1st Edition

Hollywood Economics How Extreme Uncertainty Shapes the Film Industry

By Arthur De Vany Copyright 2004
    328 Pages
    by Routledge

    328 Pages
    by Routledge

    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 behaviour of motion picture audiences.

    This unique and important book will be of interest to students and researchers involved in the economics of movies, industrial economics and business studies. The book will also be a real eye-opener for film writers, movie executives, finance and risk management professionals as well as more general movie fans.

    Part I: Box-office champions, chaotic dynamics and herding 

    1. The market for motion pictures: Rank, revenue and survival 

    2. Bose-Einstein dynamics and adaptive contracting in the motion picture industry 

    3. Quality evaluations and the breakdown of statistical herding in the dynamics of box-office revenue 

    Part II: "Wild" uncertainty, tough decisions and false beliefs 

    4. Uncertainty in the movie industry: Can star power reduce the terror of the box office? 

    5. Does Hollywood make too many R-rated movies?: Risk, stochastic dominance and the illusion of expectation 

    6. Big budgets, big openings and legs: Analysis of the blockbuster strategy 

    Part III: Judges, lawyers and the movies 

    7. Motion picture antitrust: The Paramount cases revisited 

    8. Was the antitrust action that broke up the movie studios good for the movies?: Evidence from the stock market 

    9. Stochastic market structure: Concentration measures and motion picture antitrust 

    Part IV: A business of extremes 

    10. Motion picture profit, the stable Paretian hypothesis and the curse of the superstar 

    11. Contracting with stars when "nobody knows anything" 

    12. How extreme uncertainty shapes the movie business 

    Epilogue: Can you manage a business when "nobody knows anything"?


    Arthur De Vany is Professor Emeritus of Economics at the University of California, Irvine and President of Arts Analytica, a consulting company specializing in energy, motion pictures and risk-return analysis.

    'If you want an applied exposition of the "wild" type of uncertainty, this is the book. I know of no better text to understand kurtosis, the contribution of the very small to the very large, and the dynamics of rare events. The value of this book lies way beyond the film industry. In addition it is is written with great clarity and does not use anything beyond intuitive mathematics.' — Nassim Nicholas Taleb, PhD, Empirica LLC, Bestselling author of Fooled by Randomness

    'A heretical and wise perspective on the economics and consumer patterns of Hollywood. Provocative and eye opening for its depth and intelligent analysis.' — Thom Mount, Producer and former Universal Studios President

    'This book provides dramatic evidence that, in comparison with the film industry, normally uncertain things are virtually sure things. Not even popular stars or large first-week audiences are valid predictors of a film's future success. The volume demonstrates what sophisticated analysis can and cannot reveal about an industry in which "no one knows anything". It will be extremely valuable to anyone with an intellectual, financial or other interest in the market for popular films and for anyone concerned with analysis of subjects characterized by extreme uncertainty. Nonspecialists should not be daunted by the demanding technical analysis for there is plenty that will readily be understandable and fascinating to any intelligent reader.' — William J. Baumol, Professor of Economics, New York University and Senior Research Economist at Princeton University, USA

    'Professor De Vany has written a seminal work on the risks of film investment, a topic with which Hollywood may be painfully familiar, but which has rarely, if ever, been the subject of such thorough analysis. Through his statistical studies and analyses, Professor De Vany questions many of the assumptions made by Hollywood dealmakers, investors and studio executives.' — Sam Pryor, Partner, Alschuler Grossman Stein & Kahan, Adjunct Professor, Entertainment Law, USC Law School