We habitually underestimate the effects of randomness. Our stock broker recommeds that we invest in the Latin American mutual fund that “beats the pants off the domestic funds” five years running. Our doctor attributes that increase in our triglycerides to our new habit of enjoying a Hostess Ding Dong with milk every morning after dutifully feeding the kids a breakfast of mangoes and nonfat yogurt. We may or may not take our stockbroker’s or doctor’s advice, but few of us question whether he or she has enough data to give it. In the political world, the economic world, the business world – even when careers and millions of dollars are at stake – chance events are often conspicuously misinterpreted as accomplishments or failures.
Hollywood provides a nice illustration. Are the rewards (and punishments) of the Hollywood game deserved, or does luck play a far more important role in box office success (and failure) than people imagine? We all understand that genius doesn’t guarantee success, but it’s seductive to assume that success must come from genius. Yet the idea that no one can know in advance whether a film will hit or miss has been an uncomfortable suspicion in Hollywood since the novelist and screenwriter William Goldman enunciated it in his classic 1983 book Adventures in the Screen Trade. In that book, Goldman quoted the former film executive David Picker as saying, “If I said yes to all the projects I turned down, and no to all the other ones I took, it would have worked out about the same.”
That’s not to say that a jittery homemade horror video could become a hit just as easily as, say, Exorcist: The Beginning, which cost an estimated $80 million. Well, actually, that is what happened some years back with The Blair Witch Project: it cost the filmmakers a mere $60,000 but brought in $140 million in domestic box office revenue – more than three times the box office of Exorcist: The Beginning. Still, that’s not what Goldman was saying. He was referring only to professionally-made Hollywood films with production values good enough to land the film a respectable distributor. And Goldman didn’t deny that there are reasons for a film office’s box office performance. But he did say that those reasons are so complex and the path from green light to opening weekend so vulnerable to unforeseeable and uncontrollable influences that educated guesses about an unmade film’s potential aren’t much better than flips of a coin.
Examples if Hollywood’s unpredictability are easy to find Movie buffs will remember the great expectations the studios had for the megaflops Ishtar (Warren Beatty + Dustin Hoffman + a $55 million budget = $14 million in box office revenue) and Last Action Hero (Arnold Schwarzenegger + $85 million = $50 million box office). On the other hand, you might recall the grave doubts that executives at Universal Studios had about the young director George Lucas’s film American Graffiti, shot for less than $1 million. Despite their skepticism, it took in $115 million, but still that didn’t stop them from hving even graver doubts about Lucas’s next idea. He called the story Adventures of Luke Starkiller as taken from The Journal of the Whills”. Universal called it unproducible. Ultimately 20th Century Fox made the film, but the studios faith in the project only went so far: it paid Lucas just $200,000 to write and direct it; in exchange, Lucas received sequel and merchandising rights. In the end, Star Wars took in $461 million on a budget of $13 million, and Lucas had himself an empire.
Given the fact that green light decisions are made years before a film is completed and films are subject to many unpredictable factors that arise during those years of production and marketing, not to mention the inscrutable tastes of the audience, Goldman’s theory doesn’t seem all that far-fetched. (It is also one that is supported by much recent economic research.) Despite all of this, studio executives are not judged by the bread-and-butter management skills that are as essential to the head of the United States Steel Corporation as they are to the Head of Paramount Pictures. Instead, they are judged by their ability to pick hits. If Goldman is right, that ability is mere illusion, and in spite of his or her swagger no executive is worth that $25 million contract.
Deciding just how much of an outcome is due to skill and how much is luck is not a no-brainer. Random events often come like the raisins in a box of cereal – in groups, streaks, and clusters. And although Fortune is fair in probabilities, she is not fair in outcomes. That means that if each of 10 Hollywood executives tosses 10 coins, although each has an equal chance of being the winner or the loser, in the end there will be winners and losers. In this example, the chances are 2 out of 3 that at least 1 of the executives will score 8 or more heads or tails.
Imagine that George Lucas makes a new Star Wars films and in one test market decides to perform a crazy experiment. He releases the identical film under two titles: Star Wars Episode A and Star Wars Episode B. Each film has its own marketing campaign and distribution schedule, with the corresponding details identical except that the trailers and ads for one film say Episode A and those fro the other Episode B. Now we make a contest out of it. Which film will be more popular? Say we look at the full 20,000 moveigoers and record the film they choose to see (ignoring those die-hard fans who will go to both and then insist there were subtle but meaningful differences between the two). Since the films and their marketing campaigns are identical, we can mathematically model the game this way: Imagine lining up all the viewers in a row and flipping a coin for each viewer in turn. If the coin lands heads up, he or she sees Episode A; if the coin lands tails up, it’s Episode B. Because the coin has an equal chance of coming up either way, you might think that in this experimental box office war each film should be in the lead about half the time. But the mathematics of randomness say otherwise: the most probable number of changes is 0, and it is 88 times more probable that one of the two films will lead through all 20,000 customers than it is that, say, the lead continuously seesaws. The lesson is not that there is no difference between films but that some films will do better than others even if all films are identical.
