Hollywood Economics: challenging the Stable Paretian Hypothesis

Absztrakt (kivonat)

This paper focuses on the profitability of the Hollywood movie industry. It examines the relationships of the parties involved and argues that profits have multiple definitions depending on the point of view within the complex web of contractual relationships amongst stakeholders. The thesis chooses one of the definitions, arguable the most relevant to analyse the industry. Subsequently the thesis gathers new and relevant data, partially from WikiLeaks, to validate the state-of-the-art economic theory of the stable Paretian hypothesis. It is rejected that ex post film profitability in fact follows the distribution theorised by the stable Paretian hypothesis. A financial model is built based on the actual financial data to estimate single motion picture profitability based on publicly available information on the individual films. Such model is then applied onto a much broader set of film data and then compared to the hypothesis of the stable Paretian film profit distributions again. It is rejected again. In conclusion, research that has built its methodology on the assumption of film profits following the stable Paretian distribution might need to be reviewed. The paper provides a possible root cause for the mismatch of ex ante expectations (based on prior research) and ex post film profitability and argues for the return on investment measure of the herein constructed model to be used to define movie success and to derive further determinants of such success. It also provides a model for profitability expectations to other stakeholders like talent and producers through applying the base erosions to the profitability model. It is suggested in the thesis to review determinants, which are assumed as relevant to movie success based on the research with profit models hypothesising the challenged distributions, by applying the definitions and models of movie profits herein. Finally, certain hypotheses are created as possible foundations for further research in the field.