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Ask The Experts: The Economics of Oscar Season

by John S Kiernan on February 26, 2014

OscarMovie-goers are usually in for a treat when winter rolls around. It’s Oscar Season, after all, and big studios are busy lobbying for the inclusion of their films in the discussion for an Academy Award. Prestige obviously is a driving factor in all of the Oscar hoopla, but it’s dollar signs that studio execs, agents, actors, writers, producers, and directors see when they look at that iconic gold statuette (officially known as the Academy Award of Merit).

Winning an Academy Award – or even being nominated – can greatly help a studio's bottom line and make the careers of industry professionals. But you’ve got to spend money to make money, and millions of dollars are invested in the Oscar selection process each year.

Lobbying For Oscar Love & Profit Potential

This goes well beyond ‘For Your Consideration’ ads in trade publications, promotional billboards, and the dissemination of screening copies to critics and voters, according to Gabriel Rossman, associate professor of sociology at UCLA.

“Oscar marketing budgets run from a few hundred thousand to a few million,” he says. “The really big costs are in tailoring the film towards the Oscars in terms of its genre conventions, release date, etc.”

In other words, studios and producers have the Academy in mind from the earliest stages of strategic planning and development, producing scripts and scheduling release dates that will resonate with Oscar voters. History has shown that they prefer dramas, especially those that touch on compelling social issues, to comedies and are the personification of the recency effect.

Studios also understand that some films need Oscar buzz more than others. Big-budget tentpole films – think summer blockbusters like “Independence Day,” “Armageddon,” or pretty much any superhero movie – wouldn’t gain much from the Academy’s recognition and free marketing, but projects with less financial backing and limited mainstream appeal need the shine because quality, not subject matter, has to be their main draw.

“For a film like ‘The Avengers,’ it wouldn’t have been a big deal if it was nominated because it’s already made so much darn money and it would just be a drop in the bucket. But, particularly for mid-level films, Oscars can be the difference between profit and loss,” says film historian Jonathan Kuntz, a visiting professor with UCLA’s School of Theater, Film and Television. “We’ve seen, particularly in the 1990s when Harvey Weinstein was so effective back with Miramax at working the Oscars and getting nominations for films like ‘American Beauty’ and ‘Shakespeare in Love,’ that the Oscar can be huge for a mid-level or small film. It can really magnify the box office magnitude of those films.”

But it’s not just at the box office that Oscar nominees and winners benefit. Studios can also feature a film’s accolades on DVD packaging and on-demand descriptions, thereby maximizing both its longevity within consumer consciousness and back-end revenue potential.

You’ll Always be an Oscar Winner (or Nominee)

An Academy Award may have a much bigger impact on the fortunes of a director, actor or actress. No longer under contract to a studio, as they were in the “golden age of Hollywood,” they're free agents. Tom Hanks, who began his movie career starring in light comedies like “Splash,” became a Hollywood mega-star after collecting back-to-back Best Actor Oscars for ‘Philadelphia’ in 1993 and “Forrest Gump” in 1994.

“The stars that get nominated, or get the Oscar, benefit most when they're someone like Jennifer Lawrence, an unknown quantity who is suddenly A-list by virtue of Oscar's imprimatur,” Menne said. “Their salaries will double. That's why, in fact, these stars often spend out of pocket for an Oscar. Their publicist's salary will double during Oscar season.”

The Oscar Brand

Dominique Hanssens, a management professor at UCLA, says an Oscar nod is important to a studio and film because it has become its own “brand” over the years.

“What you have here from a consumer choice perspective is risk reduction,” Hanssens said. “If a film receives an Oscar, it is almost a guarantee of a good experience. So, for people who really don’t want to investigate themselves whether or not the film will be to their liking, the Oscar is a signal of quality. And signals of quality, given that the price is the same because the movie ticket doesn’t change, are usually a strong motive to attend a movie that they otherwise wouldn’t attend.”

The Age of Netflix

A bigger shaper of the motion picture industry, our experts agree, is the emergence of Netflix, providing instant access to films online that might not rate a DVD rental, much less a movie theater ticket.

“It makes small documentaries and low budget movies, like Andrew Bujalski's movies, somewhat more viable,” Memme said.

