Decision of Uncertainty, Essay Example

Fine Line Productions has requested a movie industry analysis in order to identify the most profitable genre and target audience and to predict box office revenue for Phantom Invasion. The main questions center on what genres are most profitable and what the expected revenues might be. To conduct this analysis, researchers compared industry data while controlling for variation using standard statistical techniques.

Research

First, the question of how different movie genres perform at box office is addressed.  Upon examination of the following descriptive statistics, it is found direct comparisons are not appropriate because nominal data cannot be used for statistical comparison. One measure that would allow for direct comparison is an adjustment by means of a Coefficient of Variation.

Table 1: Summary measures of box office takings by genre.

(Top-Grossing Genre, 2011)

It is calculated as follows.

Coefficient of Variation = (standard deviation/ mean) x 100%

Sci-Fi

238,314,536/497,768,775      x 100%           =          47.88%

Action

113,439,411/395,000,164      x 100%           =          28.72%

Black Comedy

19,854,281 /29,862,967         x 100%           =          66.48%

Thriller

175,964,950 /265,664,195     x 100%           =          66.24%

Interpretation of Most Profitable Genre

Revenues from Black comedies are the most volatile followed by thrillers then Sci-Fi followed by action films. The major shortcoming of this method is that it is purely relative across genres based on the inverse of the mean. Even though it is used as technique of drawing conclusions across genre, it really just expresses the relationship of standard deviation and the inverse of the mean of each group

Next, the question of what predicts total box office takings for a movie is addressed.  Data relating to 50 biggest grossing movies for 2009 is used in this analysis (Movie Budget Records, 2011). It appears that opening weekend receipts may be used as a partial indicator of projected earnings (The Top Movies, 2011).

Interpretation of Opening v. Gross

Specifically, the y-intercept indicates an average gross of about $55 million per movie. The slope indicates that every dollar earned over that in the first weekend means more than $2 in the final gross. The coefficient of determination demonstrates that over 57% of the gross may be explained by way of first weekend receipts. Interestingly, the greater the first weekend take, the less likely this rule applies as influenced by the greatest of the data points. Budget only accounts for about 17% of the gross as demonstrated in the graph below.

Interpretation of Gross v. Budget

However, the variation in data makes for high variability of the coefficient. The y-intercept means that the average budget is over $122 million, and the slope means that for every additional dollar spent about 47 cents are made. Simple visual observation shows that the variation between data points and the trend line is greater on average than that of the previous graph. In essence, first weekend take is a better predictor of gross that budget.

Decision

Based on the statistical likelihoods revealed in the investigation of the first research question, box office performance has been found to vary based on genre. Revenues from Black comedies are the most volatile followed by thrillers then Sci-Fi followed by action films. Sci-fi films gross the most. Black comedies perform worst and showed the greatest variability. Action showed the least. Thus, Fine Line Productions finds the science fiction genre to be most profitable which is why Phantom Invasion is expected to succeed.

Furthermore, a budget decision has been reached based on the investigation of the second research question. The budget has been tentatively set for $150 million and the company would be aiming for at least half of that amount to be earned at the box office during the opening weekend at the cinemas. They can expect a $350 million gross. First week performances should be about $25 million. First week performances are good indicators of a film’s gross. The company executives believe that Phantom Invasion could be their next box office hit. In the event of a sequel one can expect similar result.

References

Nash Infoprmation Services, LLC. (2011). Movie Budget Records. Retrieved from http://www.the-numbers.com/movies/records/budgets.php

Nash Infoprmation Services, LLC. (2011). The Top Movies. Retrieved from http://www.the-numbers.com/charts/thisweek.php

Nash Infoprmation Services, LLC. (2011). Top-Grossing Genres 1995 to 2011. Retrieved from http://www.the-numbers.com/market/Genres/