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Australian films at the Australian box office: performance, distribution, and subsidies

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Abstract

In recent years, Australian films have failed to capture the public’s attention at the Australian box office. Why? Do Australians have an aversion to their own films? Or does the release strategy—advertising/publicity expenditure and opening number of screens—explain the lacklustre performance? We find that even though Australian films are generally advertised more heavily and released more widely than non-Australian films, ceteris paribus, they earn less at the box office. We also analyse a subsample of our data for which Film Finance Corporation funding information is available and find that government subsidies have no impact on a film’s financial success at the box office.

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Notes

  1. Mainstream media has provided much commentary of this nature. Recent examples include Hawker and Ziffer (2007), Juddery (2009), Le Marquand (2010), and Schembri (2011), amongst others.

  2. Criticism of Australian films for lack of box-office appeal is nothing new. Bertrand and Routt (1989), making reference to the years 1913–1916, state that, “As everyone knew even then, only the Americans had the secret of making films which ‘appealed to the masses.’”

  3. Some of the big earning Australian films of 2000 included The Dish (\(\hbox{A\$18.0m}\)), The Wog Boy (\(\hbox{A\$11.5m}\)), Looking for Alibrandi (\(\hbox{A\$9.1m}\)), and Chopper (\(\hbox{A\$5.9m}\)).

  4. Most papers that study the correlates of film success focus on the domestic American market, consisting of the U.S.A. and Canada.

  5. The FFC was established in 1988 and operated until the end of 2007 when the Australian Federal Government announced the creation of ‘Screen Australia’, merging (and effectively replacing) the Australian Film Commission, Film Australia and the FFC. During its years of operation, the FFC financed more than 1,000 projects with total production value of over \(\hbox{A\$2.5}\) billion.

  6. There also exist a small number of studies considering the related issue of co-financing in motion pictures. See, for example, Goettler and Leslie (2005) and Palia et al. (2008).

  7. This type of model has been used in a number of studies examining determinants of theatrically successful films. See McKenzie (2012) and the references therein for an extensive listing of such studies.

  8. Indeed, in the estimation sample (discussed in detail in Sect. 3), first week revenue is on average 40 % of cumulative revenue

  9. Contractual divisions between the exhibitor and distributor typically shift in favour of the exhibitor over the weeks of a film’s run. Although all contracts differ, an example of a typical contract is 55–45, 50–50, 40–60, and 30–70 thereafter. See De Vany and Walls (1997) for a discussion of exhibitor–distributor contracts and how they are related to the duration of a film’s theatrical lifetime.

  10. In the estimation, we use robust standard errors to control for heteroskedasticity (of an unknown form) which is present in our data. We discuss this in Sect. 4 below.

  11. For example, a large budget, action, sequel containing star talent sends an information signal to potential viewers whom may desire this type of film.

  12. The potential endogeneity of advertising in empirical models of demand is well known in both marketing and economics. See, for example, Nevo (2001) and Chintagunta et al. (2006).

  13. An efficient estimator of β is not required, so nothing is gained by employing the additional step of 3SLS (Greene 2008).

  14. Our correspondence with industry persons reveals that informal estimates of revenues are often made at 10 % of US revenues, this subsequently guides advertising and release size decisions. Even if the Australian release is simultaneous to, or prior to, the US release, we can invoke a ‘rational expectations’ type assumption as support for its use as an instrument. Even without this assumption, however, the statistical requirement that it correlates with the endogenous regressors is sufficient to validate its inclusion.

  15. Using data on seven countries McKenzie and Walls (in press) observe strong correlation in revenue outcomes between markets, but find no support for an international contagion effect from the US market to other markets including Australia.

  16. Although these criteria suggest a preference for commercially viable films, the FFC also had a mandate to finance a culturally diverse selection of films, as well as providing opportunities for emerging film-makers and talent.

  17. Rusco and Walls (2004) examine how independent film financing acquired through third parties affects the distribution of revenue outcomes. They show that such a mechanism eliminates relatively riskier films, leading to a compressed distribution of financial returns with a lower expected return. One might expect project filtering by the FFC to effect a similar change in the outcome distribution.

  18. Because advertising/publicity data were derived from the MPDAA, the data used in estimation relates directly to the six major Hollywood studios member companies’ films. Because many other titles are released by independent distributors, we lack data on their advertising expenditures which explains the reduction in the sample of films with complete case data. Of the 830 titles used in estimation, only 20 are classified as Australian films—a direct result of the dearth of budget and advertising data for Australian films.

  19. Nominal dollar values were deflated using CPI figures reported by the Australian Bureau of Statistics (ABS) and the US Bureau of Labour Statistics. In each case base month and year is December 2007. Budget data was deflated using year of production.

  20. The Kolmogorov--Smirnov D test defines

    $$ D = \max \left( {\left| {\mathop {\max }\limits_x \{ F(x) - G(x)\} } \right|,\left| {\mathop {\min }\limits_x \{ F(x) - G(x)\} } \right|} \right), $$

    where F(x) and G(x) are the (log) revenue distributions for Australian and non-Australian films, respectively.

  21. Margaret Pomeranz and David Statton have been two leading Australian film critics for over 20 years. Up until 2004, they jointly hosted SBS’s The Movie Show, and whilst the show continued on SBS with new reviewers (Fanella Kernebone, Megan Spencer and Jamie Leonarder over the sample period), David and Margaret now host a similar show on ABC called At The Movies.

  22. Complete details of the Ulmer Scale are available at http://www.ulmerscale.com.

  23. These make up the member companies of the MPDAA. The companies are 20th Century Fox, Paramount, Sony, Warner Bros., Disney, and Universal.

  24. See http://www.ffc.gov.au/annual/ffc_int_annual.asp.

  25. Prag and Casavant (1994) were some of the earliest researchers to note this seemingly universal feature of modelling box office.

  26. We assume that distributors are likely to have some sense about the likely critical reception of a film prior to its Australian release. This may be due to advance media screenings, critical reception in international markets, or an understanding of critics’ tastes.

  27. In this context, ‘other’ countries refers to all countries excluding Australia, the USA, and the UK.

  28. A comment about loss of observations of Australian films is in order. In particular, given that not all Australian films are released in the US market, a number of films do not have corresponding US revenues which results in the loss of nine Australian titles from the estimation sample. Although not ideal, given the signage and magnitude of all coefficients are consistent with the OLS model’s results, we believe our results are still instructive.

  29. A more complete treatment of FFC funding might consider a selection-type model for films which did receive funding and whether they were funded on purely commercial objectives or more culturally orientated objectives. As we lack any data about such decisions, we are unable to incorporate this into our empirical model.

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Acknowledgments

We are grateful to the MPDAA for supplying data used in this study. We are also grateful to Matt Hancock (Screen Australia) and for the comments of two anonymous referees.

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Authors and Affiliations

  1. Faculty of Arts and Social Sciences, The University of Sydney, Merewether Building H04, Sydney, NSW, Australia

    Jordi McKenzie

  2. University of Calgary, Calgary, AB, Canada

    W. David Walls

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  1. Jordi McKenzie
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  2. W. David Walls
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Correspondence to Jordi McKenzie.

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McKenzie, J., Walls, W.D. Australian films at the Australian box office: performance, distribution, and subsidies. J Cult Econ 37, 247–269 (2013). https://doi.org/10.1007/s10824-012-9181-7

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