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Economic Analysis for the Motion Picture Industry - Term Paper Example

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This very brief report presented a discussion about the economics of the motion picture industry to conclude that box-office revenues for motion pictures exhibit a Levy stable process that is asymptotically Pareto-distributed with infinite variance…
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Economic Analysis for the Motion Picture Industry
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"Economic Analysis for the Motion Picture Industry"

Download file to see previous pages Thus, content is still king and that which appeals to the audience will earn more in an economy with higher levels of affluence and more leisure time. Fixed costs for a movie production house accrue from a need to maintain staff, equipment and stage as well as props in readiness for the shooting and production of a movie. A single movie cannot sustain a production house forever and this means that a successful movie production house is constantly investigating movie concepts, financing, shooting, editing and making deals for marketing and distribution. Variable costs accrue when the shooting of a new movie commences, requiring new stars, talent, equipment or on location shooting. However, after establishing a motion picture production house, the total cost curve and the marginal cost curve for motion picture production will present an L-shaped curve because acquisition of most of the equipment for making movies and stage as well as props etc. is complete at the time of production of the first movie.
Products presented by the motion picture industry represent high levels of artistic innovation that revolve around the product rather than the firm that produces the movie (Vogel, 2007, Pp. 65 – 66). However, although many people think that making movies is fun and highly lucrative, nothing could be further from the truth. Product and demand uncertainty are a part of the movie making business and on the average, out of every ten movies produced, six or seven present unprofitable returns. Thus, making movies remains a truly entrepreneurial endeavour and only those motion pictures that can compete effectively for the attention of the audiences in relation to others present great returns (De Vany, 1999, Pp. 1 – 5). De Vany (1999, Pp. 1 – 5) goes further to suggests that a Levy stable process that is asymptotically Pareto-distributed with infinite variance depicts box – office revenue dynamics for motion pictures, with rare blockbuster movies dominating the mean in the far left end as depicted in the figure below (Sinha, 2005, Slide 10). Figure 1: Income Distribution Snapshot for 100 – 150 Movies showing in Theatres across the USA, from (Sinha, 2005, Slide 10) The film industry presents a myriad of interesting problems that lend themselves to economic analysis (McKenzie, 2009, Pp. 1 – 3). Deciding about a strategy for transforming the initial concept into reality followed by production, distribution and finally exhibition all present economic puzzles that are worthy of investigation. However, with global annual spending on movies by the consumers exceeding one trillion dollars, it is worth aspects related to the economic analysis of the motion picture industry (Vogel, 2007, Pp. xix – xx). This very brief report presents a discussion about aspects of economic analysis for the motion picture industry, including aspects of industry demand and cost structure for the motion picture industry. Industry Demand When thinking about demand for a motion ...Download file to see next pagesRead More
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