July 3, 2006

The Random Walk theory of Hollywood success

The Random Walk theory of Hollywood success: The LA Times runs a long article by a physicist explaining that chaos rules in determining which films will be successes and which won't:

Meet Hollywood's Latest Genius:
Then again, in 6 months he could be a loser. Box-office success is more random than you may think.
By Leonard Mlodinow

The fact is, financial success or failure in Hollywood is determined less by anyone's skill to pick hits, or lack thereof, than by the random nature of the universe. The typical patterns of randomness—apparent hot or cold streaks, or the bunching of data into clusters—are routinely misinterpreted and, worse, acted upon as if a new trend had been discovered or a new epiphany achieved. And so, despite a growing body of evidence that box-office revenue follows the laws of chaotic systems, meaning that it is inherently unpredictable, the superstructure of Hollywood's culture—that pervasive worship of who's hot and the shunning of who's not—continues to rest on a foundation of misconception and mirage....

When Viacom Chairman Sumner Redstone bought Paramount Pictures in 1993, he inherited Sherry Lansing as studio chief and decided to keep her on. Until just a few years ago, that seemed brilliant, for, under Lansing, Paramount won best picture awards for "Forrest Gump," "Braveheart" and "Titanic" and posted its two highest-grossing years ever. So successful was Lansing that she became, simply, "Sherry"—as if she were the only Sherry in town. But Lansing's reputation soon plunged, and her tenure would not survive the duration of her contract.

In mathematical terms there is both a short and long explanation for Lansing's fate. First, the short answer. Look at this series of numbers: 11.4%, 10.6%, 11.3%, 7.4%, 7.1%, 6.7%. Notice something? So did Redstone, for those six numbers represent the market share of Paramount's Motion Picture Group for the final six years of Lansing's tenure between 1999 and 2004. The trend caused BusinessWeek to speculate that Lansing "may simply no longer have Hollywood's hot hand." In November 2004, she announced she was leaving, and a few months later Grey was brought on board.

How could a sure-fire genius lead a company to seven great years, then fail practically overnight?...

Postdiction is less impressive than prediction. But as the final chapter of Lansing's career shows, postdiction is how Hollywood does business.

Academic research provides an alternate theory of Lansing's rise and fall: It was just plain luck. After all, a film's path from Lansing's greenlight to opening weekend is subject to unforeseen influences ranging from bad chemistry on the set to nasty competition in the theaters, and even after the movie is in the can its appeal is difficult to judge. So one could argue that what is farfetched is not the comparison of Lansing's success and failure to the tossing of darts, but rather the belief that a studio chief's taste can really matter. That's not a popular viewpoint in Hollywood, but there are exceptions, such as former studio executive David Picker, who was quoted in "Adventures in the Screen Trade" as having admitted, "If I had said yes to all the projects I turned down, and no to all the ones I took, it would have worked out about the same."

Few people—including Lansing—wish to discuss it, but in Lansing's case there's already evidence that she was fired because of the industry's flawed reasoning rather than her own flawed decision-making. It's too early to determine how Brad Grey is doing, because Paramount's 2005 films (and even half of 2006's) already were in the pipeline when Lansing left the company. But if we want to know roughly how Lansing would have done in some parallel universe in which she had not been forced out, all we need to do is look at the data from last year.

With films such as "War of the Worlds" and "The Longest Yard," Paramount had its best summer since 1994 and saw its market share rebound to nearly 10%. That isn't merely ironic—it's one of the characteristics of randomness called regression to the mean: In any series of random events, an extraordinary event is most likely to be followed, due purely to chance, by a more ordinary one. Thus an extraordinarily bad year is most likely to be followed by a better one.

A recent Variety headline read, "Parting Gifts: Old regime's pics fuel Paramount rebound," but one can't help but think that, had Viacom had more patience, the headline might have read, "Banner year puts Paramount and Lansing's career back on track." [More]

I've been a big believer in screenwriter William Goldman's famous 1983 pronouncement that "Nobody knows anything" about what films will be a hit.

Certainly luck plays a huge role, but, on the other hand, talent does too. Sherry Lansing during her unluckiest year would still be a much better studio head than, say, I would be during my luckiest year. "Talent" includes the ability to function on little sleep, the self-confidence to make decisions quickly, the ruthlessness to step on the dreams of a lifetime and the personal warmth to keep too many people from hating you for it.

Something to keep in mind is that at the very top of the decision-making pyramid, the big decisions are often the ones that the underlings couldn't decide upon because they are too much of a toss-up. The nobodies who get $150 to read screenplays throw out the vast majority of movie ideas. The ideas that make it to Sherry Lansing's desk are the ones that, objectively, are close to a coin flip, so it's not surprising that no executive's batting average at the top is all that good.

Say that somebody has brought you this package to greenlight -- Steven Spielberg to direct Brad Pitt and Julia Roberts in Dan Brown's next bestselling thriller. Can't miss right? Unfortunately, the agents for Spielberg, Pitt, Roberts, and Brown all know that too, so they want you to commit to paying $70 million in above the line costs just for the Big 4, plus $110 million in production costs, plus $80 million in marketing, for an investment of $260 million, not counting interest costs, which will be in the tens of millions. Okay, now is it such a sure thing? Can you make a profit on this? Well, now it's pretty much of a toss-up as to whether it would pay-off or not, so any idiot who can flip a coin probably wouldn't be all that much worse at making the go-no go decision than Sherry Lansing would be. But the point is that this opportunity would never be brought to any idiot, only to somebody with a long track record of making things happen.

So, you can't be too young. But, you can't be too old either.

Analogizing from sports statistics, it's also apparent that even the most talented have peak years and burn out eventually. (Frequently, an individual's best years precede the peak of his fame by quite some time.) Jobs like running a studio that require tremendous energy are particularly hard to do past a certain age. Soccer players, for example, tend to be washed up around 30. There's now much discussion over whether 31-year-old David Beckham is too old to continue to play for England. On the other hand, he has the kind of specialized skill that serves an old player well -- on free kicks, nobody can bend it like Beckham still can. As you get older, you want to do a few things extraordinarily well because you won't be able to do everything well.

Running a studio, however, is more the job for an energetic generalist than an aged specialist. Lansing turned 60 in 2004, which is rather old in the dog years of moguldom.

My published articles are archived at iSteve.com -- Steve Sailer

No comments: