Movie Stars, Big Budgets, and Wide Releases: Empirical Analysis of the Blockbuster Strategy, a paper by Arthur De Vany and W. David Walls

Does the blockbuster strategy really make people herd to the movies? This is the theory that strong advertising, big-name stars, and huge opening nights are what make movies successful. In this case, the early choosers would be the ones making all the decisions. De Vany and Walls argue that this non-informative information cascade (in which later movie-goers are choosing not based on information but based on pure mimicking), would mean that potentially horrible movies with huge opening nights would always dominate in popularity. They prefer an informative cascade, in which rather than a blind following, there is a chain of communication about the movie’s quality that leads to higher numbers in the theaters.

Of course before a movie is released, there is little word-of-mouth spread of opinion. So opening night does often follow this blockbuster strategy. This non-informative information cascade only counts when it is the sole fact that other people are going that results in additional watchers, something that can be triggered for example by watching box-office revenues alone. Unfortunately for the superior-budget-but-not-so-superior-film producers, movie-goers are not lemmings and a hit on opening night does not signify continued success. The cascade becomes informed after the kick-off when personal judgments start spreading and people’s decisions to see the movie are now based on opinions rather than fad, and quality begins to matter.

De Vany and Walls attempt to analyze the actual historical balance between the two types of cascades, one based on others’ actions, one on their opinions. Through the use of statistics, they examined the effects of budgets, stars, openings, genres, and rating.

As an interesting side note, the paper identified the stars that seem to most influence the revenue of a film, either positively or negatively. (Keep in mind that the sample consisted of movies that came out between 1986 and 1995.) Good people to have in or working on your film back then: Tom Hanks, Oliver Stone, Michelle Pfeiffer, Sandra Bullock, Jim Carrey, Jodie Foster, Steven Spielberg, Barbra Streisand, and Robin Williams. It was apparently not a great idea however to have Val Kilmer, Winona Ryder, or Sharon Stone.

We have only begun the discussion on information cascades, but I think this serves as a great example of the phenomenon. It encompasses two types, the non-informative and the informative, and shows that while some people choose to accept a choice based on simply following-the-leader, it is the latter acceptance decision based on positive word-of-mouth that makes a difference in a movie’s true success.