Hanssens believes Netflix actually has the power to influence what consumers will see on the screen in the future. While Netflix is acknowledged to have a massive amount of video content, Hanssens says that it also possesses something even more valuable – data. Netflix knows what people are watching and how much they like it.

“You can then use that data, combined with the demographics of these people, to actually go figure out for any new projects, what is the likelihood that a lot of people in a certain demographic will watch it and that they’ll actually like it. So that turns the whole process of green-lighting around a bit, in the sense that your predictions of what people will like are much better because of the quality of the data.”

That's important for Netflix, Hanssens says, since that company has now moved into producing content. For the industry, access to this kind of data may, in the long run, be much more important for the economics of the industry than winning an Academy Award. Armed with this data, Hanssens says Netflix products could be one home run after another.

“And by products I mean movies or television series that they actually pretty much know ahead of time are going to work,” he said. “Which is of course, the mantra for the movie industry: Will it sell, will it sell?”

Fighting the At-Home Viewing Experience

While “social” has become a point of emphasis for pretty much every industry in the age of Twitter, Instagram and Facebook, technological advances have also left the film industry at a crossroads. On the one hand, filmmakers are doing innovative things with effects, sound, and picture quality. However, the call of the couch is beckoning stronger than ever, given the relative affordability of huge flat-screen TVs and powerful at-home sound systems as well as the trend of replacing actual human interaction with online communication.

More and more consumers are therefore faced with making the tough choice between watching movies, sporting events, and even concerts at home or in public. And given the economic turmoil of the past few years as well as our societal laziness, a sizeable contingent is choosing to access programming on their own schedule and with all of their creature comforts readily at hand.

As a result, movie studios, theater chains, professional sports leagues, and various other live entertainment organizations must figure out a way to add value to the in-person viewing experience as well as unearth new revenue streams. Sports franchises – both on the collegiate and professional levels – are doing this by building bigger video boards, adding new luxury suites, improving stadium Wi-Fi, providing alternate forms of game-day entertainment, and licensing just about everything. Movie theaters are making bigger, more comfortable seats as well as adding alcohol to the menu, emphasizing 3-D, and promoting visually-stunning films like “Gravity” that just don’t look as good at home.

But is the film industry doing enough? The National Football League, in particular, has been masterful at capturing viewer attention throughout the calendar year, turning visually-dull events like the Scouting Combine and Draft into appointment viewing for many people. The so-called No Fun League has also fully embraced fantasy sports and is beginning to incorporate dynamic pricing into ticket sales. Such strategies together promote engagement among a broader spectrum of fans and speak well to the league’s continued success.

While Oscar pools have become popular in certain offices and households, the film industry has not fully embraced the “fantasy” trend, which could be easily applied to the entirety of the Awards Season by establishing “leagues” where fans draft a roster of actors, films, and directors and earn points for every trophy they haul in. Dynamic pricing – where ticket costs fluctuate based on a particular film’s appeal or the weather, for instance – is not much in evidence either. Sure, you have to pay more to see a movie right when it comes out, versus waiting for it to be released On Demand, at Redbox, on Netflix, or on premium cable, but there is clear opportunity to take things a step or two further.

Ultimately, there is one thing that we know for sure: The film industry will be a far different place 5-10 years from now, much like the current landscape makes movies from the early 2000s look like they’re from the Stone Age. So grab your popcorn and stay tuned for a wild ride!

Oh, and if you’ve fully embraced binge viewing and cannot wait to see what’s in store, you can get a sneak peak by checking out more of what our film industry experts have to say below.

