Hollywood

As William Goldman said, nobody knows anything. And people are hard-wired to see and act on patterns that may well not be there:

Meet Hollywood's Latest Genius - Los Angeles Times: Then again, in 6 months he could be a loser. Box-office success is more random than you may think. By Leonard Mlodinow: [A]re the rewards (and punishments) of the Hollywood game deserved, or does luck play a far more important role in box-office success (and failure) than people imagine? We all understand that genius doesn't guarantee success, but it's seductive to assume that success must come from genius. As a former Hollywood scriptwriter, I understand the comfort in hiring by track record. Yet as a scientist who has taught the mathematics of randomness at Caltech, I also am aware that track records can deceive.

That no one can know whether a film will hit or miss has been an uncomfortable suspicion in Hollywood at least since novelist and screenwriter William Goldman enunciated it in his classic 1983 book "Adventures in the Screen Trade."... With each passing year the unpredictability of film revenue is supported by more and more academic research. That's not to say that a jittery homemade horror video could just as easily become a hit as, say, "Exorcist: The Beginning," which cost an estimated $80 million, according to Box Office Mojo, the source for all estimated budget and revenue figures in this story. Well, actually, that is what happened with "The Blair Witch Project" (1999), which cost the filmmakers a mere $60,000 but brought in $140 million—-more than three times the business of "Exorcist." (Revenue numbers reflect only domestic receipts.)...

Last year was a big year for Brad Grey... of Paramount.... Viacom [had] applied the usual strategy: ax the studio head and bring in a new guy.... Grey's next moves were described in the trades as a "sweeping revamp" and "massive makeover."... Grey rebuilt the studio... presented it to the press as a hipper, edgier film company cleansed of the outmoded thinking that had weighed down Paramount's bottom line. And now, under Grey and his wise helmsmen, Paramount's ship is making its way. At least that's what they like to believe... [but] look at the events that led to the situation Grey was hired to fix.

When Viacom Chairman Sumner Redstone bought Paramount Pictures in 1993, he inherited Sherry Lansing as studio chief.... [U]nder Lansing, Paramount won best picture awards for "Forrest Gump," "Braveheart" and "Titanic" and posted its two highest-grossing years ever. So successful was Lansing that she became, simply, "Sherry"—-as if she were the only Sherry in town. But Lansing's reputation soon plunged.... [Why? T]he short answer... 11.4%, 10.6%, 11.3%, 7.4%, 7.1%, 6.7%.... [T]hose six numbers represent the market share of Paramount's Motion Picture Group for the final six years of Lansing's tenure between 1999 and 2004.... How could a sure-fire genius lead a company to seven great years, then fail practically overnight?...

Lansing had been praised for making Paramount one of Hollywood's best-run studios, with an ability to turn out $100 million hits from conventional stories. But when her fortune changed, the revisionists took over. Her penchant for making successful remakes and sequels became a drawback. She was now blamed for green-lighting box-office dogs such as "Timeline" and "Lara Croft Tomb Raider: The Cradle of Life."... But can she really be blamed for thinking that a Michael Crichton bestseller would be promising movie fodder? And where were all the "Lara Croft" critics when the first "Tomb Raider" film took in $131 million in box-office revenue? Even if the theories of Lansing's shortcomings were plausible, consider how abruptly her demise occurred. Did she become risk-averse and out-of-touch overnight?... Postdiction is less impressive than prediction. But as the final chapter of Lansing's career shows, postdiction is how Hollywood does business.

Academic research provides an alternate theory of Lansing's rise and fall: It was just plain luck.... [I]n Lansing's case there's already evidence that she was fired because of the industry's flawed reasoning rather than her own flawed decision-making.... Paramount's 2005 films (and even half of 2006's) already were in the pipeline when Lansing left the company.... With films such as "War of the Worlds" and "The Longest Yard," Paramount had its best summer since 1994 and saw its market share rebound to nearly 10%.... [H]ad Viacom had more patience, the headline might have read, "Banner year puts Paramount and Lansing's career back on track."...

Arthur De Vany, recently retired professor of economics.... De Vany likes to illustrate the oddities of the film business by comparing films to breakfast cereal. If breakfast cereals were like films... our typical cereal breakfast would consist of a product we had never before tried, and very well might not like, but bought because we heard about it from friends or read of it in the newspaper cereal section. That's precisely how films behave in the marketplace. If we hear good things, we go and perhaps tell others; if we hear bad things, we stay away. It's that process—-the way consumers learn from others about the expected quality of the product—-that De Vany found is the key to the odd behavior of the film business today. Economists call it an "information cascade." "People's behavior is simple," De Vany says, "but in the aggregate it leads to a complex system, a system bordering on chaos."...

