How the motion picture industry miscalculates box office receipts S. Eric Anderson, Loma Linda University Stewart Albertson, Loma Linda University David Shavlik, Loma Linda University INTRODUCTION when movie grosses are adjusted for inflation, the Sound of Music was a more popular movie Box office grosses, once of interest only to than Titanic even though the box office gross movie industry executives, are now widely was over $400 million less. So why is it then publicized and immediately reported by movie that box office grosses are often the only industry tracking companies. The numbers reported, when the numbers have instantaneous tracking and reporting hurts little meaning? The motion picture industry, movies with weak openings, but helps movies aware that inflation helps movies grow bigger, with big openings become even bigger as has little interest in reporting highest grossing people flock to see what all the fuss is about. box office numbers with inflation-adjusted Due to inflation, the highest grossing movies dollars that will show the motion picture tend to be the more recent releases, which the industry is stagnant at best. They are able to motion picture industry is taking full get away with it since most don’t know how advantage of when promoting new movies. to handle those inflation-adjusting As a result, the motion picture industry has calculations. developed “highest grossing “ movie lists from almost every angle imaginable - opening Inflation-adjusted gross calculations are day, opening weekend, opening day non- inaccurate weekend, opening day during the fall, winter and spring, opening day Memorial weekend, Some tracking companies have begun second weekend of release, fewest screens, reporting box office grosses with the less etc. - to ensure that their movie will be on top popular inflation-adjusted dollars. However, or near the top of some list. The barrage of even these lists are not an accurate measure of announcements informing the public of a movie’s popularity since ticket prices have increased box office grosses give the false increased at a rate more than twice that of impression that the actual number of inflation since 1939. According to the Motion moviegoers is increasing and box office Picture Association of America, a movie- records are being set every year. The motion ticket in 1935 cost a quarter or about $3.00 in picture industry is proud to proclaim that box today’s dollars, but the average ticket price office gross receipts increased 13.2% between today is around $6.00. Another problem is 2001 and 2002 and have more than doubled that the relationship between movie ticket since 1987. However, they do not publicize prices and inflation do not necessarily parallel the number of tickets sold during these one another. For example, in 1970 movie periods and account for gross receipts using tickets cost $1.55 or about $6.68 in inflation- the CPI for the true measure of inflation. By adjusted dollars, which is higher than today’s looking at just dollar figures the industry is average ticket price. Inflation-adjusted movie able to mask the decline of one of America’s ticket prices peaked during the 1970s and by pastimes. For example, most are unaware that 1980 inflation-adjusted movie-ticket prices 2004 Proceedings of the Midwest Business Economics Association 108 had dropped to about $2.69 or about $5.50 in Motion picture industry’s golden age inflation-adjusted dollars, which is less than occurred long ago what they are today. Another concern is that inflation-adjusted grosses, don’t take into A review of the top 25 in each category shows consideration the fact that the United States there was a significant amount of re-ordering has added two more states and more than when inflation-adjusted box office grosses doubled its population in the past 70 years. were compared to box office grosses divided This has resulted in a significantly larger by the movie ticket prices of that particular market for the motion picture industry than year. Only six movies of the highest grossing what existed in the past. movies also appeared on the inflation- adjusted gross list. Gone With the Wind and The Recalculation of box office receipts Sound of Music the first and third highest on alters rankings the inflation-adjusted gross list weren’t even listed on the highest grossing list. Seven What impact does adjusting for the ticket movies not previously listed on the inflation- price the year the movie is released and adjusted gross list moved onto the gross adjusting again for the increased population divided by ticket price of that year list have on the top grossing motion pictures of including Bambi and Pinocchio, which ranked all time lists? A brief glance at the top 25 lists third and fourth respectively. When shows the impact to be significant (a complete comparing the list compiled by dividing the list is found in the appendix). The first population by the ticket price of that column lists the highest 25 grossing movies of particular year only The Best Years of our Lives all-time, the second column lists the highest and This is the Army were new to the list along 25 grossing movies of all-time with inflation with a modest level of re-ordering. It is adjusted dollars, the third column lists the top somewhat ironic that both of these movies 25 movies where the gross is divided by the were higher on the list than Titanic the highest ticket price the year the movie was initially grossing film of all-time. The defeat of Titanic released and the fourth column lists the top by two unknown films will come as a big 25 movies where the gross is divided by the surprise to many outside the motion picture ticket price the year the movie was initially industry. Titanic slipping from number 1 to 5 released and then divided by the population of to 15 and then down to 24 shows the the United States of the same year. Box office inaccuracy of highest gross box office gross numbers, taken from the Motion numbers lists. It is also worth noting that the Picture Association of America website, 10 most popular movies of all-time, based on include theatrical box office receipts (movie ticket price and divided by the population of ticket sales), theatrical re-release receipts and that year were all initially released before 1961. did not include video rentals, international This leaves little doubt that the golden age of box office, television rights and other the motion picture industry occurred long revenues. Movie ticket prices for each year ago. were taken from the National Association of Theater Owners official website. Inflation Region and rating impact box office numbers were determined by the consumer price grosses index (CPI) the most prominent measure of inflation, which is calculated by the United This list, like any other list, can never really be States Department of Labor. one hundred percent accurate for a variety of reasons. By just counting gross, box office numbers overrate movies more popular in 2004 Proceedings of the Midwest Business Economics Association 109 expensive markets. For example, twice as there until 1974. They hovered around 1 many people in rural areas will have to see a billion until they began to climb in the 1990s, movie to count as much as a single New reaching almost 1.5 billion in 2001. Yorker who pays twice the amount for their ticket. Since ticket prices around the country Future box office declines are possible vary in relation, regional popularity of a movie could bias the numbers. Similarly, movies The motion picture industry can expect future packed with kids who get in for half-price as box office declines if movie ticket prices well as discount-getting seniors or students continue to climb at a rate twice that of may not do as well as movies with full-fare inflation. Already many are finding it difficult paying adults. This distortion however could to spend upwards to $50.00 for movie tickets be partially offset by the fact that the younger and popcorn for their family, when they could crowd watching matinees often view a movie probably just go home and rent a video for more than once. If a G-rated movie and an R- less than $5.00. Why has the price of movie rated movie finished about the same in gross tickets gone up? According to the National numbers, the kid’s movie probably sold more Association of Theater Owners, the increases tickets since matinee tickets are priced much can partially be blamed on new theater lower. The fact that 9 out of the 10 ten films construction, as well as upgrades involving of all-time - based on ticket price and divided features such as stadium seating and digital by the population of that year were all initially sound systems. In the past ten years, many released were cartoons - had more to do with new theaters were forced to invest in the year the movie was initially released than significant upgrades or close down. Even the fact that they were kid’s movies. some that spent lavishly on upgrades were forced into bankruptcy. Motion picture industry is embarrassed Motion picture industry gets the last If the motion picture industry were really laugh interested in comparing the relative success of a movie, it would report the number of movie The motion picture industry uses dishonest tickets sold in the same way that book and ways of attracting attention to particular music sales are calculated. In both these movies. There have been reports of critics industries, bestseller lists are based on unit being “subsidized” for their promotion of sales, which measure the true popularity of a particular films.