Meet Our Experts

  1. How Crucial is Oscar Season to the Big Movie Studios?
  2. To What Extent Does Winning an Oscar Impact Earning Potential?
  3. How has the business of making movies changed in recent years?
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  • Jonathan Kuntz Visiting Professor, School of Theater, Film and Television, University of California, Los Angeles
  • Dominique Hanssens Bud Knapp Distinguished Professor of Marketing, University of California, Los Angeles, Anderson Graduate School of Management
  • Gabriel Rossman Associate Professor of Sociology, University of California, Los Angeles
  • Michael J. Taylor Professor and Chair, Film and Television Production, Executive Director, Media Institute for Social Change, University of Southern California, School of Cinematic Arts
  • Kathryn Arnold Film Producer, Entertainment Consultant
  • Jeff Menne Assistant Professor of Marketing, Oklahoma State University
  • S. Abraham (Avri) Ravid Sy Syms Professor of Finance; Chairman, Finance area; Sy Syms School of Business; Yeshiva University
  • Michelle Zierler Professor of Legal Writing, Director, Program in Law and Journalism, Faculty Publisher, New York Law School
  • David Waterman Professor, Indiana University Bloomington, College of Arts & Sciences, Department of Telecommunications
  • Erik Johnson Assistant Professor of Digital Film & TV, University of Wisconsin-River Falls, Communication Studies & Theatre Arts Department
  • Michael Jensen Associate Professor of Strategy, University of Michigan, Stephen M. Ross School of Business
  • Jay Telotte Professor, Georgia Institute of Technology, Ivan Allen College of Liberal Arts, School of Literature, Media and Communication
  • William Greene Robert Stansky Professor of Economics, Toyota Motor Corp. Professor of Economics, Faculty Fellow of Entertainment, Media and Technology, NYU Stern School of Business
  • Chris Jordan Assistant Professor, St. Cloud State University, College of Liberal Arts, School of the Arts

Jonathan Kuntz

Visiting Professor, School of Theater, Film and Television, University of California, Los Angeles
Jonathan Kuntz
How Crucial is Oscar Season to the Big Movie Studios?

It is very important. Of course, Oscars are used in marketing and they’re so important to the publicity of films. It’s been that way since pretty much the 1930s, I’d say. So Oscars mean money. They can revive a film that has already died at the theater and give new life to films, and, of course, that can go on in the ancillary markets. The DVD packages will have stamped on them 'Oscar Winner' or 'Oscar Nominee'. Likewise, the worldwide publicity that comes out of the Oscars inevitably brings in more money in every market and in every form from then onward.

The Oscars mean money to the studios and so they take them seriously. The Oscar campaigns, of course, are very important since they’re spending a certain amount of money in the campaigns, but if they get nominated or win all that expenditure would be rewarded. We’ve seen, particularly in the 1990s when Harbvey Weinstein was so effective back with Mirimax at working the Oscars and getting nominations for films like ‘American Beauty’ and ‘Shakespeare in Love,’ that the Oscar can be huge for a mid-level or small film. It can really magnify the box office magnitude of those films. For a film like ‘The Avengers,’ it wouldn’t have been a big deal if it was nominated or not nominated for Best Picture because it’s already made so much darn money and it would just be a drop in the bucket. But, particularly for mid-level films, Oscars can be the difference between profit and loss.

How has the Business of Making Movies Changed in Recent Years?

The idea of the ‘big-screen experience’ is something that has been emphasized since the earliest days of movies. You can go back to the ‘50s when to battle television they introduced CinemaScope and VistaVision, and they went all color and everything to make the theatrical experience so much bigger and more special than the TV viewing experience.

I think that still goes on to this day, as we’ve see the 3D and IMAX influence in the recent years here. As people’s TVs get more and more sophisticated at home – bigger screens and better sound systems – they kind of have upped the ante, and the theaters have to ratchet things up as well – offer you a bigger seat, more comfort and everything else. Likewise, the movie companies have to put their money up there on the screen. Nowadays, that means the level of effects mainly have to look super spectacular.

Dominique Hanssens

Bud Knapp Distinguished Professor of Marketing, University of California, Los Angeles, Anderson Graduate School of Management
Dominique Hanssens
How Crucial is Oscar Season to the Big Movie Studios?

The importance of the Oscar season to the big movie studios is probably very important. And that is because the Oscars have developed their own brand. There are several awards, all over the world, but by virtue of some pretty good management over the years, the Oscars are a brand in and of themselves.

When you have a prestigious brand, any studio will want to have some association with that. And that is of course precisely why the studios do spend quite a bit of time, effort and money to try to get noticed. I actually don’t know how much money it is. But we see it here, especially in Los Angeles; there are all kinds of announcements.

Then there is the distribution of DVDs to the people in the Academy for consideration. They really make a concerted effort and that’s mainly because there are so many contenders, it’s difficult to get noticed. And so therefore the marketing effort is there in order to get noticed, and once you get noticed, you’ll hopefully make a positive impression and get nominated.

