Monday, May 10, 2010

What Felix Salmon missed -- the Hulk paradox

Felix Salmon has an interesting piece in the New York Times arguing that:
[A] futures contract on box office receipts would be great news for the industry. For one thing, if the market got big enough, it would allow studios to easily hedge their investments in movies just by entering into a simple derivatives transaction. Studios could essentially sell contracts on their movies’ grosses into the open market, and pocket the proceeds. They would lose money on the contract if the movie does well, but in that case they’d make enough money on the movie itself to cover their derivatives losses.
The problem Salmon's thesis is that Hollywood runs on expectations and perceptions. A futures market would add another set of hard-to-dismiss numbers to the process. It's difficult to spin a forty million dollar opening as success if the market had predicted seventy.

Consider the case of the Hulk movies. Most people (myself included) were under the opinion that the first was a flop and the second was a success, but the first film made almost exactly the same amount of money when you take into account its smaller budget. In terms of return on investment it did much better than the second film, but in terms of advancing careers, it did much worse.

This was largely due to the fact that the press had reported an expected opening of $45 million (weak for a $150 million action film). By comparison, the $55 million opening looked great even though the first had opened with $62 million five years earlier with a smaller budget. The ability to get that '45' into the press made the film a perceived success. If there had been a futures market and it had said '55,' the film would have been seen as lackluster at best.

I'll let the Onion take it from here:
Why No One Want Make Hulk 2?
By The Hulk

July 14, 2004 | ISSUE 40•28

X2 come out last year. Spider-Man 2 come out last month. Both great sequels to great movies about Hulk friends. Hulk love great action movies about friends! People buy tickets. Make money for theaters, make money for movie company. Movie company make more movies with money. Already, they working on X-Men 3. Hulk movie come out last year. It success. It big popcorn movie with heart. So why no one want make Hulk 2? It make Hulk mad!

Hulk know what people say. Original movie no good, people say. Hulk movie Hulk-sized bomb, people say. That not true! Hulk more successful than people think. Make $132 million in U.S. alone, only cost $120 million. That not small potatoes. Add international box-office receipts and DVD sales and it add up to big money. Big! Oh, and did Hulk forget merchandising tie-ins? First Hulk movie really forge Hulk brand identity. Make people aware of Hulk. Hulk now poised to build on success of first Hulk movie. Hulk 2 smash box-office records!

(you really have to read the rest of this)

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