If hits are so hard to predict, why does it often appear that certain people, at certain times, have a hot hand? The work of former UC Berkeley professor Daniel Kahneman helps explain this.... Not only are people bad at recognizing random processes, they also are easily fooled into thinking they are controlling them....

Although economists and psychologists have no problem understanding Hollywood's randomness, Hollywood executives, not surprisingly, are generally less convinced.... One Hollywood executive who spoke up against De Vany's work in the late 1990s was Frank Biondi, who ran Universal. Biondi thought he had it figured out. After running the numbers, he concluded that the industry was not as chaotic as it appeared. Films that cost more than $40 million had the highest return on capital, he said... "impact movies."... Two years of impact movies later, with depressed film earnings and no relief in sight, Biondi was fired....

Old style seat-of-the-pants executives also object to the randomness theory. White-haired seventysomething Richard Zanuck... ran production at Fox and then briefly ran the studio until some major dogs... crippled the studio financially and led his dad to fire him.... In Zanuck's case, as in Lansing's, his bad streak ended.... The films he developed before he got canned... won best-picture Academy Awards—-1970's "Patton" and 1971's "The French Connection."... A few years later, Zanuck became the man responsible for Steven Spielberg's 1974 feature debut, "The Sugarland Express," as well as Spielberg's 1975 follow-up, "Jaws" (which took in $260 million on a budget of about $7 million). Did he feel "Jaws" would be a hit of historic proportions? "We didn't have any idea," he says. "We bought it from a manuscript, and the book became a bestseller while we were still doing the film"...

Comments

[Doctor Jay]

Martin Seligman, Professor of Psychology at Penn, writes in The Optimistic Child that people who are pessimistic are better at predicting when they don't have control of a situation than people who are optimisitic.

The prediction advantage disappears if they get so pessimistic as to become depressed, however.

I think this explains a lot.

[tom s.]

This sounds very much like a recent study (which I can't find of course) that showed "hot hand" streaks in NBA basketball scoring -- where a player is scoring well, so his team-mates feed him the ball -- to be just statistical rather than anything real.

[John Emerson]

The randomness and unpredictability of Hollywood is quite a bit different than the randomness and unpreditability of, for example, medical progress or IT development.

It's based overwhelmingly on good guesses about mass whims (and the powerful, virtuoso manipulation of same), with some input from flashy, effective new technology and film skills.

Does it leave a positive residue (the way medicine and IT do)? It's cranky to say no, but it takes a lot of nerve to say yes too. If none of those films had ever been made, the world would be a very slightly different place, but I can't believe that it would be a worse place.

I would have lost one of my jokes, though:

"Titanic II: Eaten by Crabs".

[J. Michael Neal]

This sounds very much like a recent study (which I can't find of course) that showed "hot hand" streaks in NBA basketball scoring -- where a player is scoring well, so his team-mates feed him the ball -- to be just statistical rather than anything real.

Baseball researchers have known this for a long time. Well, actually, they are pretty sure that hot streaks exist, and are not random fluctuation; hitters do have periods where they see the ball better, or everything in their swing is working perfectly, or what have you. However, the streaks are all description of the past, with no predictive value for the future. A hot streak can end at any time, with no notice. A weighted average of the player's last three years of production is vastly more useful for prediction than any streak, hot or cold, that the hitter might be on.

[Justus]

>>>This sounds very much like a recent study (which I can't find of course) that showed "hot hand" streaks in NBA basketball scoring

This study was published in 1985...not so recent :) It was done by Gilovich, Tvserky, and someone else whose name I'm currently drawing a blank on.

[MaryCh]

Objective research, e.g. econometrics, is a great way to avoid being sucked in by a persuasive but dubious story. The Oakland Athletics' GM seems to have learned this, maybe the moguls of the Southland should trek northward to seek enlightenment. (Contra: anyone who's had a good shooting night is susceptible to dubious stories.)

On the other hand, aligning the right story, the right treatment at the right time (I imagine there must be many pictures whose fortunes were greatly magnified or diminished by such happenstance), etc. may make this problem too hard to model.

[tom s.]

I have now read the complete LA Times piece (which is very good). It ends up arguing that information cascades mean that although studio producers can't tell what films will be hits, and what films won't, it is still the case that we go to films because people tell us they are good.

If this is true, them maybe good films still win out, in which case (outside Hollywood) all is well with the world despite the inevitability of mass-marketed duds. It suggests that even though big-money advertising can put bums on seats for the first week, it can't put bums on seats for enough subsequent weeks to make a hit.

