Does Hollywood Make Too Many R‐Rated Movies?
Film writer Michael Medved (1992) has criticized Hollywood’s fascination with R-rated movies on both cultural and economic grounds. From the White House to Main Street, many individuals share his view that Hollywood makes too many R-rated movies. His argument goes beyond a cultural and critical judgment; he makes the sophisticated economic argument that Hollywood is missing a profit opportunity by making too many R-rated movies and too few G-rated movies.
This article shows that Medved is right: there are too many R-rated movies in Hollywood’s portfolio. An executive seeking to trim the “down-side” risk and increase the “upside” possibilities in a studio’s film portfolio could do so by shifting production dollars out of R-rated movies into G-, PG-, and PG13-rated movies.
Putting tastes and morals aside, even a casual look at the evidence does suggest that there are too many R-rated movies compared with G-, PG-, and PG13-rated movies. More than half of all the movies released in the past decade are R-rated, and only 3% are G-rated. About 20% are PG-rated, and 25% are PG13-rated. Based on the production numbers alone, the R-rated category does seem to be crowded, while the G category is almost empty.
An Overview of Motion-Picture Production by Ratings
Our sample of data includes 2,015 movies that were released to theaters in North America from 1985 to 1996, inclusive. The data were obtained from ACNielson EDI’s historical database. The data were complied from distributor-reported box-office reports of films in theatrical engagements (direct-to-video releases are not included) and estimated production budgets. These data are the standard industry source for published information on the motion pictures and are used by many major industry publications, including Daily Variety and Weekly Variety.
About half of the G-rated movies in our sample are animated, and half are live action. We will discover later in the article that most of the high-grossing G-rated movies are animated, although live-action G-rated movies also earn very high box-office grosses, with 101 Dalmatians and Babe being the sixth and twelfth highest grossing G-rated movies in the sample. The distinction between animated and live-action movies may be important if there are barriers to entry into the production of animated G-rated movies.
Ranking by Success Rates
Based on the foregoing discussion, it is clear that one must compare whole probability distributions rather than averages or expectations and their vari- ance. A simple first test of which movies are better prospects, then, may rely on simple calculations of the probabilities of outcomes. If movie A has a higher probability of “success” than movie B, then A is weakly preferred to B. By using different measures of success we can rank movie prospects in each rating class.
Box-Office Revenue Success Rates
In table 4, we tabulate the number of movies that earned cumulative boxoffice revenues in excess of $50 million; we term these movies “revenue hits.” The number of R-rated movies that are box-office revenue hits is 68, while there are far fewer revenue hits in the other rating classifications: only eight G-rated movies are hits.
Return on Production Cost Success Rates
Here again, we are using a point on the distribution of outcomes to calculate probability. The table shows that there are about twice as many R-rated returns hits as PG- and PG13-rated returns hits, and about 10 times as many R-rated hits as G-rated hits.