To What Extent Does Winning an Oscar Impact Earning Potential?

What you have here from a consumer choice perspective is risk reduction. If a film receives an Oscar it is almost a guarantee of a good experience. So, for people who really don’t want to investigate themselves whether or not the film will be to their liking, the Oscar is a signal of quality. And signals of quality, given that the price is the same because the movie ticket doesn’t change, are usually a strong motive to attend a movie that otherwise they wouldn’t attend.

There’s been some research that asks the question, ‘Are big stars worth the money?’ Because obviously the studios have to pay a great deal to have a marquee name. And the answer is while they help box office, they barely make the return. In other words, big stars are so expensive that if you factor in the cost of attracting a big name, it often actually washes off the incremental benefits.

And so, what you really have to look up more is the hiring of a marquee name more as risk reduction, rather than adding to the return of the movie. It’s more an insurance than it is net added value after you subtract the cost. If you were to ignore the cost it would be a great benefit, but obviously the cost is very high. So, the bottom line is that basically the strong actors are in sufficiently strong shape that they can extract most of the added revenue that they provide to a movie, in the form of their own compensation.

Gabriel Rossman

Associate Professor of Sociology, University of California, Los Angeles
Gabriel Rossman
How Crucial is Oscar Season to the Big Movie Studios?

Oscar marketing budgets run from a few hundred thousand to a few million. However you don't want to just count the cost of buying For Your Consideration ads in the trades and on billboards. The really big costs are in tailoring the film towards the Oscars in terms of its genre conventions, release date, etc.

To What Extent Does Winning an Oscar Impact Earning Potential?

It's complicated because it's nonlinear but there's a pretty strong effect. Under some circumstances Oscar nominations could increase a film's box office two or three fold.

How has the Business of Making Movies Changed in Recent Years?

There are a few big changes. One is the collapse of the DVD market and the rise of streaming. The other, and the one that is more relevant to the Oscars, is that the major studios have been eliminating their specialty divisions. Most recently Universal rebranded Focus Features to target more commercial films.

The thing to look for coming down the pipe is shrinking the video release window but so far this hasn't happened except for fairly small films with niche audiences. If this happens on a large scale it will probably be with Comcast/Universal but the National Association of Theater Owners has so far been very effective at resisting it.

Michael J. Taylor

Professor and Chair, Film and Television Production, Executive Director, Media Institute for Social Change, University of Southern California, School of Cinematic Arts
Michael J. Taylor
How Crucial is Oscar Season to the Big Movie Studios?

Oscar season and the potential of winning an Academy Award is extremely important to distributors. That is why they pour so much money into campaigns for their films, actors and directors, and all other collaborators. Receiving even a nomination can add millions of dollars to the box office gross of a movie, and winning an award assures even more.

To What Extent Does Winning an Oscar Impact Earning Potential?

Winning a prestigious award for an actor or a director allows their agents to increase their price for their next project because the award makes them more desirable.

Kathryn Arnold

Film Producer, Entertainment Consultant
Kathryn Arnold
How Crucial is Oscar Season to the Big Movie Studios?

The studios look at the Oscar season as a marketing bonanza for their films that receive good to excellent reviews during their initial release. The Oscar race tends to bode well for character and story driven films such as ‘Gravity,’ ‘Captain Phillips’ and ‘American Hustle’ which benefit from Oscar contention word of mouth.

The amount of money spent on lobbying efforts by the studios depends on the film and the competition in their category. When studios are going head to head in an Oscar race, they can spend up to $8-10 million dollars. And that can be money well spent, as Oscar nominations help extend the theatrical life of a film (thus adding to box office revenues,) and also significantly increase DVD/VOD dollars as well.

To What Extent Does Winning an Oscar Impact Earning Potential?

An Oscar win will invariably ratchet up a film's ancillary revenues (DVD/VOD) as the consumer will be more inclined to rent/stream an Oscar winner out of a batch of available films.

An Oscar winner (writer, director, actor) will be offered more films, and thus have an opportunity to ask for more money as they are in higher demand. If their next film is a hit, then they can really leverage their fee, and certainly bump up their back-end participation.

Jeff Menne

Assistant Professor of Marketing, Oklahoma State University
Jeff Menne
How Crucial is Oscar Season to the Big Movie Studios?

