In 1980, The Clash put out a movie called “Rude Boy.” Says IMDB: “Rude Boy is a semi-documentary, part character study, part ‘rockumentary’, featuring a British punk band, The Clash. The script includes the story of a fictional fan juxtaposed with actual public events of the day, including political demonstrations and Clash concerts. Filmed over a period of years, the written dialog takes on the appearance of improvisation.”
Being a fan of The Clash, and also being a fan of la Nouvelle Vague, it seemed to me like it was a winning combination. So I traipsed on down to the Ken Theater in San Diego – the only place that ever would show something like this, it’s kinda like the NuArt on Santa Monica by the 405 in Los Angeles. My brother and girl-friend (now wife) (of 25 years) came with.
Things started promisingly enough. Both me and Dan (brother) were starting to get into it. Judy (girl-friend), however, did not seem to be appreciating the aesthetic merits of the film. In fact, she was getting down-right restless. I can remember taking someone to a McCoy Tyner concert once at Royce Hall in UCLA. I was enraptured; she started crying. I thought it was because the music was so beautiful. However, as I turned my head, she whispered to me, in a rather loud voice, “This is so horrible I’m going to start screaming if we don’t leave this very minute!” Needless to say we departed the premises post haste. Having been there, done that, I didn’t exactly want a repeat of this sort of episode, here at the Ken. So, we left.
Judy now characterizes the incident in economic terms. “It’s pointless,” she might say, “to keep watching a movie you don’t like” (ignoring the fact she seemed to be the only one who wasn’t liking it). “Even though you paid for the ticket (i.e., the price of the admission ticket, to get into the theater), your time still is valuable, so you shouldn’t have to sit through it and suffer. You (that is, me, David) on the other hand, seem to be more concerned with amortizing the economic value of the price of admission, over the time spent watching the movie.” [These weren’t her exact words, I’ve kinda translated them into faux economic-ese.]
I, on the other hand, had more of what might be called an aesthetic perspective. “You have an obligation,” I might say (wait a minute, since this is me talking, I actually am saying it), “to see the film-maker’s work through to its conclusion. Having made the commitment to view the work, by entering the theater, one must discern the film-maker’s concept and intention, by watching the film until it ends, so you fully can appreciate the film as an aesthetic totality, not just as a fragment of something.”
Furthermore, to address the economic issue, you pay the price of the ticket under either scenario, so this factor cancels itself out of the equation. Either you want to see the movie, or you don’t. Put differently, would you go see it, if there was no price of admission, and it simply were free? While obviously she wouldn’t, the problem is a bit more complex, because she “went along with” the concept of seeing the movie initially, only to become disenchanted, as it continued to screen. In fact, you don’t go to a movie, to begin with, unless you believe there’s a possibility you’ll like it. It therefore might be more accurate to characterize the “real” issue as, when do you bail out; and does/should the price of admission have anything to do with this decision.
Incidentally, perhaps this is the reason why movies don’t charge “by the minute.” For example, say you paid $2.00 for a ticket, and then there was a little meter you had to put money into every half-hour or so, in order to keep watching – kind of like electricity once was in Britain. It’s interesting to imagine how many people would depart the theater – that is, forfeit their investment – versus sticking around, either because (a) they liked the movie, or (b) being loss-averse, they were concerned about inefficient amortization of their investment, to that point. Then, try figuring out which is which.
An economist might adopt Judy’s perspective – why both (a) pay the price of admission, and, (b) suffer. If you don’t like the movie, by all means, please get up and leave; in fact, not to do so, should be characterized as a species of economic irrationality. Framing it slightly differently from my perspective, I might derive more utility (or personal welfare, or whatever) from watching the movie, than some alternative deployment of a scarce economic resource (my time). For her, however, it was exactly the opposite.
Besides, economists aren’t aestheticians.
This debate still has not been resolved. No, it isn’t an argument, we conduct this discussion under the most refined and dignified circumstances.
In economic theory, of course, this is known as the Fixed Cost (or “sunk cost”) problem. Fixed costs are those one must incur in connection with an enterprise, regardless of its success. Variable (or “marginal”) Costs, on the other hand, are those accruing on a per-unit or per-incident basis. In order to get a complete, accurate picture of the true costs of any project, it’s necessary to amortize the fixed costs, over the number of units (or whatever) sold, in addition to their variable costs.
