Movie Economic Approach

There are two main approaches in which the motion picture industry has been studied: the ‘psychological approach’ and the ‘economic approach’. The ‘psychological approach’

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examines individual decisions of people such us why some choose movies over other en- tertainment options and how do people choose what movies to watch. Such studies are usually based on data from the individual surveys. The ‘economic approach’, on the other hand, analyses aggregate data and studies what factors are significant in determining fi- nancial success of the movie.

Barry R. Litman was a pioneer in the ‘economic approach’ and was the first one to use econometrical model to analyse performance of the movies. Litman (1983) identified three areas that could potentially

Litman and Kohl (1989) expanded the initial model by including more explanatory variables. They have found that some of the variables, such as Academy Award dummies or Christmas release, were no longer significant.

There are numerous modifications of Litman and Kohl (1989) model all of which use either rental income or box-office revenue as a dependant variable and come to very similar conclusions. While being able to empirically support some of our guesses of what makes a movie successful, such general studies lack deep analysis. Variable-focused studies, on the other hand, explore the effect of some particular variables (Star Power, critics’ reviews, release dates, advertising, quality) on the movie success and can, therefore, offer a deeper insight into the mechanism behind a movie

Wallace et al. (1993) came up with a list of 111 stars (according to their definition, a star as an actor or an actress who appeared in at least seven films) and assigned each star a dummy variable. Only 24 or 111 stars had significant positive effect of a film’s rental income. De Vany and Walls (1999) defined a star as an actor, producer, or director who appeared on The Power List (a list of Hollywood’s most powerful people published by Premier magazine) or on James Ulmer’s list of A and A+ people. They found that the theoretical mean profits are $38 million for all movies, $48.3 million movies with stars, and $29.8 million for movies