Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

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The Role of Film Audiences as Innovators and Risk Takers
John Sedgwick, Michael Pokorny

Last modified: 2014-05-19


Central to understanding of the economics of the film industry is the recognition that hit films are determined via the choices that audiences make. The role of film producers is to provide a diversified range of films over which these choices can be exercised. Film producers deal with the risk of film making via the production of extensive and diversified annual film ‘portfolios’. Consumers are then induced to consume widely across these portfolios, thereby generating a word-of-mouth process that allows the hits of the season to emerge. From the hard-headed producer’s perspective it is the profitability of the film portfolio that is of over-riding importance not the success or failure of individual films.

However in viewing films, consumers are also taking risks – the risk of disappointment, with the consequent loss of resources that have been committed to the viewing process, which are balanced against the returns that are derived from the pleasures of the hit films. For while it is tempting for producers to assume that consumers crave familiarity, a satisfying viewing experience is also one that contains elements of novelty and ‘surprise’.

This paper will explore the extent to which audiences are being presented with narrower film choices, as film producers become increasingly risk averse, conditioned by a financial environment which discourages excessive risk taking. The implications for audiences and the industry of more predictable and formulaic film outputs will be explored, and contrasted with an industry that has historically been highly innovative. The analysis is based on an extensive data set, consisting of financial information relating to nearly 12,000 films which were released onto the North American market between 1988 and 2009, thereby allowing for a detailed analysis of the film production strategies adopted by the major studios, and the manner in which these have evolved over time.