Bachelor of Arts
Film industry, Profitability, Cost, Operation
In a country that thrives on commercialism and image, the motion picture industry is an engine of social commentary, celebrity, and enormous cash flows. From the development of the first kinetoscope to our current star-studded event-movie culture, the industry has evolved and grown to become one of the largest and most influential cultural forces in the world today.
Substantial critical analysis and literature exist discussing aesthetic qualities in film production. This paper does not follow that particular line of inquiry. Instead, we examine film as an industry focused on profitability, in which all decisions are based on the ultimate bottom-line. More specifically, the purpose of this paper is to relate temporal cost decisions and profitability by reconciling the contrasting qualities of high upfront costs with a high degree of uncertainty of reward at the outset of a film project. Since the genesis of the industry, the structure of film financing and the nature of revenue accrual have undergone profound change, wrought both by external forces and competition from within. In this paper we try to provide an overview of how the industry actually operates, and an understanding of the seemingly irrational ways in which decisions are often made.
This paper is organized as follows. It will first explain the political, legal, and economic forces that led to a shift in contract and cost structure in the feature film industry. It will then present an economic model explaining how, based on economic intuition, we should expect costs of feature film production to be structured once equilibrium is attained. Next, it will give an overview of the current body of academic literature on forecasting box office receipts, revenues, and other measures of profitability in the film industry. It will then present an econometric model that attempts to provide empirical evidence for the conclusions of the earlier economic model. Next will be a discussion of the data compiled, econometric analysis of said data, and an interpretation of the results. Finally, possible extensions and further research will be presented, followed by a conclusion.
Hatkoff, Daniel, "Production Cost Structure and Commercial Success in the New Film Industry" (2005). Honors Papers. 465.