Profitability trends in Hollywood, 1929 to 1999: somebody must know something
By Michael Pokorny and John Sedgwick
(Published in Economic History Review, 2010, Vol. 63, No 1, pp 56-84)
This article presents an overview of the development of the US film industry from 1929 to 1999. Notwithstanding a volatile film production environment, in terms of rate of return and market share variability, the industry has remained relatively stable and profitable. Film production by the film studios is interpreted as analogous to the construction of an investment portfolio, whereby producers diversified risk across budgetary categories. In the 1930s, high-budget film production was relatively unprofitable, but the industry adjusted to the steep decline in film-going in the postwar period by refining high-budget production as the focus for profitability.
Consumers as risk takers: evidence from the film industry during the 1930s
By John Sedgwick and Michael Pokorny
(Published in Business History, Vol. 52, No. 1, pp. 74-99)
This paper examines the risk environment of film consumption in the United States during the 1930s when moviegoing dwarfed all other paid-for-leisure activities. We argue that the wide variability in the financial performance of films, reflecting the considerable risks that were involved in film production, can be interpreted as being mirrored in the risks incurred by consumers in the film consumption process. We further argue that production risk needs to be understood within the context of consumer risk. Using a dataset derived from the trade journal Variety, we examine the weekly fortunes of movies in first run cinemas as consumers rapidly substitute movies that are currently on release for the promised pleasures of yet unseen movies. That expected utility was not always realised was commonplace, as was the pleasurable surprise that came with being thrilled by certain films. These are important results since, perhaps for the first time in modern society, they led to the emergence of the long right tail of consumer preferences for mass distributed goods.