I just ordered this book, Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry, by Arthur S. de Vany. I also found this bibliography of de Vany's research in the area. A recent study from 2002 looks very similar to something that I had posted earlier about the possible effects that MPAA ratings had had on the types of films produced (which was based on something Gary North had said in his review of Finding Nemo). The name of the article is "Does Hollywood Make Too Many R-Rated Movies? Risk, Stochastic Dominance and the Illusion of Expectation," and appeared in the Journal of Business (which, much to my frustration, despite being a major finance journal, does not appear in Jstor.). The content of the short article is printed below.
According to a 2002 paper, the motion picture rating "R" might as well stand for "risky."
Authors De Vany and Walls analyzed industry data for the period 1985-1996. They noted, first and foremost, that forecasting returns for movies is difficult, concluding that it's an "illusion" to believe that accurate predictions of box office sales are possible.
Nonetheless, the data did suggest a few important insights. The first is that returns on R-rated movies are approximately 5 times as risky as on other kinds of movies.
This leads to the second insight, which is that R-rated movies were (at the time of the analysis) an uneconomically high proportion of the portfolio of Hollywood studio releases. R-rated movies, on average, earned about the same return -- U.S. theatrical revenues divided by production costs -- as, say, G-rated movies. But the authors show that this was a statistical mirage, as among R-rated moviesa a handful of blockbusters skewed the average for the whole category. In fact, the probability of an R-rated movie earning three times its production costs was approximately one-half that of R-rated movies in the period.
The source is: De Vany and Walls, "Does Hollywood Make Too Many R-Rated Movies? Risk, Stochastic Dominance, and the Illusion of Expectation," (Journal of Business, vol. 75, no. 3).
Posted by scott at March 2, 2004 07:33 AM | TrackBack