Oscar season, as I see it, is not particularly important to the going business model of the studios. The movies released during this season tend to confer prestige on studios, and they definitely add to a movie's revenue and a star's earning potential. But given that stars are free agents, not on contract as they once were, why would it matter to a studio if Jennifer Lawrence wins an Oscar?

The reason I don't think it's particularly important to the studios is that many Best Picture winners will do a domestic gross of something like $80 million. Of course, were ‘Gravity’ to win, that wouldn't be true; but I also imagine that's why ‘Gravity’ won't win – it's already won at the box office, domestic and worldwide. An $80 million domestic gross doesn't compare to the tentpole pictures, like ‘The Avengers’ or whichever superhero reboot happens in the summer months. That's where the studios bread is buttered, with the ‘spectacular entertainments’ and the animated movies that tend to travel really well around the globe but tend to be overlooked come awards season.

Now, the ‘studios’ Oscar season has been most important to the so-called mini-majors (Miramax, New Line, etc.). The Weinstein Brothers are obviously the wizards of shepherding a movie through awards season. You can see this simply by looking back at the Oscar nominations since the '90s. And they definitely put a lot of money into lobbying for their films and talent. I think it was said that they put $15 million into the Oscar campaign for ‘Shakespeare in Love.’ That's significant for a small movie like that – marketing might eclipse production costs.

Though I have no figures, I imagine with movies like ‘Winter's Bone’ and ‘Beasts of the Southern Wild’ the marketing cost is well higher than production. When the original outlay isn't that great, there's great return-on-investment in getting an Oscar, even a nomination. ‘The King's Speech’ is a great example – that was a projected $40 million domestic gross, say, that became something on the order of a $200 million gross.

But the mini majors, for all that this strategy carved out their niche, are not doing so well. Disney acquired Miramax, for instance, and then the Weinsteins formed their new company, and Disney had no use for Miramax. The real case study is Focus, which tried to make a living in this niche, but now James Schamus-- after being willing to tender his independence in exchange for Universal's capitalization-- has been fired. Many people worry these boutique subsidiaries (Fox Searchlight, so on) are going the way of the buffalo.

To What Extent Does Winning an Oscar Impact Earning Potential?

I think the correlation between an Oscar and the film's sales is very positive. An Oscar nomination will probably give a movie 30-50% more domestic box office, in part because it lengthens its run. And then it's great branding for DVD sales.

The stars that get nominated, or get the Oscar, benefit most when they're someone like Jennifer Lawrence, an unknown quantity who is suddenly A-list by virtue of Oscar's imprimatur. Their salaries will double. That's why, in fact, these stars often spend out of pocket for an Oscar. Their publicist's salary will double during Oscar season. The studios of course spend on acting nominations, but it's hard to parse that out from the overall promotional budget.

How has the Business of Making Movies Changed in Recent Years?

I don't know what Netflix is doing to the movies. My sense is it's doing more to TV. Netflix made the audacious move, and the necessary one as they saw it, to become a content provider. ‘House of Cards’ and ‘Orange Is the New Black’ and so on. They're trying to become an HBO, which is obviously the gold standard of content.

The fact that Netflix is releasing these shows all at once is a challenge to TV, whether a judicious one or not, because it means to shift the spectatorship model from appointment television to binge viewing. This while AMC is actually starting to protract the seasons of their hit shows (‘Breaking Bad’ and ‘Mad Men’ both splitting their final seasons into two seasons).

I would think that what Netflix does for movie production, on the other hand, is it makes small documentaries and low budget movies (Andrew Bujalski's movies, say) somewhat more viable. The model of studio movie making, though, is still very much predicated on the tentpole, the big spectacular movies like ‘The Dark Knight’ and the Marvel movies and so on.

There are some signs this model is pernicious, as it was in the late '50s and early '60s when the ‘Cleopatras’ and the big budget movies started to flop. Spielberg and Lucas both warned of this early in the year, and many thought that the weak performances of tentpoles like ‘The Lone Ranger’ was the prophecy fulfilled. But I don't see it changing soon. The international market is more than half the gross for those movies, and the tentpole spectacular is more or less necessitated by that fact.

S. Abraham (Avri) Ravid

Sy Syms Professor of Finance; Chairman, Finance area; Sy Syms School of Business; Yeshiva University
S. Abraham (Avri) Ravid
How Crucial is Oscar Season to the Big Movie Studios?

I had a paper back in 1999 that pointed out that hiring Academy Award-winning or nominated actors does not have any financial significance. In other words, saying I’ll take whoever wins on Sunday for my next project, that doesn’t change the financial outlook – at least statistically.

The film that wins Best Picture gets a bump now. But does an award say anything about an actor’s future earning potential? Not necessarily, and certainly not for the studios. If you hire someone that won, it doesn’t do you any good financially. Maybe it’s a good idea in terms of art, but in terms of finance – no correlation. Now, directors are different. Directors do have an impact on their films.

Your best bet in terms of getting some bang for your buck is to advertise good reviews. If someone sees that you got good reviews, this ad contributes to the success of the film financially. If you advertise stars, it’s actually sometimes negative. My interpretation might be, why are you advertising a star and you’re not telling us that someone like Siskel and Ebert says that it’s a great film? Probably because you don’t have anything to show. It seems that objective evaluation is your best bet for success in advertising.

How has the Business of Making Movies Changed in Recent Years?

Sequels and family films are the studios’ best bets financially, based on my statistical analysis of hundreds of films released over the course of decades. Of the top 10 grossing movies in 2013, eight of them are sequels and franchises. That’s the trend. In 1998, in contrast, none of them was a franchise or sequel.

As a result of this, my feeling is the Academy Awards race has become much less relevant. The top 10 grossing films are generally non-R-rated sequels, and the Oscars are all R-rated non-sequels. There is a total disconnect.

In the 20 years between 1984 and 2003, one and a half movies out of the five nominated for Best Picture were in the top 10 highest grossing movies of the year, on average. There was some correlation, as certain movies were doing well and still in the Oscar running.

In the following five years, none of the top grossing films appear in the list of Best Picture nominees, so they in 2009 increased the list of nominees to 10. The first year was successful. There were three top-grossing films among the nominees. And now, again, there is only one: ‘Gravity.’ So the disconnect continues.

I personally don’t blame the studios. The reason they do these sequels is people go to see them. It’s not that they produce them and somehow get the millions.

Michelle Zierler

Professor of Legal Writing, Director, Program in Law and Journalism, Faculty Publisher, New York Law School
Michelle Zierler
How has the Business of Making Movies Changed in Recent Years?

In recent years, movies have been made with an eye towards foreign distribution, where the real money is. Think franchise. Sequel. Prequel.

Nora Ephron- like movies are, alas, tough to get made, even by past hit makers like Lynda Obst.

David Waterman

Professor, Indiana University Bloomington, College of Arts & Sciences, Department of Telecommunications
David Waterman
How has the Business of Making Movies Changed in Recent Years?

It hasn’t changed much I would say. Netflix and other online video providers provide something like 8 to 10% of total studio revenues (I'm not sure of the number for the latest year). Netflix itself is the biggest online provider, but they generally don’t show movies until the subscription pay TV window, usually 8 to 10 months, I think now, after theater release. I doubt that this has had much influence on movie making.

Erik Johnson

Assistant Professor of Digital Film & TV, University of Wisconsin-River Falls, Communication Studies & Theatre Arts Department
Erik Johnson
How Crucial is Oscar Season to the Big Movie Studios?

I would characterize the importance of the Oscar season as a promotional vehicle to heighten awareness through media outlets and ultimately gain more profits from consumers.

In recent years major Hollywood studios have spent tens of millions of dollars on lobbying efforts and commercial advertisements to impact the desired result of more nominations and consumer name recognition in the media.

An interesting deviation of this profit driven model, was the recent case of filmmaker Casey Neistat who attracted attention after using the money given to him to produce a promotional video for the film 'The Secret Life of Walter Mitty' for the recovery efforts in the Philippines following Typhoon Haiyan which resulted in aiding victims of the disaster and generating a 'buzz' for the film with social media through the message of 'What would you do with $25,000.?'

To What Extent Does Winning an Oscar Impact Earning Potential?

The business of filmmaking has changed in recent years to becoming more open to independent films through the accessibility of equipment and distribution options, resulting in a more diverse marketplace for cinema fans beyond the mainstream.Films like 'Escape From Tomorrow' (a micro budget horror film shot entirely at a Disney World Resort without permission) received praise and publicity after being screened at Sundance Film Festival through creative marketing.