I wonder if anyone has looked at what proportion of actual viewings (ie, individual bums on seats) are spent watching films that are later determined to be hits (ie, ones that recoup their initial expense) and what proportion are spent watching duds? This seems to me the central question from a consumer welfare point of view.

If the high turnover of movies in theatres means that most of our collective time is spent watching duds, that's a problem. If word of mouth leads to enough long-lasting hits, and most of our collective time is spent watching them, then life is a little brighter.

[Hal Varian]

I don't think we need a fancy theory to explain this --- it's just competition. If all movies made money, then more would be invested in movies, and more and more marginal projects would be undertaken. In equilibrium, movie success can't be entirely predictible unless the return on investing in movies equals the risk-free rate.

[ramster]

The other way of looking at this is that anyone of us here could do just as well as any studio executive if we were parachuted into their chairs. The more interesting question then is given that being a studio exec is such a fungible skillset, why the hell do they get paid so much? Note that I'm not claiming that becoming a studio exec. takes a fungible set of qualities. You clearly need to be a bit of a schmoozing, glad-handling, manipulative slimeball...all of which are specialized and arguably non-fungible skills. But once you get the job, all you have to do is select scripts at random and greenlight them. Then you too can be Sherry or Biondi or whoever.

[Maynard Handley]

"That no one can know whether a film will hit or miss has been an uncomfortable suspicion in Hollywood at least..."

Of course this is, to a substantial extent, BS. Surowieki in _The Wisom of Crowds_ discusses how "the Hollywood Stock Exchange" does a pretty damn good job of predicting this.

The real issue here, completely missed, as you'd expect from the LA Times, Hollywood's biggest cheerleader, is the same as ramster's point. The secret to this stuff lies not in one wise expert, but in aggregating information from the whole audience --- and aggregating it PROPERLY, as social scientists have told us how to, not continuing to use focus groups even though every educated person knows their limitations. But the LA Times would rather go on about wise or non-wise individuals than look at social science in depth, especially if such an article might reveal the nakedness of the emperors in Hollywood.

[tom s.]

Maynard H. - the article was largely about greenlighting projects for production. How do you aggregate information from an audience when the movie does not yet exist?

(I looked for the mention in Surowiecki, but my copy of the book HAS NO INDEX, and so I couldn't find anything).

[Maynard Handley]

What does it matter whether the movie has been made or not?
The point is that you allow people anonymously to buy "shares" or some other sort of financial incentive in the future success of the movie, and if indications are that everybody is shorting the movie, well clearly it's time to bail out --- cut losses now.
Such a process can be started at the very point of the idea of the movie, at the point where someone has just made an elevator pitch or said "why don't we make a movie based on such a videogame". It simply continues through the writing of the script, casting, after each day of shooting, and through the marketing campaign.

As Surowiecki constantly points out, the point is to
* get lots of opinions
* get these opinions anonymously (especially important in a place like Hollywood, where criticizing a movie one is working on, criticizing the work of one's manager or whatever is perceived as unaccepable disloyalty)
* provide a financial incentive (doesn't have to be very large) to get people to think a little about what they are doing
* avoid the pathologies of group meetings like domination by single loud individuals or a group-think/echo chamber effect.

Of course such a scheme would not work exactly like a stock market. In the first place you may want to limit interaction to those with a legitimate knowledge of the movie (though this can backfire if you are too snobbish about it and don't allow the humbler professions like assistants, caterers, makeup people, set builders and so on). In the second place, since the whole point is (unlike the Hollywood Stock Exchange) to greenlight movies, there will (or at least should) be many movies that go partway along the process and are then killed. Such a fate needs to reward those who voted that the movie was not going to be a success; and that means a scheme as obvious as "shares in the profits of a movie" won't fly. An alternative scheme might be something like a horse-racing, betting on a choice of outcomes from cancellation through three bins of possible revenues generated by the movie.

The details are not important. Any competent economist could design them. What is important is to break or at least augment the current scheme whereby single individuals at various stages of the process have complete control and have control of aspects of life other than just the movie, meaning that no-one ever delivers bad news or honest opinions to them.

Now, of course, it is possible that this might turn out horribly, for the movie public if not for the studios. It might lead to even more movies that appear designed by committee. But maybe not. Maybe there will be an initial period in which pretty much everything (for good reason) is panned by the group collective, until the studios learn to interpret the group signals and, perhaps, to provide material of substantial interest to smaller audiences rather than obsessing over the blockbuster.