Box-office payola

Freakonomics discusses the economics of box-office sales figures, whether or not they get inflated, and why they usually sink like a concrete raft after a couple of weeks: in a nutshell, it's all about getting the movie on as many screens on the opening weekend as possible.

One of Freakonomic's readers, Scott Cunningham, makes an insightful comment, but then fails to draw the obvious conclusion and in fact draws the wrong conclusion:

But, it does make sense that studios would offer incentives for distributors. Movie demand is driven by information feedbacks because movies are differentiated products and willingness to pay depends on experience. [...]

But you can’t trick the public for long. De Vany shows how well the information conduits work. So I can’t imagine a rational distributor would pay theaters millions in lost revenue just to open the movie on many screens when the survival of a movie experiences a steep decline after the first week anyway.

He's got it completely backwards. It is precisely because you can't trick the public for long and ticket sales usually decline rapidly after the first week that the monster opening weekend is so vital. They need to generate as much hype and interest and ticket sales as quickly as possible, before word-of-mouth starts spreading the word that the flick is a turkey. Of course future dollars should be discounted compared to current dollars ("a bird in the hand") but that alone doesn't explain why the studios are so desperate for the movie to go off like a rocket. Having the movie showing on lots of screens is a good way to pump sales quickly.

The end result is that, even when the movie isn't a turkey, Hollywood is addicted to that instant blockbuster opening. I wouldn't be at all surprised to learn that, if given a choice between a movie that makes $10 million profit in the first month and then never makes another cent, or one that takes three months to break-even but brings in a steady $20 million profit every year for ten years, most studio executives would go for the first option. And it wouldn't even be a hard decision for them to make.