Academy Awards and Dollars

1. The Best Picture award winners have a median rank of ninth at the box office for the relevant year.

2. The pictures with Best Actor winners have a median rank of nineteenth.

3. The Best Actress award movies have a median rank of thirty-two, in other words these movies tend to be niche pictures, not big hits. Women don’t get the best starring roles in the hits.

4. Big studio blockbusters won Best Picture awards for many decades, The English Patient broke this pattern in 1996.

5. Over the last two decades, the Golden Globe “Best Picture – Drama” winner matches with the Best Picture winner 70 percent of the time.

6. Rob Schneider has applied to be a voter on the Academy Awards; to this date he has been refused. Mike Myers and Martin Lawrence are allowed to vote. Most of the voters are within the movie business and many have close links to the films under consideration.

The economist in me: I would design the awards to maximize the profits of the movie industry. Winning a major award boosts a picture’s box office appeal. So ideally the awards should go to the pictures with the highest elasticities of appeal, with respect to the award. This will be correlated with absolute levels of popularity, but not exactly. Might an older demographic see Return of the King holding a Best Picture award, but not otherwise? In contrast, most people won’t see a horror movie no matter what, so horror films are unlikely to win Best Picture awards.

The very existence of the awards encourages box office as well. The time leading up to the awards should be full of debate, controversy, and suspense. Award winners should not be too predictable. Furthermore the winning picture should reflect glory on the awards, rather than draining reputation. Historical spectaculars, or pictures with a high-brow element, are ideal. The awards should maximize profits over time, not just year-by-year.

Some of the awards should be given to indies, or to other minor players in the film industry. For the awards process to have maximum impact, it should command maximum legitimacy and loyalty from all points of view. Don’t let anyone feel totally left out.

Nor should you let controversial black singers bare their breasts at your mainstream audience.

Let voters receive gifts and special favors from directors and movie studios. This process of “bribery” will allow the final voting outcome to maximize profit, albeit with some uncertainty around the edges.

Did I mention that the award should make America look good? Cold Mountain, which was “outsourced” and filmed in Romania, was not a good candidate this year and indeed it was slighted in the nominations process.

That is how I would maximize profits with the award.

Hey, isn’t this what they have done?

Addendum: Read Alex on the Academy Awards.

“Not that there’s anything wrong with that…”

The stars of Seinfeld have made a deal that will allow the release of DVDs of the series. Jerry Seinfeld’s three costars had been complaining because they had been cut out of royalty payments for the series. “I’m not ashamed to talk numbers. I [Jason Alexander, or George Costanza] would say in the years that we’ve been in syndication, Julia, Michael and I have probably individually seen about a quarter of a million dollars out of residuals, whereas our brethren have seen hundreds of millions of dollars. Seinfeld has a profit of over a billion dollars.”

Got those numbers? That’s one billion for the Seinfeld show, co-stars less than one million total.

My take: Seinfeld himself and co-creator Larry David reap a big share of the residual rights. The co-stars were cut out from the beginning, and it is standard practice that actors receive nothing from the sale of DVD rights.

I’ve said it before and I’ll say it again. The poor deserve special attention because of their low standard of living in absolute terms. But I have nothing against inequality per se.

Here is the full story, which also sheds light on envy and pride as core human causes of wage and price stickiness.

Addendum: A reader, Robert Schwartz, cites Forbes on “Elaine’s” father, Gerard Louis-Dreyfus, who is worth $2.9 billion.

Is the music business dying?

…with album sales rising and the phenomenal growth of ringtones and legal downloads, plus record-breaking years for merchandising and publishing rights, it seems the death of the music industry has been greatly exaggerated.

According to recent record industry figures, UK sales rose by 4% in the first half of last year. The Publishing Rights Society reported that performance royalty collections (everything but record sales) in 2003 were the highest since records began in 1914.

In the US, Billboard Boxscore reported that the number of live music events worldwide was up by 25% in 2003 (generating £1.2bn in North America alone). Legal sales of downloadable songs topped 2m units a week for the first time last week. Apple’s iTunes service has sold more than 30m songs, and has yet to celebrate its first birthday.

Moreover, the astonishing growth of the ringtone market continues to take everyone by surprise. Estimates as to its true size vary widely from a conservative £600,000 from Jupiter Research to a bullish £1.9m by the ARC Group.

And all this is happening in the age of illegal filesharing.

Here is the full story.

So is the music business dying? Or are downloads, even illegal ones, complements to many kinds of musical services? Will the music business win its competition with DVDs for our dollars? Perhaps the real battle is not “stolen music vs. property rights in music” but rather “music as a whole vs. many other ways of grabbing your attention.” You tell me.

Why Haitians periodically flee the country in large numbers

The United Nations’ Food and Agriculture Organization says half of Haiti’s 8 million people can’t meet their minimum food requirements. Relief groups say the number is growing because fighting and chaos have forced them to cut deliveries outside Port-au-Prince.

