The Golden Formula for Hollywood Success

The New York Times, "Economic Scene" , March 23, 2000

As Hollywood gathers on Sunday to heap Oscar praise on such surprise hits as "American Beauty" and "The Sixth Sense," producers and studio marketing heads are revamping their idea of what makes for box-office success. Action heroes, happy endings, special effects and high-concept synopses are out. Flawed protagonists, shock value, downbeat twists and hard-to-explain plots are in. The formula movie is dead. Long live the formula movie.

Hollywood's eternal quest for formulas exasperates Arthur De Vany, professor of economics at the University of California at Irvine, and author of numerous papers on the economics of the movie business. "Here we go again," he says. "Hollywood is generalizing from a couple of data points. Trying to read into a handful of movies some deep property of audiences is bad science and bad moviemaking.

"The evidence is plain," he adds, "There is no formula."

Movies are, Professor De Vany says, "a business of the extraordinary." Their statistical patterns do not fit the good old normal bell curve, with a predictable average and symmetrical chances of hits and losses. Like more and more products in a wealthy society, movies depend on subtle combinations of hard-to-articulate characteristics. Formulas, new or old, cannot capture what will make a movie appeal to an audience.

Studies by Professor De Vany and W. David Walls of the University of Hong Kong, examine the movies' strange statistics and the strategies studios use -- mostly unsuccessfully -- to try to reduce "the terror of the box office." Movie revenues (or profits) are not like people's heights, falling smoothly around an average with no one too far out on either end. They are like earthquakes, incomes or quasar pulses. The great majority are small, but a few are many, many times greater than the others.

The average revenue or profit of the business is determined almost entirely by those very few runaway hits. The rest of the movies are box- office duds whose negative returns are statistically swamped by the rare successes. The "average" movie does not really exist.

This pattern, which is called a Pareto law, is true not just for movies in general but within every subcategory: small budgets and big ones, action pictures and comedies, movies with stars and movies without stars, even Bruce Willis films. So making only star vehicles or only small-budget movies will not protect a studio from box-office flops.

What makes the movies so unpredictable? For starters, each is a unique product, and audiences have to try it to see whether they will like it. And this unique product is playing in a tournament against an ever-changing group of competitors.

To make matters worse, how audiences experience a movie depends on what they have already seen and how they reacted to those movies: Did the films whet their appetites for more, or create a desire for something different? After a decade of antiheroes, the good-vs.-evil plots of "Star Wars" and "Raiders of the Lost Ark" were refreshing, even though those movies recalled earlier formula pictures. And novelty takes many forms. It would be wrong to conclude that today's audiences do not want to see heroes waging special-effects battle against absolute evil, despite overwhelming odds. "The Matrix" followed that mythic outline and was a hit. Its freshness lay elsewhere.

Movies succeed when audiences resonate to what is on the screen. Customer word-of-mouth matters enormously, not just for sleepers but for all hits. That is why Professors De Vany and Walls find that a good opening weekend does not matter that much, at least for the real hits. The big successes -- the extraordinary films that garner profits -- are the movies with legs. The hits take off as information spreads beyond the control of the studio. That is true for surprises like "The Sixth Sense" and for expected successes like "Toy Story 2."

The data suggests that stars have their main effect not so much by helping movies open as by extending their runs. But most stars do not really make a difference. Professors De Vany and Walls looked at movies released from 1984 through 1996 and found only 19 stars, including a couple of directors, who had a "nonnegligible correlation with hit movies" grossing more than $50 million domestically. The top two stars were not macho action heroes but Michelle Pfeiffer and Sandra Bullock. These actresses cannot guarantee success, however. To the contrary, caution the authors, "Every star has a sizable probability of making a bomb."

And the past does not predict the future. Based on the 1984-96 data, Bruce Willis was a loser. If the study ran through 1999, including the megahits "The Sixth Sense" and "Armageddon" as well as some less successful films, Mr. Willis would be a plus. You just never know. The only way to succeed in this business is to experiment and adapt. That is why Professor De Vany admires industry practices that react quickly to information once a movie is out. Unfortunately, he says, antitrust actions in the 1950's misunderstood the business and blocked some adaptive practices, like letting studios own theaters. But studios and exhibitors developed nimble new practices. Licensing contracts encourage exhibitors to extend the run of movies that are doing well, for instance, while dumping the ones that flop.

These practices recognize the fundamental economic facts of moviemaking: the audience is in control, and moviegoers cannot explain in advance what they want to see. They know what they like only after they have experienced it.

"The real star," Professor De Vany said. "is the movie."

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In 2003, De Vany published a book on his research, Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry.