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Why do films flop?

The Disney sci-fi flick John Carter has become one of the biggest flops in movie history. The studio has announced that the film’s theatrical run will lose $200million.

There has been a huge amount of comment in the media about why this happened.  On Yahoo!, for example, several reasons were put forward.  For example:  the advertising campaign was bland; Taylor Kitsch is not a leading man; the title was wrong; the reviews were bad.

Other huge loss makers have figured in the discussion.  In 2011, Mars Needs Moms lost $110million.  Sahara in 2005 and Green Lantern in 2011 both had strong lead actors, and both grossed takings well in excess of $100million.  But the costs far exceeded this, and both lost over $100million.

There is a long list of massive failures going back many years.  Ex post, once the film has failed, many reasons are put forward to explain why it happened.  Ex ante, however, in every single case, the producers believed the film would make a profit and not a huge loss.  And commentators who seem so erudite in explaining failure after it has happened rarely, if ever, succeed in making a successful prediction of the failure.

There will be specific reasons associated with each failure.  But there is a much more fundamental reason, deeply rooted in how popular culture evolves. ‘Popular culture’, incidentally, does not refer simply to films, music, or television shows.  Performances of Wagner’s Ring Cycle at Bayreuth have on occasions been very badly received by the highbrow audience.

Even though the people at this festival by definition are devotees of Wagner, even though they adore Götterdämmerung as an opera, until they have seen this particular performance, they do not know whether they will like it or not.

More fundamentally, their opinions are shaped not just by their own personal evaluation, but by the reactions of others in the audience.  Someone may feel the performance was rather good, but he or she can observed directly the reactions of others immediately around them, and can hear the general reactions across the audience as a whole.

In the same way, people react to films, spreading their opinions by word of mouth and by blogs.

Positive feedback, the response to how everyone else is reacting, creates massive inequalities of outcomes in film successes and failures.  And this may be only tenuously related to the objective attributes of the film, such as the presence of stars or whether it has a good story.

The American economists Arthur De Vany and W. David Wallis published an article in the Economic Journal in November 1996, using a formal mathematical model to account for success or failure in the American cinema and testing it by comparing its properties with those of the weekly data provided by Variety’s Top 50 films in America.  The principle of positive feedback operates with devastating effect.  During the nine months which they analysed, the top four films took over 20 per cent of all box office revenues, and the bottom four less than one hundredth of one per cent.

But the process of the evolution of preferences to a popular culture offer such as a film involved inherent, massive uncertainty, which no amount of pre-planning can overcome.  People do not have fixed tastes and preferences, as economic theory assumes.  They evolve over time, and they do so in part in response to the choices and decisions of others.

by Paul Ormerod

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