The U.N. calls Haiti “a silent emergency,” ranking it below war-torn Afghanistan, Ethiopia, Somalia, Sudan and Congo in key health, sanitation and poverty indicators.

That estimate is from before recent troubles. There are so many reasons for this state of affairs, environmental catastrophe is one factor often overlooked:

Rural Haitians live amid barren mountains and valleys that have been stripped of life. The hunt for trees to burn into charcoal for cooking fuel has left the once-lush country with forest coverage of less than 1%. Without mango, gayoc and eucalyptus trees, most of the island’s fertile topsoil has washed into canals, silted up streams and lakes or cascaded into the ocean.

“It’s so environmentally degraded it can’t produce even basic food,” Erikson says.

That is why the Haitians say: “The goat which has many owners will be left to die in the sun.”

What does this all mean? If there is any perturbation in basic conditions, or the ability of Haitians to trade, many more people are plunged below the starvation line. During the last Haitian political crisis about 80,000 Haitians left for our shores, usually with no real plan in hand. Just about any gamble beats staring death in the face.

Half-full or Half-empty?

Front page headline from the Washington Post (Fri. Feb. 27):

Iraqi Cleric Yields on Elections: Agrees to Delay of Six Months

Front page headline from the New York Times (same day):

Iraqi Ayatollah Insists on Vote by End of Year

The Wash. Post headline is more accurate because it is the change in position that is the news but in the end it may be the NYTimes headline which proves more important.

The U.S. Government is Bankrupt

“…the U.S. government [is] effectively bankrupt”

“…when rational gloom sets in, the U.S. economy will likely ‘go critical.'”

“…the decline and fall of America’s undeclared empire will be due not to terrorists at our gates nor to the rogue regimes that sponsor them, but to a fiscal crisis of the welfare state.”

Who is making these wild statements? Is it a “not-to-be-trusted”, liberal economist like Paul Krugman or Brad DeLong each of whom have warned of an impending “fiscal train wreck” and “fiscal catastrophe”? No. The statements are from Laurence Kotlikoff, one of the world’s most prominent economists, and Niall Ferguson, one of the world’s most prominent historians – both are whom are considered to be conservatives (more on that shortly).

Kotlikoff and Ferguson base their gloomy forecast on a study commissioned by Paul O’Neill before he was booted out of the administration. The study says the following: we know that there will be a deficit this year and one next year and probably one after that – suppose we add up all the future deficits and surpluses for as far as we can see and discount these to present value. What do we get? The answer: 45 trillion dollars of debt.

We do not have 45 trillion dollars. What then can we do? Here is why conservatives should not ignore the warnings of Kotlikoff and Ferguson, even when they deride similar pronouncements from Krugman and DeLong, because Kotlikoff and Ferguson argue that taxing ourselves out of this mess is not a desirable option. Instead, they argue that we must a) “discipline Medicare spending” (this was written before the prescription drug plan passed!) by eliminating “entirely the traditional fee-for-service option and giv[ing] all Medicare participants a voucher to purchase private health insurance.” and b) “privatize social security.”

Kotlikoff and Ferguson are not optimistic about the political viability of these actions, hence the opening quotes.

I worry when intelligent people on both the right and left start to talk about the U.S. “going critical.”

Good news: our senators are really, really smart

US senators’ personal stock portfolios outperformed the market by an average of 12 per cent a year in the five years to 1998, according to a new study.

“The results clearly support the notion that members of the Senate trade with a substantial informational advantage over ordinary investors,” says the author of the report, Professor Alan Ziobrowski of the Robinson College of Business at Georgia State University.

He admits to being “very surprised” by his findings, which were based on 6,000 financial disclosure filings and are due to be published in the Journal of Financial and Quantitative Analysis.

“The results suggest that senators knew when to buy their common stocks and when to sell.”

First-time Senators did especially well, with their stocks outperforming by 20 per cent a year on average – a result that very few professional fund managers would be able to achieve.

“It could be argued that the junior senators most recently came out of private industry, so may have better connections. Seniority was definitely a factor in returns,” says Prof Ziobrowski.

There was no difference in performance between Democrats and Republicans.

A separate study in 2000, covering 66,465 US households from 1991 to 1996 showed that the average household’s portfolio underperformed the market by 1.44 per cent a year, on average. Corporate insiders (defined as senior executives) usually outperform by about 5 per cent.

The Ziobrowski study notes that the politicians’ timing of transactions is uncanny. Most stocks bought by senators had shown little movement before the purchase. But after the stock was bought, it outperformed the market by 28.6 per cent on average in the following calender year.

Returns on sell transactions are equally intriguing. Stocks sold by senators performed in line with the market the year following the sale.

When adjusted by the size of stocks, the total portfolio returns outperformed by 12 per cent a year on average. The study used a total market index as the benchmark for comparison.

