Saturday, July 19, 2008

Arthur De Vany: Hollywood Economics

Arthur De Vany's Hollywood Economics gives a detailed look at an extreme example of a long-tail industry, the movies. The first half of the book consists of some technical papers that De Vany wrote during his career as an economist. Some of them are quite technical, but they lay the foundation for De Vany's contention that making movies is a highly unpredictable business.

These opening articles demonstrate that there is little predictability in the movie business, and investors, directors, producers, and actors who try to improve their odds by spending more money on special effects, hiring people from the A list, advertising heavily, or whatever else haven't studied the numbers well enough.

The old slogan "nobody knows anything" arises because of the nature of movie releases. Audiences vary from week to week, and they have an always changing menu of movies to choose from. Their reaction may depend on what's in the news, what hits have appeared recently, and whether the blockbuster that came out six weeks ago still has legs. And that's before we try to take account of the intrinsic merit of the story, the acting, how broad the distribution is, etc. Every week is a new tournament with some old and some new players. The audience can't make a judgment about any particular movie until they see it, and they don't make their evaluations from a clean slate.

The statistics deriving from this chaotic process produces the now familiar power law distribution. 70% of movies made are unprofitable, but the business makes money on the whole. most of the 30% that make money barely do better than breaking even; only a few a really successful, and the business of Hollywood is all about trying to make enough movies and give yourself enough chances that you can capture one of the few runaway successes. De Vany talks about how how studios, actors and directors should structure contracts so that the right people have the right incentives, and the right people make money when there is a hit. He then analyzes some actual contracts to show that they follow his rules: star players give up some straight pay for a share of the distant upper tail. The contracts talk about events that are meaningful for less than one movie in a hundred, but that's where all the money is, and one hit in that category can make you rich.

After he's laid the groundwork in the first half of the book, De Vany talks about the breakup of the Hollywood studio system at the end of the 1940's. I had no idea the anti-trust crusaders had even done this. The golden age of the Hollywood studio system was ended by a series of anti-trust cases (culminating in the Supreme Court) that denied the studios the ability to own movie theaters, and restricted the kinds of contracts they could write with independent theater owners. The result was that the studios lost certainty about being able to place the films they made, so they had to be much more careful in deciding what movies to fund, and couldn't plan a season's production coherently. De Vany shows how poorly the courts understood the movie business, and that they didn't achieve any of their objectives in terms of making the business fairer for independent distributors, theaters, or production companies.

I found the book to be fascinating, though quite dense. If the technical analysis in the first half of the book seems daunting, I recommend skimming it; just pay attention to his conclusions, since you'll need them to appreciate the findings in the second half of the book. I suspect there are many lessons that are applicable to other people trying to make money in other long-tail businesses. (Most of the discussion about long-tail is about making money by exploiting the long thin tail, but someone's making money from the tall, rich head of that curve.) The dynamics of other businesses are different, so you'll have to figure out what the drivers are for your uncertainty. De Vany does a great job of explaining the vagaries of the movie business, but not every business is an iterated tournament in which some of the contenders are new each week, while others have advantages or disadvantages due to their recent performance. There's a limit to the number of movies that can be playing in first run theaters every week, so some have to be dropped in order to make room for the constant flow of new releases.

I found this book after reading De Vany's blog for a while in 2005 and 2006. His articles on the movie business were quite interesting, but there's also a bunch of interesting material on evolutionary fitness, health, and sports.

Sunday, July 06, 2008

Spending Money

Robin Hanson (oops) that was Eliezer Yudkowsky takes a quote ("even $10 trillion isn't a huge amount of money") out of context to make an interesting question:

So if you had $10 trillion, what would you do with it?

After reading the first several responses, I quickly dashed off a list of my own:

  1. Fund the top half of The Copenhagen Consensus projects. The idea behind this project was simple: different things that could be done to improve the world have vastly different apparent costs and claimed benefits, and very little policy discussion considers the trade-offs between. The project got leading economists to compare various proposals for big interventions intended to improve welfare across large populations. The recommendations and rationale are very interesting and the process is convincing to me.
  2. Longevity research: Give a billion to Aubrey de Grey.
  3. Push the US government towards more support of liberty. Money on that scale could make a significant start to unwinding the welfare state.
    1. The Institute for Justice has a very good program making practical steps. They could productively spend at least 10 times their current budget. Think about whether their methods can be applied in other areas.
    2. Try to convince Marshall Fritz to return to the Advocates for Self Government. He pioneered a process of inventing tools to spread liberty, and then measure the results to decide how to spend more money.
    3. Start think tanks to flood the political market with arguments and (funded) proposals for moving toward liberty. The Cato Institute does a good job, but in this case, I'd expect to improve things more by providing them with competition than with funding.
  4. Buy OLPCs for the kids in all the "bottom billion" countries.

