Jordi McKenzie

THE ECONOMICS OF MOVIES: A LITERATURE SURVEY

The film industry provides a myriad of interesting problems for economic contemplation. From the initial concept of an idea through production, distribution and finally exhibition there are many aspects to the film project and the film industry that present new and interesting puzzles worthy of investigation. Add to this the high level of data availability, and it is little wonder that an increasing number of researchers are being attracted to this industry. To date, however, there are no comprehensive surveys on the contribution of economists to this literature. This paper attempts to fill this void and unify what is known about the industry. It also identifies and discusses potential areas for new research.

The Changing Role of Hollywood in the Global Movie Market

Does Hollywood dominate world cinema markets with American taste, culture, and values through the exportation of films produced mainly for its domestic (US and Canada) market? Or does Hollywood supply the films that world audiences demand and, because of the logistics of distribution, screen these films first in the domestic market prior to exhibition in foreign markets? In this article, the authors empirically analyzed the global market for motion pictures to provide statistical evidence that can speak to these questions. They examined data on nearly 2,000 films exhibited from 1997–2007, inclusive, in the United States and Canada, Australia, France, Germany, Mexico, Spain, and the United Kingdom—markets that today collectively account for over 75% of worldwide cinema box-office revenue. The empirical evidence provides support for the hypothesis that the supply of Hollywood films has accommodated global demand as the relative size of the U.S. domestic market has decreased. There is no evidence that box-office success in the United States creates a contagion that spreads to other film exhibition markets; however, box-office success in international markets appears to be less uncertain for films that have been successful in their U.S. releases.

Illegal Music Downloading and its Impact on Legitimate Sales: Australian Empirical Evidence

This paper explores illegal music file-sharing activity and its effect on Australian sales of singles in the physical and digital retail markets. Using fifteen weeks of Australian Recording Industry Association weekly chart rankings of physical and digital sales, combined with a proxy for download activity derived from the popular peer-to-peer (P2P) network Limewire, the evidence suggests no discernible impact of download activity on legitimate sales. Whilst significant negative correlation between chart rank and download activity is observed in the digital market, once download endogeneity is purged from the model and song heterogeneity is controlled for no significant relationship remains.

Bayesian Information Transmission and Stable Distributions: Motion Picture Revenues at the Australian Box Office

Recent empirical literature has identified the importance of information transmission in creating box office blockbusters. It has been shown that box office revenue distributions are characterised by extremities of skew and variance that cannot be explained by such things as expensive budgets, star power, critical acclaim or awards. Empirical research of this industry has subsequently turned its attention to models of information transmission and the consequential implications for box office revenues. Using a large new Australian dataset, this paper adds to the literature by exploring the suitability of the α-stable distribution for various definitions of Australian box office revenues. Copyright

Predicting box office with and without markets: Do internet users know anything?

This study investigates and compares predictions of opening weekend box office revenue from an online prediction game, the Derby, and an online prediction market, the Hollywood Stock Exchange (HSX), using a sample of 141 films released in 2007. Overall, both mechanisms provide accurate predictions of box office outcomes but tend to over-predict small-earning films and under-predict large-earning films. This bias is present across a number of sub-samples disaggregated by film-specific variables. The bias is consistently greater in the Derby game, suggesting that the market mechanism is superior to the non-market mechanism. There is also evidence that larger budget films, sequels and films featuring stars are predicted more accurately in both settings, and that individual-level predictions improve as films spend more time at the box office and as players gain experience.

P2P File-Sharing: How Does Music File-Sharing Affect Recorded Music Sales in Australia?

Like many other countries, the Australian recorded music industry has suffered a significant decline in sales over the last decade or so. While it would be naive to dismiss digital piracy as a contributor to this decline, there is inconclusive evidence to attribute the entirety of the decline to piracy. Moreover, there are many other salient issues that need to be considered when understanding the observed sales decline. For example, these may include music pricing, changing consumption habits, live performance incomes, and demand externality (network) effects of music consumption. Following the introduction section, this chapter begins by documenting some aggregate level industry sales statistics of the Australian recorded music industry. Beyond these statistics, summary results are also presented from a recent survey on Australian consumers’ file-sharing activities in relation to music. The third section provides an extended discussion of various economic issues which are relevant to a more-rounded discussion of piracy. The fourth section discusses some recent academic studies of digital piracy related to music, while the fifth section reports on a recent econometric analysis of digital piracy in the Australian context from McKenzie (Australian Economic Papers 48(4), 296–307, 2009). The sixth and final section provides some concluding thoughts and comments.

Graduated response policies to digital piracy: Do they increase box office revenues of movies? ☆

This study investigates the impact of six countries’ graduated response policies to digital piracy—sometimes referred to as ‘three-strike’ policies—on film-level theatrical box office revenues. Applying a quasi-three-way effects difference-in-difference model, no compelling evidence of increasing revenues is observed in any of the markets considered. This finding brings into question the efficacy of graduated response laws if one of the primary objectives is to increase sales in legitimate markets.

Movie producers and the statistical distribution of achievement

This article investigates De Vanys (2004) application of the Pareto distribution to the careers of actors and directors by considering a sample of movie producers. The results support the Pareto distribution for describing the ‘number of films produced’ and the ‘sum of box office revenue’ earned by a producer. The results suggest that a producer is more likely to produce another film as the number of films which they have already produced increases. Also, although an early career producer faces more chance of securing a further film by pure luck, an established producer greatly benefits from his/her previous success.

File Sharing and Film Revenues: Estimates of Sales Displacement at the Box Office

Abstract This study examines the impact of peer-to-peer (P2P) file sharing on the Australian theatrical film industry. Using a large data set of torrent downloads observed on three popular P2P networks, we find evidence of a sales displacement effect on box office revenues. However, although statistically significant, the economic significance of this displacement appears relatively small. To establish causality, we make use of the state-day-level panel data structure permitting the use of film fixed effects to help mitigate the endogeneity between film revenues and downloads. To further assist identification, we propose a downloading cost function that considers other states’ downloading activities as a proxy for the number of peers in the download swarm; the US DVD release date as a supply shock to P2P networks; and the substantial structural progression within the Australian internet service provision industry that occurred over the sample period. We observe that the release gap between the US and Australian markets is a key contributor to piracy early in a film’s theatrical life. This finding provides a partial explanation for the industry’s move towards coordinated worldwide releases.

Do 'African American' films perform better or worse at the box office? An empirical analysis of motion picture revenues and profits

This article investigates the box office performance of films defined as being ‘African American’, with respect to their cast and content material, against those which are not. Using a large sample of films released in the North American market from 1997 to 2007, the analysis shows that, in general, African American films earn higher revenues yet are typically produced on lower budgets. Regression results of revenues show that this difference is highly statistically significant. Further, the profit functions are also statistically different, leading to the conclusion that, ceteris paribus, African American films perform better at the box office.