An example is running a record company. You need to spend a certain amount on overhead – personnel, T&E, SG&A, etc., regardless of whether you sell a single record. The costs to manufacture, distribute, market and promote the record, and royalties, augment only as records actually are sold (OK, there are some quasi-fixed costs, like advances to artists, forward marketing commitments, and the like, but you get my point).
Variable costs can be incurred, initially, on a nominal basis; for example, you can make 1,000 records instead of 50,000, depending upon your expectation of consumer demand for the work. It’s not necessary to commit to the full 50,000, in advance. The reason why is, you can fabricate more of them, quickly, if additional demand materializes. In fact, in this circumstance, it’s likely variable costs actually will reduce, as a greater quantity of units is ordered. You need to create a kind of “defense early-warning network” in order to be able to discern this momentum (or lack thereof), accurately. In particular, you need to know when to stop putting records in the marketplace; the last records you make, are going to be the hardest ones to sell.
The film business, however, is the exact reverse. It doesn’t cost much to start up a film company – personnel, rent, T&E, communications, development costs, a few other overhead items. The total of these amounts pales, however, to the cost of actually making the movie, itself. A film company with $1 million per year in overhead (fixed costs), making four movies per year costing $5 million each (variable costs), is a completely different beast than a record company with $1 million per year in overhead, releasing twelve records per year costing $100 thousand each, or even $250,000 each. Classic microeconomic theory says fixed costs should be ignored in making a resource allocation decision. Certainly for the film business, this is (dangerously) incorrect.
It seems peculiar, few of those involved in either business, understand this dynamic. In any endeavor depending for its sufficiency and vitality upon consumer acceptance of an aesthetic work, you’ll know fixed costs down to the dime; and, you can quantify variable costs, with a high degree of accuracy. The one piece of information you’re missing, is, how many are you going to sell. And you’ll never know this number, in advance, with any degree of certainty. Sure, you can guess; a more sophisticated approach is to create “low,” “medium” and “high” output scenarios. And, there are a variety of ways to hedge your exposure, to some extent. Even with something like collateralizing film securities, there’s still a quantum of risk – that last 15% (or 10%, or 5%) of the negative cost, unaccounted for by pre-sales, distribution contracts, gap loans, or other financial commitments.
This “risk factor” in turn is one of the reasons for copyright protection of intellectual property – to assist the creator of the work in recouping its fixed cost investment. And, one of the reasons why “piracy” of intellectual property can be so damaging – the infringer makes no contribution to recovery of fixed costs. In fact, the prospect of infringement, when coupled with the market uncertainty inherent in the venture to begin with, might deter the creator from proceeding at all, ab initio.
This also is why the project of “forecasting” or “budgeting” in the entertainment industry is so ludicrous. And, most likely, counter-productive. For example, you can forecast revenues versus cost stupidly, in which case the project will get approved, but it will fail in the marketplace. Then, you’ll get fired. Or, you can forecast revenues versus cost accurately, in which case the project won’t get approved (because it doesn’t make financial sense), but then there won’t be any raison d’être for the company to exist. Then, you’ll get fired. To quote Simon & Garfunkel from “Mrs. Robinson,” “any way you look at it, you lose.”
I am firmly convinced, in any “creative” business, there’s no answer to this dilemma; you’ve got to make something equivalent to a leap of faith, and press forward, despite the unavailability of accurate marketplace data. You need to incur costs, possibly beyond the point of recovery, even though there might not be any justifiable reason to do so. As Macbeth said to Macduff: “My soul is too much charged with blood of thine already.”
On the other hand, if you adopt a strictly empirical approach, and it’s necessary to assemble a full set of reasons in order to do anything, then you will do nothing, because there always will be dozens of reasons not to do something. You will, however, achieve a condition of complete stasis — an unacceptable result, especially for a company afloat in the dynamic milieu of pop culture. You therefore must rely upon your aesthetic instincts. The measure of success for any creative company should be the extent to which the aesthetic instincts of its executives are correct, as measured by over-all success in the marketplace.