The Fault In Our Stars: Lessons From The 2015 Box Office

Economists have long recognized that the sports and entertainment industries exhibit elements of what University of Chicago economics Sherwin Rosen called the economics of superstars in his classic 1981 study, in which small differences in talent or popularity can lead to outsize differences in returns. Anyone who reaches the NBA, for instance, is by definition an elite athlete. But Star-Wars-Force-Awakens1if the superior skills of a LeBron James or Kobe Bryant added a mere 2 points per game on average to his team’s total, in a league where the average point differential per game is 0.06, over the course of a season they could easily add a half a dozen or more wins to the team’s record, making the difference between first place and missing the playoffs. Given the financial payoff for the team’s owners of reaching the playoffs, James and Bryant are worth almost any price, as in fact their salaries reflect.

Similarly, there are many talented performers in the entertainment industries. But people tend to prefer to listen to the same music and see the same movies as their friends. So if their friends start to listen to Adele or Taylor Swift more than other artists, even by a small amount, that difference in popularity is quickly amplified through network effects to where Adele and Swift tower over others in the charts and can command almost any price for their concerts.

But superstars historically have also had pretty broad coattails. Moviegoing begets moviegoing, as the old Hollywood truism has it. Having a few hit movies in a season tends to increase theater-going generally, boosting grosses across the board. Likewise, when a star pitcher signs for $25 or $30 million a year it opens up a lot of space behind him for a journeyman hurler to earn $5 million, even if his economic value to the team is negligible.

Those coattails seemed to get clipped in 2015, however, at least in the movie and music industries. While superstar performers still earned their outsize returns, the space behind was left largely unfilled.

As others have reported, Hollywood had a record-breaking year at the box office last year, raking in $11.1 billion, up 7 percent from 2014, but nearly all of the action came from a handful of very successful releases. The top five films of 2015, Universal’s “Jurassic World” and “Furious 7,” and Disney’s “Star Wars: The Force Awakens,” “The Avengers: Age of Ultron” and “Inside Out,” together grabbed $2.47 billion, representing a whopping 22 percent of the total box office.

The rest of the 129 films released nationally last year, brought in a collective $8.65 billion, the lowest total for non-top-five movies since 2008, when ticket prices were 14 percent lower than today. Looked at another way, those five films represented less than 4 percent of movies released nationally in 2015 but accounted for 23 percent of all tickets sold. Clearly, the off-the-charts popularity of “Star Wars” and “Jurassic Park” did not beget much else in the way of moviegoing.

Audiences have become “very binary” in their moviegoing choices, Sony Pictures chairman Tom Rothman told the Wall Street Journal. “Either a film is relevant to them and penetrates the pop-cultural zeitgeist, in which case the upside is enormous, or it doesn’t rise to that level and they’re out altogether.”

box office share 2015

The music industry experienced a similar dynamic in 2015. Adele shattered records by selling 3.4 million copies of “25” in its first week. Taylor Swift’s “1989,” which was released in 2014, managed to sell nearly 2 million copies in 2015.  But neither was enough to reverse the decade-long trend of declining album sales as consumers increasingly turn to subscription and ad-supported streaming services to get their musical fix.

Notably, both Swift and Adele achieved their impressive sales results in part by keeping their albums off streaming services, Adele entirely, Swift selectively. But there is no evidence that the people who did plunk down their $10 for “1989” or “25” were any more active in the purchase market outside of those two superstar acts. Once again, consumers’ album purchase behavior was binary: an album was either a must-have, or it didn’t resonate.

One year of data does not make a trend, of course. Perhaps the other 129 movies released in 2015 simply weren’t very good and this year will be better. Perhaps more big acts will step up with killer albums in 2016. But I wouldn’t bet the studio on it.

Movie ticket sales haven’t grown appreciably since 2009. DVD sales and rentals fell from their peak of $22 billion in 2004 to just $10.2 billion in 2014 (full-year 2015 data will be released this week). Album sales across all formats have fallen from 681 million units in 2004 to 257 million in 2014 (mid-year 2015 numbers — a period that included the release of Taylor Swift’s 1989 but not Adele’s 25 — showed another 4 percent decline).

The real lesson of 2015 is that the movie studios and record labels can no longer rely on inertia as a marketing strategy. There simply isn’t enough forward momentum in their markets for inertia to work with. Movies no longer passively “find their audience” simply by virtue of being released when people are in the habit of going to the movies, or by filtering their way through broad-brush advertising campaigns. Studios today need to actively recruit the audience for particular movies themselves, by learning much more about who they are, what they do and how to motivate them to make the binary choice to turn off Netflix and go out to the theater or buy the Blu-ray.

Record companies need to find ways to get fans invested in an artist, not simply happy to listen to their music. That means learning much more about who and where an artist’s fans are and then engaging with them directly.

None of that comes naturally to traditional media companies. It requires a lot more data than most studios or record labels currently collect or effectively analyze, and the sort of data-driven, audience-focused marketing and release planning that runs counter to the hits-driven, star-making machinery the movie and music businesses have long-relied on to drive the business. But those are capabilities media companies are going to have to develop quickly. Stars can’t do it alone anymore.

 

2 Comments

Post a Comment

Your email address will not be published. Required fields are marked *