The numbers are in, but they don’t tell the whole story.
This Holiday Season, we at AngeloueEconomics would like to take a moment and thank George Lucas, J.J. Abrams, and the wonderful folks at Disney for giving us Star Wars: The Force Awakens. In yet another year dominated by headlines of war, climate change, and divisive politics, they’ve succeeded in uniting the world, at least for a little while, in the mutual joy of shared entertainment. And unite the world has, dishing out over half a billion dollars in an opening weekend that can only be described as meteoric.
But not everyone has been impressed with the film’s explosive debut. While narrating the morning drive of the area’s two million residents, Austin radio personality Jason Dick was quick to shrug off record setting numbers as the bi-product of inflation. According to his narrative, Star Wars will be dethroned by 2016’s film of the summer, which will in turn be taken down during the 2016 Holiday Season, and on and on until the ocean’s dry up, the sun explodes, or whatever other tragedy brings our beautiful civilization to an end.
Naturally, being the avowed Star Wars fans we are, we shuddered at this blasphemy. But it did get us wondering just how much of a roll inflation plays in box office numbers. Are movies truly getting more popular, or are the numbers just getting skewed by the inexorable upward crawl of prices?
Lucky for us, we didn’t have to look far for an answer. There’s an entire Wikipedia page dedicated to high-grossing opening weekends, with the U.S. records helpfully adjusted for inflation. (So a special AE Holiday thank you to you as well, Wikimedia Foundation.) A quick glance at the table reveals what we true fans already knew: The Force Awakens does indeed have the highest grossing domestic opening weekend, even when adjusting for inflation. It’s not even close.
Looking at the tables, though, another reality also becomes apparent: a lot of movies are having bigger openings now than they would have in the past. Even adjusting for inflation, a film doesn’t break $100 million domestic until 1997’s Jurassic World. At least 34 more movies have accomplished this feat in the 18 years since. So, if it’s not just inflation, why are movies bigger now than ever before? We consider a few possible explanations below.
Movies are Getting Better
There’s no doubt the film-making industry has come a long way in the past several decades. The special effects are better, the acting more refined, the videography a little more sophisticated and thought out. But is that really the reason modern films are shelling their classic counterparts at the box office? Considering the $100,000,000+ Club has such illustrious members as Indiana Jones and the Kingdom of the Crystal Skull and Shrek the Third, probably not.
To put it in (slightly) more scientific terms, review aggregator Rotten Tomatoes gives the 35 films in the $100,000,000+ Club an average score of 69% fresh. This is certainly respectable, and indeed many of the films on that list are quality productions and even Oscar winners. But compare that to the 1975 and 1978 record setters, Jaws and Star Wars (the original), which earned 97% fresh and 94% fresh ratings respectively. These films were at least as well received, if not far more iconic, than any movie that broke $100 million in the past twenty years. But these films only earned a combined $67 million in 2015 dollars. Clearly, there’s a lot more than movie quality factoring into to Hollywood’s ever increasing revenue stream.
Ticket Prices are Going Up
So we’ve determined that macro inflation isn’t solely responsible for higher revenues, but what about ticket prices themselves? If the increasing cost of seeing a movie is outstripping the broader pace of inflation, it’s possible that there are price factors not accounted for by a simple inflation adjustment. Maybe we are just paying more for movies than we did in the past.
But alas, this is not the reality. After adjusting average ticket prices themselves for inflation, we found that cost of a movie ticket has hovered around $7.75 for the past 40 years. Prices dipped below $7.00 for a few years in the mid-90s (wasn’t everything cheaper then?) before climbing right back up in the 2000s and settling at $8.12 per ticket in 2015. In fact, everything else being equal, it costs about 40 cents less to watch The Force Awakens then it would have to catch the original in theaters back in 1978. The bottom line? Ticket prices aren’t to blame. Next.
We’re Making More Money
Another possible explanation for the ever-increasing trend of smashing box-office openings is that incomes have increased. The more money people have in their pocket, the more likely they are to direct those extra funds towards luxury good (i.e. entertainment) than to basic necessities.
