Network Effects and Blockbuster Movies
Network effects explain how who and how many people using a product can have a positive influence on the decision of others to utilize that same service/product. Using the idea of a person’s base desire to use a service along with network effects and the price of said service it is possible to formulate an equation which declares exactly how successful a new service will be.
As can be seen in the graph, f(z)r(z) represents an equation for the amount of people (with a population from 0-1) who will use the service, dependent on price.
In recent times, cinema has exploded in popularity with thousands of new movies being released. In between all the movies being released are a few massive blockbuster hits, and within these blockbuster hits there are series of movies which generate millions in revenue. However, not all series remain successful throughout their entire duration. The example I have chosen to focus on is The Hunger Games series. Starring Jennifer Lawrence, the initial two movies were massive hits, generating over $1.5 billion combined in box office returns. However, the subsequent two movies, which were expected to be even greater hits, failed to live up to the hype and had a combined box office of $1.4 billion. Whilst this figure is by no means a failure in its own sense, in the context of the greater series it is shocking that the final two movies, which the series had been building up to, failed to beat earlier movies in box office returns.
This strange occurrence can be explained using the networks effect concept. On the graph, there are two points z’ and z” which meet the price level (let the movie ticket price = ½). z’ is known as the ‘tipping point’ and z” is the point of stability. So, if a certain amount of people less than z” but greater than z’ assume the movie will be a hit, then the amount of people who actually do attend will increase to z”. If the assumed number is greater than z”, then the amount of people who actually attend will decrease to z”. Either way, z” is the point of stability and the point of maximizing profits for sellers of a product. In the case of the Hunger Games series, each movie had its own level of popularity – the first movie established a certain level of popularity and produced $694,394,724. This popularity was clearly below z”, as the second movie produced an additional $1.7m greater than the box office returns of the first movie. The third and fourth movies decreased in popularity as they produced $109m and $212m less than the third movie. The second movie was the peak of the Hunger Games popularity and for this reason I believe it represented z” on the graph of the movie popularity. The first movie was less than z” but greater than z’ so it increased, but the third and fourth movies were greater than z” so decreased.
This is an example of how strange occurrences surrounding the success of pop-culture movies can be affected by network effects and perceived popularity.