Independent films will continue to thrive in the future through diversified distribution options such as VOD (Video on Demand) and other online access points that circumvent the mega-studio control.

How has the Business of Making Movies Changed in Recent Years?

The VOD (Video on Demand) and Digital Media revenues generated by Netfilx and similar companies have surpassed traditional Box Office revenues in recent years resulting in higher quality original programming and a more diverse marketplace for major studio movies along with a growing number of independent films that will only continue to thrive as consumers have been conditioned to expect content that is delivered and available to them at their convenience.

Michael Jensen

Associate Professor of Strategy, University of Michigan, Stephen M. Ross School of Business
Michael Jensen
How Crucial is Oscar Season to the Big Movie Studios?

Artistic acclaim such as being awarded an Oscar can of course boost the attendance of a film – the film gets more publicity and the award functions as a signal of quality, making the film experience less uncertain for the audience.

All the films, however, may not always benefit equally from obtaining the Oscar stamp. My recent study with Heeyon Kim forthcoming at the Academy of Management Journal, using European films as the sample, for example, suggests that films distributed by a big movie studio do not benefit from opening in competition (typically a major artistic honor) at major film festivals such as Cannes, Venice or Berlin. On the other hand, critical acclaim makes a huge (positive) difference for films distributed by independent or smaller studios.

It seems that the film-goers look for consistency in signals: While artistic acclaim may convey a certain quality in a film it may not always be interpreted by the general audiences as a film that is familiar, comfortable or easily enjoyable. In sum, movie studios should be careful about how much they invest in the Oscars. The benefits will definitely depend on what kind of film they are marketing to which audience.

To What Extent Does Winning an Oscar Impact Earning Potential?

There are many studies showing that various awards whether it’s the film’s, actors’, or the director’s increase the film’s sales. The degree to which awards matter, as I mentioned above, will depend on the film. This year, for example, I can imagine that films such as 'Frozen' or possibly 'Gravity' did not need the Oscar nomination/win as much as some of the less commercial (more independent) films.

How has the Business of Making Movies Changed in Recent Years?

New distribution channels like Netflix do have important consequences for both the producers and the audience. On the one hand, it makes it easier for smaller distributors with smaller budget movies to reach the audience without having to open in theaters.

For the audience, however, having more content to choose from may make it more difficult to screen the films to find the ones that will meet their taste preferences. As a consequence, it could be that awards or critical acclaim become more important in that audiences will need more quality signals to distinguish between higher and lower quality films.

Jay Telotte

Professor, Georgia Institute of Technology, Ivan Allen College of Liberal Arts, School of Literature, Media and Communication
Jay Telotte
How Crucial is Oscar Season to the Big Movie Studios?

Indeed, the awards--of every type, but especially the Academy Awards--are important to the studios and distributors. They provide 1) a means of hyping films that are in current release, 2) of expanding current release patterns (as in the case of a film like 'Nebraska', for example, which had seen only selective release), 3) of re-releasing films that had already made their initial round of profits in the US and could now be put back out at minimal expense to expand the domestic grosses, and 4) especially to pump cable, on-line release (e.g., Netflix), and DVD sales.

An award allows the studio and/or distributor to charge more for release to cable, on-line distribution, or DVD, plus it opens up the potential for packaged releases with older films that might have largely played out their profitability already--e.g., at some point in the future we could well see Gravity anchoring a package of Alfonso Cuaron's 'fantasy' films, of science fiction films, or of films starring Sandra Bullock. This is perhaps a more subtle impact, but without something like an Academy Award it might not even be contemplated.

So yes, there is an immense impact for the studios, just as there is for the actors, directors, and to a smaller extent the writers and technical people, all of whom are, unlike during the heyday of the studio system (i.e., 1910s-1960), essentially free agents, constantly bargaining for parts and salaries. An award or even a nomination is leverage for both.

How has the Business of Making Movies Changed in Recent Years?

