Movie Economics

by Russ Roberts on January 4, 2007

in Movies

I’ve been browsing over at Art De Vany’s blog. He has very provocative things to say about fitness, diet, sports and the movie business. He notes, for example, the parallels between movie making and pharmaceutical research–a few blockbusters generate an overwhelming proportion of the profits.

Here’s an excerpt from an Orley Ashenfelter review of De Vany’s book, Holywood Economics:

This is a remarkable assembly of two decades of Arthur De Vany’s
efforts to study the movie industry using the tools of modern
economics. Okay, movie lover, if that sounds dry, what about a
hard-headed, dollars-and-cents answer to film critic Michael Medved’s
question: "Does Hollywood make too many R-rated movies?" De Vany’s
answer: a resounding "yes."

His answer isn’t based on a red state versus blue state discussion,
but on careful analysis showing that, at the production rates in the
period he examined, G-rated movies had lower risk at each rate of
return than did R-rated movies. From 1985 to 1996, De Vany found,
Hollywood churned out more than 1,000 R-rated movies. If it had made
more than a mere 60 (you read that number right) G-rated movies in that
stretch, De Vany asserts, the industry would have been far better off
economically.

Hollywood Economics brings to the movies what some call the New
Economics of Art and Culture. A key ingredient in his approach is what
he considers the industry’s key characteristic, what screenwriter
William Goldman (Butch Cassidy and the Sundance Kid, A Bridge Too Far)
calls the "Nobody Knows Anything" principle. The basic idea: In
Hollywood, a movie’s revenues, costs-and thus returns-are extremely
uncertain.

BTW, if you like movies, William Goldman’s books on his career as a screenwriter are fascinating.

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