Such issues are not discussed in corporate boardrooms, in Hollywood or elsewhere, and so the typical patterns of randomness 0 apparent hot or cold streaks or the bunching of data into clusters – are routinely misinterpreted and, worse, acted on as if they represented a new trend.
One of the most high profile examples of anointment and regicide in modern Hollywood was the case of Sherry Lansing, who ran Paramount for many years. Under Lansing, Paramount won Best Picture awards for Forrest Gump, Braveheart and Titanic and posted its two highest-grossing years ever. Then Lansing’s reputation suddenly plunged, and she was dumped after Paramount experiences, as Variety put it, “a long stretch of underperformance at the box office”.
In mathematical terms there is both a short and a long explanation for Lansing’s fate. First, the short answer. Look at this series of percentages: 11.4, 10.6, 11.3, 7.4, 7.1, 6.7. Notice something? Lansing’s boss, Sumner Redstone, did too, and for him the trend was significant, for those six numbers represented the market share of Paramount’s Motion Picture Group for the final years of Lansing’s tenure. The trend caused BusinessWeek to speculate that Lansing “may simply no longer have Hollywood’s hot hand.” Soon Lansing announced she was leaving, and a few months later a talent manager named Brad Grey was brought on board.
How can a surefire genius lead a company through seven great years and then fail practically overnight? There were plenty of theories explaining Lansing’s early success. While Paramount was doing well, Lansing was praised for making it one of Hollywood’s best-run studios and for her knack for turning conventional stories into $100 million hits. When her fortune changed, the revisionists took over. Her penchant for making successful remakes and sequels became a drawback. Most damning of all, perhaps, was the notion that her failure was due to her “middle-of-the-road tastes.” She was now blamed for green-lighting such dogs a Timeline and Lara Croft: The Cradle of Life. Suddenly the conventional wisdom was that Lansing was risk-averse, old-fashioned and out of touch with the trends. But can she really be blamed for thinking that a Michael Crichton bestseller would be promising movie fodder? And where were all the Lara Croft critics when the first Tomb Raider took in $131 million in box office revenue?
Even if the theories for Lansing’s shortcomings were plausible, consider how abruptly her demise occurred. Did she become risk averse and out of touch overnight? Because Paramount’s market share plunged that suddenly. One year Lansing was flying high; the next she was a punch line for late-night comedians. Her change of fortune might have been understandable if, like others in Hollywood, she had become depressed over a nasty divorce proceeding, had been charged with embezzlement, or had joined a religious cult. That was not the case. And she certainly hadn’t sustained any damage to her cerebral cortex. The only evidence of Lansing’s newly developed failings that her critics could offer was, in fact, her newly developed failings.
In hindsight it is clear that Lansing was fired because of the industry’s misunderstanding of randomness and not because of her flawed decision making: Paramount’s films for the next year were already in the pipeline when Lansing left the company. So if we want to know how Lansing would have done in some parallel universe in which she remained in hr job, all we need to do is look at the data in the year following her departure. With such films as War of the Worlds and The Longest Yard Paramount had its best summer in a decade and saw its market share rebound to nearly 10 percent. That isn’t merely ironic – it’s […] regression toward the mean. A Variety headline on the subject read, “Parting Gifts: Old Regime’s Pics Fuel Paramount Rebound,” but one can’t help but think that had Viacom (Paramount’s parent company) had more patience, the headline might have read “Banner Year Puts Paramount and Lansing’s Career Back on Track.”
Sherry Lansing may have had good luck at the beginning and bad luck at the end, but it could have been worse. She could have had her bad luck at the beginning. That’s what happened to a Columbia Pictures chief named Mark Canton. Described as box office savvy and enthusiastic shortly after he was hired, he was fired after his first few years produced disappointing box office results. Criticised by one unnamed colleage for being “incapable of distinguishing the winners from the losers”and by another for being “too busy cheerleading,” this disgraced man left in the pipeline when he departed such films as Men in Black ($589 million), Air Force One ($315 million), The Fifth Element ($264 million), Jerry Maguire ($274 million) and Anaconda ($137 million). As Variety put it, Canton’s legacy pictures “hit and hit big.”
– The Drunkard’s Walk (2009), Leonard Mlodinow. (p. 11-16)