Right now I think a bigger player than Netflix might be found in the premium cable channels - HBO, Showtime, BBC, etc. - which have become prestige producers of limited, big-budget series and one-shot movies that themselves all have substantial post-broadcast earning potential - consider the DVD releases and even the enormous number of ancillary products like calendars, books, all sorts of souvenirs, etc. - as well as possible release abroad either in edited movie form or on other country's broadcast channels. Note who's appearing in these special broadcast efforts - many stars who, five years ago, would have seen TV as beneath them or as tying them down so long that they would miss out on big film projects.

William Greene

Robert Stansky Professor of Economics, Toyota Motor Corp. Professor of Economics, Faculty Fellow of Entertainment, Media and Technology, NYU Stern School of Business
William Greene
How Crucial is Oscar Season to the Big Movie Studios?

Since a lot of the lobbying is hand-to-hand and among personal contacts, money calculations would be misleading. The Academy has rules about this – a recent case had a movie removed from contention for a violation. Still, you have to believe that if they need these rules, the rules get breached.

To What Extent Does Winning an Oscar Impact Earning Potential?

Movie ‘sales’ is also a misleading indicator. A movie project has several release windows, and the familiar box office values are only a minority of the revenues – maybe a quarter to a third, of late.

My own guess is that with respect to actors, the causation runs in the other direction. The awards drive the movie, which drives the fortunes of the actors. The biggest names (e.g., Sandra Bullock in ‘Gravity’) get a percentage of the revenue stream. But, I believe over time, the studies and other producers have relied less on big name actors to drive the success of movies. Rather, the reverse.

I think the outcome is less clear with respect to famous directors. Here, it looks to me like success does breed success. Going to see ‘a Ron Howard film,’ is a tangible objective.

How has the Business of Making Movies Changed in Recent Years?

Over time, there have emerged other sources of entertainment. But, you have to distinguish between the ‘making’ of movies and the ‘delivery’ of movies. This is not the best time to own a movie theater, but the bad times in the movie theater business began about 20 years ago. Netflix and the like are about delivery, not about production.

What is changing is the way that people see movies. I'm not sure about change in the ‘making of movies.’ Again, the willingness of people to watch a movie on a 5 inch screen, all by themselves (something that surprises me) is about delivery, not about production.

One thing to watch is how in-home viewing will change the form and size of the revenue stream. ‘House of Cards’ is interesting from several viewpoints. The business model that studies have been using for films that begin life on big screens has to change completely for in-home viewing.

Chris Jordan

Assistant Professor, St. Cloud State University, College of Liberal Arts, School of the Arts
Chris Jordan
How Crucial is Oscar Season to the Big Movie Studios?

The Oscar season is very important to the big movie studios. They have always put money into lobbying for their films and talents by sending out ‘screeners’ to voting members of the Academy and by taking out full-page ads in major trade papers such as Hollywood Reporter and Variety. They also host lavish press junkets and make talent readily available for journalists.

Social media have also become increasingly valuable means of reaching fans directly and building both buzz and box-office receipts for key films. This is a particularly effective outlet because of the relatively low cost/high visibility effectiveness of this strategy.

To What Extent Does Winning an Oscar Impact Earning Potential?

There is a definite correlation between a movie/actor/director winning a prestigious award and that film's sales. There is no better way to validate a film or talent's critical merit than winning an Oscar.

Winning an Oscar oftentimes extends a movie's theatrical run and home-video popularity and can greatly increase an actor's salary and marketability for these reasons.< Studios oftentimes also include these critical accolades on DVD packaging. To make it even easier, studios also display cards at press junkets with words like ‘amazing’ and ‘incredible’ and simply have critics check these accolades as a means of conferring their agreement.

How has the Business of Making Movies Changed in Recent Years?

The business has changed enormously in recent years. The advent of high-definition TV and broadband Internet service have really made Netflix a major competitor.

Suddenly, Netflix is releasing its own critically acclaimed series (e.g., ‘Orange is the New Black,’ ‘House of Cards’) on a ‘wide’ basis that was once only available to Hollywood studios with the distribution and marketing muscle necessary to do so.

Many Hollywood insiders expect this trend to accelerate and perhaps even lead to the extinction of the Hollywood blockbuster, especially given the critical drubbing such big budget releases often take.
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John Kiernan is Senior Writer & Editor at Evolution Finance. He graduated from the University of Maryland with a BA in Journalism, a minor in Sport Commerce & Culture,…
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