A cursory review of the numbers lends some credence to this theory. According to the Census, real median household incomes increased by ten percent between 1980 and 2014. This jump (roughly $5,000 in today’s money) indicates at least a modest uptick in disposable incomes and partially accounts for higher grossing films. However, median household incomes peaked at the turn of the millennium. Since then, though, the revenue for the record opening weekend has nearly doubled, indicating other factors at play.
There’s More of Us
An oft ignored consideration when comparing gross statistics over time is that, simply put, there’s more humans walking around than there were 40 years ago. Since 1975, the U.S. population exhibited a net growth of nearly 48 percent. That’s an additional 104 million people living, working, and yes, buying movie tickets. The impact of these additional people cannot be understated and no doubt accounts for a significant share of the increased box office revenues. With that said, though, not even a 100 million additional Americans can fully account for the 750% increase in record opening weekend revenues over the same time period.
There’s More of Them
The U.S. population is not the only number to increase substantially over the past several decades. According to the National Association of Theater Owners, the number of movie theater screens has also exhibited dramatic growth. Sure, some of this is likely directly linked to population growth, but that is only part of the story.
Since 1987 (the first year for which theater data is available) the U.S. population has increased by about one-third. In the same time period, the number of U.S. movie screens has nearly doubled, outstripping the population growth rate by some 59 percent. To put these numbers in perspective, in 1987 there was roughly one screen for every twelve thousand Americans. By 2014, the ratio was down to one screen for every eight thousand. That’s a lot more theaters that need filling.
A New Methodology
So where does all of this leave us? To be honest, not very far from where we started. These five factors are just scratching the surface of the economics underlying the movie industry. They don’t touch at all on the impact of marketing budgets, number of seats per theater, macroeconomic conditions, societal and cultural preferences, the rise of digital piracy and online streaming services, or any of the other myriad circumstances that impact box office outcomes. With that said, however, it should be obvious that there are a number of confounds in the current record-tracking methodology. These confounds have undoubtedly created a strong upward bias on box office numbers, skewing new records to seem more dramatic than they would be given a more even playing field.
The good news is that many of these biases can be easily accounted and corrected for. Towards that end, we propose the creation of a new way of measuring the success of movies during their opening weekends. We’ll call it, let’s say, the AngelouEconomics Score of Movie Greatness.
To create this score, we started off with a movie’s opening weekend domestic earnings (in 2015 dollars) and divided it by the inflation adjusted average ticket price for that year to get an estimate of tickets sold. This estimate was then corrected for trends in population and screens available by dividing it by the number of theaters per 100,000 Americans. Finally, spending factors were accounted for by dividing by the real median household income. The resulting score, while not in and of itself intuitive, provides a much richer basis of comparison than a simple dollar for dollar comparison.
The Results
Now the moment you’ve all been waiting for, the answer to that most pressing question of our time. Is The Force Awakens the highest grossing debut of all time? In short, yes. Even after correcting for ticket prices, population growth, more movie theaters, and a higher standard of living, Star Wars still easily bests the competition for greatest box-office opening ever. With an AE score of 45.6 it edges out its closest competition (The Avengers) by a cool 13 percent. What about the rest of the record-setters?
Applying our methodology to the 16 record setting movies for which we have a complete data set, 12 establish a new high on the AE Score of Movie Greatness. This is compared to 13 record-setters when only an inflation adjustment is performed and, well, 16 when no corrections are used. By and large it seems when the headlines shout a new opening weekend record, it is indeed a real accomplishment and not just basic demographics at play.
The use of the AE Score does provide a better context with which to view a movie’s success. Using only an inflation-adjustment, The Force Awakens outperforms 1987’s Beverly Hills Cop II by some 430 percent. Applying our methodology that rate drops to roughly 290 percent, which is still significant but not quite as dramatic. In either case, though, the evidence is clear: Star Wars is the greatest cinematic franchise of all time. Or, you know, people just like going to the movies more than they used to.
