Hollywood’s Tanking Business Model

Movie executives see that box-office revenues have been higher in the summer and conclude that there is something inflationary about a summertime release. Yet this thinking is inherently flawed. The summer was never actually as profitable as it seemed.

The official season, which lasts about a third of the year (at least the way Hollywood divides the calendar), generates around 40 percent of annual ticket sales. Furthermore, box-office revenue may be higher in the summer precisely because that’s when studios have chosen to release their most popular movies. The expected box-office appeal of the film may be driving the release date, in other words, rather than the release date enhancing the box-office performance. Liran Einav, an economist at Stanford University concluded that there was indeed a bigger audience available in the summer; but even so, he determined, a large portion of the seasonal swings in box-office revenue comes from the fact that the biggest crowd-pleasers (“Shrek,” “X-Men,” “Jurassic Park”) are reliably released on the same handful of weekends each year. In the five decades leading up to “Jaws,” the year’s top-grossing movie was released in the summer only 20 percent of the time. In the decades since, the figure shot up to 63 percent. In the last decade, it has been 80 percent. Because persuading an industry’s largest companies to experiment is challenging, smaller and more entrepreneurial companies are usually tasked with figuring out the next-generation business model. Some smaller motion-picture companies, like Magnolia Pictures, have tried innovative things like allowing consumers to watch a film on-demand before it’s released in theaters.