Movie making is often an insane business. But moguls turn out to be pretty rational about it according to a chapter in an upcoming economics text and a recent article in an academic journal. Researchers say that studios wisely bet on stories and directors. Star worship “is all but a myth,” writes S. Abraham Ravid — a finance professor at Yeshiva University — in The Economics Of Creativity, to be published next month. “Stars can still sell magazines, but not movies.” Why do studios pay big bucks for Academy Award-winners? It’s part of a strategy, along with co-financing, to reduce the risk of making big-budget films — especially R-rated ones, which represent the biggest gambles. Stars should draw at least some fans, even to a stinker of a movie, the theory goes. “In an industry where a big failure is much more dreaded than a big success is wished for, insurance is worth its weight in gold, or in eight-figure salaries.”
OK, so how can studios predict what scripts should generate the biggest profits? Moguls have to resort to non-quantifiable “soft information.” (Economists love to look at ways execs make decisions without data that they can put into a spreadsheet.) And it’s safer to pay a high price for a short “high concept” pitch as opposed to a longer proposal, according to a study in the Journal Of Cultural Economics. The quality of the initial sales pitch “can affect not only the price of the screenplay but the success of the completed project,” write Ravid, Yale University’s William Goetzmann and New Jersey Institute of Technology’s Ronald Sverdlove. Execs understand that “audiences too prefer simple ‘high concept’ stories.” In other words, they pay higher prices for short, easily understood pitches because it’s the smart thing to do — not because complexity goes over their heads.