Eye on the international market

Believing Spidey had potential to be a global hero, Sony Pictures bolstered box office profits by releasing Spider-Man 2 in many other territories, including the U.K., Spain, Belgium, Mexico, and Australia, simultaneously to its U.S. release.

It’s a move that’s becoming more common for film companies, as Assistant Professor Isaac Holloway discovered while researching how U.S. movie exports enter foreign markets.

Holloway hypothesized movies that were expected to have high U.S. box office returns would be released in more countries. He also anticipated those countries that typically only receive a few U.S. movies each year, because they are small or expensive to enter, would only take the cream of the crop. His findings showed he was correct on both counts, with a few exceptions. For instance, some U.S. hits won’t fare well in other countries due to cultural differences. Holloway said the comedy Napoleon Dynamite is an example of a film that did well in the U.S. – earning more than 100 times its $400,000-production budget at the box office – but didn’t have universal appeal because it had a quirky coming-of-age story from an American perspective. Approximately 97 per cent of revenues came from the domestic box office, compared to less than half for Spider-Man 2.

The appeal of adventure

Films like Spider-Man do well overseas because they are heavy on action scenes, which can be appreciated anywhere, explained Holloway, whereas comedy/dramas may not be as culturally neutral.

“The rank ordering for action/adventure movies is likely going to be very similar across countries because everyone can appreciate a good car chase,” he said. “Whereas, for dramas and comedies, there are likely to be significant cultural discounts in countries that are more culturally dissimilar to the U.S. So something that’s funny in the U.S. might be offensive in Saudi Arabia.”

So does this affect the types of films made? Although not part of his study, Holloway said film production companies have started making production choices with an eye on the international market.

“The international box office is becoming much more important for Hollywood than it has been in the past. That’s partly because the international market is just growing so fast and the U.S. market is stagnating somewhat so, if Hollywood wants to grow, it has to adapt its products to where the market is,” he said. “I think a lot of American movie-goers are not happy about this development because it’s viewed as a cultural dumbing down. It’s this idea that we want to go for the lowest common denominator. We want to appeal to everybody so that the movie will do well internationally.”

Cultural concerns

Holloway said some films are now even edited before release in other countries. For example, Pixar changed Inside Out before it was released in Japan. In the U.K. and U.S. version of the film, the main character, Riley, dislikes broccoli. This was changed to green peppers for the Japanese version because broccoli is typically well-received by Japanese children.

“If the implication of this is cultural distance matters then it might be in the interest of production studios to try to address cultural discounts by making movies that are culturally appealing more generally,” he said.

In another study, Holloway looks at ways that film production companies time their releases to international markets. Sometimes it all depends on how a movie does in one market first, a process Holloway calls sequential entry. A movie might be released in the U.S. first to see if it fares above or below expectations. If it exceeds expectations, it might be released to more markets. If it doesn’t do well in the U.S., the production company might cancel plans to release to other markets. For example, the Zach Braff film Garden State did better than expected in the U.S. so ended up being picked up by a major studio distributor and released in many markets, Holloway said.

Holloway’s research on the film industry has been well-received by leading academic journals. His paper on movie exports, “Foreign entry, quality, and cultural distance: product-level evidence from US movie exports,” is in Review of World Economics, and his work on timing of releases, “Learning via Sequential Market Entry: Evidence from International Releases of U.S. Movies,” is currently under second-round review at a prominent economics journal.

Following suit

The lessons from this research can extend to companies wanting to go international. Just as film production companies have started making choices based on serving an international market, firms can make choices that might increase their ability to make deals abroad.

“They might want to think harder about where they stand in terms of quality relative to their competitors and what actions they might be able to take that could mitigate some of the transaction costs associated with distance,” he said.

Holloway, who joined Ivey in 2015 after teaching at Tsinghua University and the University of British Columbia, is currently working on research looking at the effects of multinational activity and foreign direct investment from emerging markets on the host country’s corruption levels.

Ironically, he didn’t go to a movie the entire time he was researching the movie industry because he was busy with family life. The movie industry simply seemed like a data-rich area for research on international trade and investment. He eventually went to a movie for the first time in two years.

“It was like a foreign adventure going back to the movies after studying them for two years,” he said.