The Hollywood Economist

Hidden Persuaders

The secretive research group that helps run the movie business.

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”—Adam Smith, The Wealth Of Nations

In Hollywood, thanks to the services of a secretive research firm called NRG, rival studio executives do not need to meet together and conspire. NRG helps them coordinate openings in such a way that their movies do not compete head-to-head for the same demographic slice of the audience. Founded in 1978 as the National Research Group, NRG—now a part of Nielsen Entertainment—supplies the same weekly “Competitive Positioning” report to each of the six major studios. NRG’s founder, Joseph Farrell, signed all of the studios to exclusive contracts, ensuring that the data from his telephone tracking polls became the accepted standard. Because of this monopoly of information, the report provides the studios with a common basis on which to make their scheduling decisions.

Here is how the research is compiled. The NRG telephone pollsters ask a sample of likely moviegoers first whether they are “aware” of a specific movie and, if so, what is the likelihood that they will see it when it opens. They also ask the age and gender of the respondents. The NRG analysts break down the data from these tracking polls into four basic groups, or “quadrants”: males under 25, males over 25, females under 25, and females over 25. (In some cases, the respondents are also divided by race.) From these results, NRG projects how well upcoming movies will do against each other in each audience quadrant should they open on the same weekend.

For studios, the Competitive Positioning report is critical reading. Why? Once upon a time, Hollywood merely had to produce movies for a habitual audience. Nowadays, it has to create an audience for each and every movie via ad campaigns, appropriately called “drives” (as in “cattle drive”). “If we release 28 films, we need to create 28 different audiences,” a Sony marketing executive lamented to me. Audience creation is a hugely expensive exercise, costing an average of $30.6 million per studio movie in 2004. For a drive to work, it must not only round up a herd of moviegoers who favor the movie, it must also get this herd to move at a specific time: opening weekend.

This feat almost invariably requires buying a slew of ads on the limited number of television and cable series that the prospective herd grazes on during the week preceding the opening. To make sure they get the herd’s attention, the ads are usually repeated eight times, which is why these drives cost so much. The multimillion-dollar drive runs into a serious problem, however, if a rival studio goes after the same herd that same week—for example, under-25 males—by also buying a parcel of ads on the same shows. The herd then might be cross-pressured and confused, and certainly divided. Such a competition would likely spell failure for both rivals, since even the winner stands to lose a part of the audience to the rival film. To win, then, studios must avoid such conflicts, even if it means yielding to each other.

Enter NRG. The major studios can—and do—avert such titanic disasters by consulting the NRG Competitive Positioning report. Each studio gets an early warning from the NRG report when one of its films is on a collision course with a competitor’s film that appeals to the same herd. By comparing the projected turnouts for both films in the crucial quadrant(s), the studios know which film will lose the matchup, and the losing studio can reschedule its opening to a different weekend, even if it’s a less advantageous time period (i.e., not the summer and not the holidays).

Consider how Paramount captured the highly prized Fourth of July weekend this year for War of the Worlds even though Warner Bros. had a major contender in Batman Begins and 20th Century Fox had Fantastic Four. In the NRG tracking polls, all three films did well with males under 25 (aka teens), the audience quadrant that’s easiest to find clustered around TV programs and, hence, the easiest to stampede toward a July 4 weekend opening. But War of the Worlds was also strong in the under 25 female quadrant, so it would easily best both Batman Begins and Fantastic Four. (In fact, it led in all quadrants.)

Warner Bros. averted a head-to-head competition by opening Batman Begins in mid-June, and 20th Century Fox opened Fantastic Four on the weekend following July 4. As a result, all three films won their weekend box office and could advertise themselves, as Fantastic Four did, as “America’s No. 1 hit.” No Adam Smith-type conspiratorial meetings were necessary between the rival studio executives of Paramount, Warner Bros., and 20th Century Fox in order to advantageously stagger their film openings so they did not collide.

Of course, the weaker contender might try to bluff his way through. For example, in 2002, Disney’s subsidiary Miramax had a direct conflict with DreamWorks SKG concerning the openings of their two competing films Gangs of New York and Catch Me If You Can, both starring Leonardo DiCaprio and both scheduled to open on December 25. Even though the Miramax film had a slightly higher “awareness” level in the targeted males-over-25 audience, DreamWorks refused to yield. At that point, Harvey Weinstein, the president of Miramax, and Jeffrey Katzenberg, a founding partner of DreamWorks SKG, had breakfast in New York to discuss their movies’ release dates. As Katzenberg later explained in an interview with the New York Times: “He [Weinstein] and I had many conversations about why releasing the movies on the same day was in none of our interest … as both companies have a big investment in Leo DiCaprio.” A few days later, Miramax blinked by moving Gangs of New York to a different, and less favorable, opening date.

To be sure, NRG’s services to the studios go well beyond telephone tracking or supplying projections. The research firm is now analyzing much larger issues for the studios, essentially helping them to rethink their entire business models by examining the movies’ declining share of the public’s “wallet” and “clock” as they compete with music, DVDs, cable TV, and other forms of home entertainment. In the long run, this research may prove far more crucial to the studios than the Competitive Positioning reports, which, in the end, merely avert unpleasant fender benders.