Wednesday, 2 March 2016

The Economics of Oscar

The Oscars Gold Rush: Is it a Wasteful Indulgence?

Shreyosi Saha

Come last Sunday of February, all the who’s who of Hollywood congregate at the Dolby Theatre, some in anticipation of hearing ‘And the Oscar goes to…’ Win or lose, heartbreaks or jubilation, Oscars remain the most extravagant and spectacular party in town celebrating the end of some long and hard fought campaigns where money does all the talking.

The mere cost of getting a film nominated is staggering. According to some estimates, few years ago Sony spent $4.2 million on Captain Philips for just the nomination phase, and at the post-nomination phase films like Lincoln and Argo were estimated to have spent at least $10 million alone on Oscar-targeted ‘For Your Consideration’ adverts and other marketing. If we put together all campaign expenses – start to finish – it would easily exceed $100 million. By comparison, the average cost of winning a seat in the House of Representatives in 2012 was (just) $1.7 million.

If history is something to go by, racing for Oscars was always costly. In 1956, makers of the film Marty spent more on its Oscar campaign than what it cost to make. Many films since then have indulged in similar extravaganza. This year is no different. Trying to win the hearts and minds of more than 6000 voting members of the Academy of Motion Picture Arts and Sciences does not come cheap. The bills of inviting them to fine dining and topping up with goodwill gift bags and running a relentless peer campaign through TV, newspaper adverts and billboards easily run into $10 million, as many observers suspect, though the exact figures for this year’s winners are not out yet.

But hard cash must be backed up by hard economics. Considering that the nominated movies have already found favours with the audience, at home and abroad, why do studios spend so much money? Is it for celebration of success, recognition of excellence, or catapulting an already successful movie to a higher orbit of success? The short answer perhaps is all of these. But still one may wonder: Is it not in parts simply wasteful, at least for those who could not make it to nomination?

Measuring waste is a bit of dirty job; it requires probing into the hidden, the known ‘unknowns’ and of course the unknown knowns. Textbook economics provides tells us to get a figure for the lost opportunities that this campaign money could have created and then subtract the benefit it did create through the Oscars race. If the difference is positive, you have a deadweight loss. That means, the Hollywood as a whole is a net loser by spending that money every year. But easier said than done, the calculations are not so straight forward. We can compare the earnings data pre- and post-Oscars and calculate the difference; but it is only a part of it probably attributable to Oscar, not the whole.

To determine exactly how much, we need their ‘twins’ that did not make it to Oscar, but such twins don’t exist! Add to this the fact that some of the post-Oscar gains in viewership come at the expense of ‘non-Oscar’ films, a loss that Hollywood should not ignore, but sadly cannot account for.

Keeping aside the complexity of accurately measuring the deadweight loss for serious academics, let us ask a simple question: Do winners get their money back?

Figure 1

Figure 2

Fames aside, fortune must count the most, at least to the studio executives. There are varying degrees of conclusions on this, but a brief look at Figure 1 and 2 tells us that the Oscars can arguably make a difference. Consider the film 12 Years A Slave, the 2014 ‘Best Picture’ winner. In the week following the announcement of Oscar nominations, its weekly gross income increased nearly 4 fold, amounting to roughly $2.4 million. The next week, it rose to $2.88 million and in the two weeks after its win, it grossed over £4.5 million. But not all ‘Best Picture’ winners gain so massively. Looking at Figure 3 for the ‘Best Picture’ winners from 2005 to 2014, 12 Years A Slave stands out as an exception than rule. 

Two observations seem convincing. First, both nominations and wins tend to correlate with increases in box office earnings. This suggests that accolades do matter to attract people to the cinema, possibly some for the second time, and the film’s appeal increases globally. However, the boost is very short-lived; it lasts for about two weeks, after which the weekly box office revenues appear to return to their normal downward trend or maintain a slightly higher trend for a while.

The second observation is that nomination matters hugely. 12 Years A Slave, Gravity (the biggest winner of 2014) and Dallas Buyers Club (starring ‘Best Actor’ winner Matthew McConaughey) actually experienced far bigger increases in their weekly gross figures post-nominations compared to post-ceremony. The same trend is more starkly visible in 2013 [see Figures 4 and 5] where only two films, Life of Pi and Beasts of the Southern Wild, experienced a gain. The former was the biggest winner of the night with four awards, including ‘Best Director’. 

Figure 3

Figure 4

Figure 5

One factor worth stressing is that the announcement of Oscar nominations tends to be around the same time of the Golden Globes, the Critics Choice Awards and the Screen Actors Guild Awards. Oscars is also preceded by BAFTA by about two weeks. So overlaps in nominations and clustering of the events create high visibility that does have a quick impact on the box office. But this also complicates distinguishing the causal link between Oscar nominations (excluding other nominations) and increased revenue.