Here is the full story. Here is the home page of the researcher, Alan Ziobrowski. I haven’t scrutinized or even read the original study, but right now I will bet this is true.

Thanks to Jane Galt, who is just back from Mexico, for the pointer.

How The Da Vinci Code became such a hit

Yes readers love it but Barnes and Noble pushed it. The author, Dan Brown, was largely unknown in the world of publishing. But Doubleday distributed a remarkable 5000 advance reader and review copies. Internal readers in Barnes and Noble loved the story and the bookseller was on board. Advance orders from the store upped the print run from an initial 60,000 to 230,000 copies. Some Barnes and Noble stores hired greeters to tell customers about the novel. The book debuted at number one on The New York Times bestseller list and has held strong ever since.

And why should Barnes and Noble care? Competitive pressures are forcing them to promote their products to greater degree. The company faces low price competition from discounters such as Costco. If your bookstore can’t compete on price, it has to emphasize quality dimensions, such as being a source for new and hot book ideas.

The usual story suggests that price competition prevents the more expensive retailer from offering ancillary services. You could speak to the stereo salesman at the good shop but buy at the cheap shop. But the cheaper the per unit value, the more likely a store can profit from offering bundled services. It is not worth your while to hear about The da Vinci Code in Barnes and Noble and then drive to Wal-Mart to buy it. In other words, expect more concerts at your local book superstore. And expect book superstores to take a growing role in shaping consumer taste.

I read the book and was repulsed, though I will admit to finishing it, for reasons of research obviously.

There are now 6.1 million copies of The da Vinci Code in print, the title is slated to become the fastest-selling non-Harry Potter book ever, surpassing Bridges of Madison County.

Some of the above information is drawn from the March 8 issue of Fortune.

Is astrology more scientific than economics?

Many Europeans seem to think so. Here is the original data, scroll to p.21 (pdf) to see the data, the rank ordering for “degree of scientific” is the following:

1. Physics
2. Medicine
3. Biology
4. Astronomy
5. Psychology
6. Astrology
7. Economics
8. History

Thanks to Randall Parker for the pointer.

Addendum: A Charlie writes: “Why not? At least, given the same date, time, and location, two astrologers will agree on all the major points.”

Facts about downsizing

Downsizing occurs when a firm lays off workers to economize on costs. So what do economists know about this phenomenon?

1. About half of all downsizing firms end up with at least as many laborers within a few years’ time. Downsizing is often a matter of restructuring a labor force, not just getting rid of dead wood. In other cases downsizing may be purely temporary, and is reversed once the firm has some extra cash.

2. Downsizing in manufacturing is nothing new and has been going on since 1967. That being said, the smaller manufacturing firms generally have been increasing employment. The notion of “regression toward a mean” describes the manufacturing sector better than the universal downsizing hypothesis.

3. Downsizing is positively correlated with the degree of foreign competition in a sector. So trade does encourage firms to cut their costs.

4. Manufacturing is fifteen percent of the U.S. labor force and thus only a small part of the downsizing story. Retailing and services have been upsizing considerably for many years.

5. Downsizing firms tend to increase their profits but not their productivity. Downsizing commonly leads to lower wages within the downsizing firm. There is evidence for the “wage squeeze” story.

From the recent Downsizing in America: Reality, Causes and Consequences, by William J. Baumol, Alan S. Blinder, and Edward N. Wolff.

The authors conclude the following:

…no special programs appear to be called for, aside from measures to ease the transition of downsized workers to other jobs…the evidence provides no support for the conjecture that the economy is undergoing widespread and protracted reductions in the size of the typical firm’s labor force.

Tom Friedman on outsourcing

…when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance – answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks – I was prepared to denounce the whole thing. “How can it be good for America to have all these Indians doing our white-collar jobs?” I asked 24/7’s founder, S. Nagarajan.

Well, he answered patiently, “look around this office.” All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.

Read the whole column.

Addendum: Here is Virginia Postrel’s latest piece on trade.

Second addendum: How about this press release, India awarding a big contract to Hewlett-Packard, thanks to Kevin Bone for the pointer.

A Federal Marriage Amendment

Press release from a universe just parsecs from our own:

President Bush today announced support for the Federal Marriage Amendment to the constitution. “Marriage is a sacred institution” said the President “If we are to prevent the meaning of marriage from being changed forever, our nation must enact a constitutional amendment to protect marriage in America…Marriage cannot be severed from its cultural, religious and natural roots without weakening the good influence of society.”

Bush called on Congress “to promptly pass and to send to the states for ratification” an amendment to define marriage as a sacred union. Liberal courts, said the President, have undermined the institution of marriage by not taking seriously the damage done by those who violate their covenant with God and spouse. Calling for a return to family values, the President said the Federal Marriage Amendment will bring back the traditional penalties for those who violate their unions thereby restoring marriage to its rightful place at the center of a civilized nation.