With a little more time to think about it, it doesn't seem like I'd change my priorities much. I've added some explanation about the Copenhagen Consensus; the others seem to stand on their own. Otherwise, I'll just republish it here with appropriate links added.

Addendum: while looking for the links for this article, I discovered that Marshall Fritz has terminal cancer. I'm tremendously saddened. Marshall is the one person in the libertarian movement I most respect. His pioneering work in promoting and promulgating the freedom philosophy was without peer. Other people continue the fight, but he was the first to approach the problem of spreading the word scientifically and experimentally. He generated ideas himself and welcomed ideas from other people, and would implement them whole-heartedly, and see which ones were the most successful in recruiting new libertarians. Others have continued to run the organization he started (the Advocates for Self Government), but they merely continue to use the successful tools he developed, rather than using his approach to continue to invent and evaluate new techniques.

Saturday, July 05, 2008

Mechanicrawl: July 12, 2008, San Francisco

The Exploratorium, Long Now Foundation, and Musee Mechanique are sponsoring a walking tour of the amazing mechanical marvels spread along San Francisco's North Shore on July 12 from 3 to 8pm. You already know how wonderful the Exploratorium is, right? Well the Musee Mecanique is another must-see; they have an awesome collection of antique and recent arcade machines, mostly in very good working order. I haven't been to visit the Long Now Museum yet, but they have an Orrery, and models demonstrating the planned workings for several parts of their 10,000-Year clock.

They have the world's most complex mechanical computer (targeting system for the USS Pompanito), and one of the world's largest working steam engines (on the USS Jeremiah O'Brien). There are good intro videos at the Mechanicrawl web site.

Members of any of these institutions can get in free to the whole thing, or it's $15 for adults (less for kids and seniors). I'm going; are you?

Friday, July 04, 2008

Harry Turtledove: Ruled Britannia

Harry Turtledove's Ruled Britannia is an alternate history in which Shakespeare lives in a Britain conquered and ruled by the Spanish. This is the Spanish Inquisition in full force; they are an occupying power, and the pressure of maintaining civil rule and imposing their religious views both push them to ever more forceful measures. Shakespeare is convinced to lend his talents to an underground group attempting to overthrow the Spaniards. Of course, Shakespeare's part is to write a new play that will convince the audience to rise up and overthrow the Spaniards. His task is complicated by the fact that that he has also reluctantly accepted a commission to write a play extolling the virtues of the Spain's King Philip, whose health is quickly failing.

Turtledove does a good job of giving the feel of the era: we see an auto de fé, see how suspicions can be raised about witches, worry about fire consuming the city, travel across the fetid Thames, and attend a bear baiting. The Spanish are constantly recruiting new informants and persecuting suspected Protestants, unbelievers, witches and homosexuals. So, while many have better things to do than spend their time at church, they all have to put on a show of propriety for fear of the inquisitors.

Lope de Vega is an ambitious, womanizing Spaniard, whose talents at writing plays in his native Spanish are sufficient to get him assigned the (joyful for him) task of monitoring Shakespeare's progress and trying to figure out if there is any substance to hints about his unreliability to the Spanish. (The Spanish can always find reasons to be suspicious, though few in this story seem to be based on Shakespeare's actual transgressions.) But the presence of an assumed snoop complicates the project, since both new plays have to be rehearsed. de Vega is kept busy both by having to learn a role in the paean to King Philip, and by his constant chasing after various women.

Turtledove seemed to enjoy writing new passages for Shakespeare, and rewrite familiar passages to reflect the changed circumstances of this world. I enjoyed the story. The conflict was plausible and the characters engaging. The political implications are light and obvious: occupiers are easy to dislike, and those that impose an alien religion and punish disbelief are the easiest to despise.