So nomination is important, but probably not as much as winning. A study by some economists at Colby College compared 131 nominated films against a control of 131 non-nominated films, and found that a ‘Best Actor/Actress’ nomination’ increased the expected average revenues by 42.52% (within a six week period before the ceremony), whereas winning resulted in a 170.18% increase in the earnings (in the four weeks after the ceremony); the corresponding figures for ‘Best Picture’ was 98.85% (before winning) and a mind-blowing 245.23% (after winning). See also Fig. 6.

[1] Nelson, Randy A. and Donihue, Michael R. and Waldman, Donald M. and Wheaton, C., “What's an Oscar Worth?”. Economic Inquiry, Vol. 39, Issue. 1, January 2001.

Figure 6

It is also true that artistic appeal, obscure subject matter and unknown cast all help win over the high spending campaigns. Woody Allen’s Annie Hall, made on a small budget of $4 million involving a handful of actors (and no major stars) swept through all major awards in 1977 including the Oscars for best picture and best director. The movie went on to fetch $38 million in box office. In 2008 with a cast and story unfamiliar to American Audiences, Slumdog Millionaire garnered a whopping $96 million after its nominations. Take also this year’s best picture The Spotlight; its story line must have been deemed more human than the great survival story of The Revnant.

While unusual storylines and low budget arty ones do cause occasional upsets, the game is dominated by the ‘big boys with big bucks’ who win most of the time. As the two researchers at University of California Los Angeles (UCLA), Gabriel Rossman and Oliver Schilke, argued “winning a prize is valuable but pursuing it is costly”.  Studying data from 1985 to 2010, they found that movies made with a conscious “Oscar appeal” often bombed both at the box office and at the Oscars.

In a nutshell, gold rush does end up with some gold.


While campaigning for the Oscars can be seen as akin to wasteful lobbying and rent-seeking as described by economist Gordon Tullock, one can say that the comparison is unfair. University of Chicago economist Matthew Gentzkow, Clark Medal winner of 2014, has been writing about media communication and creation of brand loyalty. The Oscars are an example of certification and super branding, which must generate some long term enduring returns to the winners, including individual artists.

Some studies suggest that with an Oscar win an actor’s salary goes up by $3.9 million, but sadly for an actress it goes up by only $500,000.

Another benefit of Oscars, as Rossman and Schilke argue, is that the promotion of heterogeneity in films. There is a reward to deviating from the mass-appeal norms and the Oscars encourage studios to back more original and creative, albeit risky, filmmaking. For the consumer, there is more choice. That is a positive social contribution.

Now a crude estimate can be attempted. Let us assume that altogether $100 million is indeed spent every year on Oscars campaigning. A student research report at the New York University Stern School of Business found the median rate of return from studio films was 27%. Since the studios dominate the award season, the opportunity cost for the $100 million is $27 million, making the total cost of the campaigns $127 million. Based on analysis by Edmund Helmer, the total estimated gain of winning at the Oscars, counting most categories, is roughly $90.9 million. Here, we lack data on the total estimated gains from nominations, but given that nominations are no less valuable, it is not a stretch of imagination to assume that they (four losers together) may generate an extra $36.1 million.

So this back of the envelope calculation shows that there is no deadweight loss; it is an Even Steven. Surprise, surprise!

Looking ahead twenty years from now, will Oscars hold the same glamour and glitterati as it does now? Well, some don’t think so, Danny Leigh, an arts and entertainment writer points out that the TV viewing of the Oscars is steadily falling in the US. Last year, 37.2 million Americans watched the live televised broadcast, 6.5 million less from 2014. This year’s controversy surrounding the lack of diversity has not helped much either.
Then there are challenges from online TV channels like Netflix and Amazon, who are trying to undermine the big studios and the public’s movie-going in general. The Academy has not quite figured out how to deal with these new kids on the block.
Not to mention that the Oscars is still a Western affair. It might have crossed over to Europe to win over the French, the German and the Italians, but making inroads into the lands of 2.3 billion people of India and China put together is a tough act.

But, that is still years away. At the moment let us believe that through war and peace, bank runs and Lehman Brothers, Trump and Hillary the Oscars will live on.
It is hard to tell why, but this year the Academy has diversified its awards like a prudent investor among a number of films cutting across different genres, denying The Revnant its much anticipated sweep.
Despite that hiccup, for many ‘DiCap’ will be the flavour of the season, a reminder of Oscars perseverance and unpredictability.

SHREYOSI SAHA is an undergraduate student of Economics at University College London

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