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February 24, 2005

The real economics of Hollywood

This Jonathon V. Last-Daily Standard article reviews Edward Jay Epstein's new book, The Big Picture (Random House 2005), which examines the fascinating and ever-changing economics of moviemaking. To give you an idea of what's going on in Hollywood economics, consider this:

In 1947, Hollywood sold 4.7 billion movie tickets. The studios were hugely profitable movie factories.

Times have changed. . . Television came to compete with the movies, as did home video. And despite a population boom, movie-going fell out of favor. In 2003, only 1.57 billion tickets were sold, a third the number 56 years earlier, while the real cost of making movies increased some 1,600 percent.

It wasn't just production costs that exploded. Today the average movie costs $4.2 million to distribute and nearly $35 million just to advertise. (The comparable 1947 figures, adjusted for inflation, were $550,000 and $300,000.) Such peripheral costs, Epstein explains, have grown so large that "even if the studios had somehow managed to obtain all their movies for free, they would still have lost money on their American releases."

How did Hollywood respond? Epstein observes that Hollywood transformed itself from a factory for making movies into a clearinghouse for intellectual property, which is at least as profitable as making movies used to be. The result?

The truth is that, even with terrible movies, the studios have to try hard not to make money. In this way, today's Hollywood is very much like the studio system of old. The two business models are so favorable that the quality of the product is beside the point. The difference, of course, is that the movies from the studio era were often quite good.

Read the entire review. Hat tip to EconoLog for the link to this review.

Posted by Tom at February 24, 2005 6:30 AM |

Comments

If ya'll want more info on this subject, SWAMP (Southwest Alternative Media Project) and TALA (Texas Accountants and Lawyers for the Arts) are having a CLE this weekend on the Business of Film 5.5 participatory and 2 ethics hours.

http://www.swamp.org/calendar.html for more info. I think it's $125 for non-members and $100 for members of TALA.

Posted by: 'stina at February 24, 2005 5:16 PM

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