revenue scale, they do not predict its success. Big stars have made expensive turkeys (e.g. Waterworld starring Kevin Costner) while on the other hand huge hits have been produced without stars (e.g. Home Alone). One of the more interesting conclusions is that the old movie studio system understood implicitly that this business was unpredictable. Until the antitrust laws were used to break them up, the studios contracted stars, script writers, directors, distribution networks and movie theaters in order to own the entire stream of revenues all their movies would generate.

This way the old studio bosses could diversify their risk in what was essentially a portfolio of movies. They knew that they could not predict which of their films would be a hit so they insisted on owning them all and on managing costs so that the hits would pay for the turkeys, while leaving shareholders with a healthy return.

These results are fascinating and have a wide range of application beyond Hollywood, particularly in uncertain hit-or-miss industries as unrelated to the movies as are gold mining and oil drilling.

One word of warning. Despite what the blurb says, the book is technical. Each of the twelve chapters is a peer-reviewed academic paper in economics making full use of all the quantitative analysis tools available to a professional researcher. To get the full message, you need enough basic statistics to understand conditional probabilities, first and second moments, cumulative functions, linear regression, etc. However, each of these chapters also comes with an intro and conclusion worded in plain English. So as long as you're willing to trust the peer reviews, you don't actually need to do the math yourself.

Vincent Poirier, Dublin

2 of 2 people found the following review helpful:

3.0 out of 5 stars Some good insights, but too technical for most people, April 8, 2009

By 

Peter McCluskey (San Bruno, CA USA) - See all my reviews
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This review is from: Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry (Routledge Studies in Contemporary Political Economy) (Paperback)

This rather dense and scholarly book that contains some good insights into how markets for information differ from markets for physical goods. But few people will want to read the whole book. Much of the book was originally published as papers in economics journals. It's better organized than that suggests, but the style is mostly oriented toward professional economists.

Much of the book can be summed up by the conclusion that nobody knows anything about how successful a movie will be. The typical film loses money, and the expected returns are heavily dominated by rare films that are huge successes.

He says through much of the book that returns on investment in movies have infinite variance, and only at the very end admits that that's not literaly true, and then provides a more credible description of the variance as unstable and generally increasing over time.

His argument that Hollywood makes too many R-rated films takes a good deal of effort to follow. Table 5.3 is confusing, because it shows a mean return on R-rated films as much higher for the returns on PG13 films. This sounds like the opposite of his conclusion. It took 13 more pages before I figured out that that was due to some high rates of return on low budget R-rated films that had little effect on aggregate profits. It appears that his conclusion ought to have been that Hollywood makes too many high-budget R-rated films, and too few low-budget R-rated films.

His description of the antitrust cases that transformed the movie industry provides convincing evidence that the courts were confused and didn't help the independent exhibitors that the lawsuits were allegedly designed to help. The arguments about how they affected consumers are less clear.