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Academy Awards: What's the economic impact?

Actress Jennifer Lawrence accepts the Best Actress award for 'Silver Linings Playbook' during the Oscars held at the Dolby Theatre on February 24, 2013 in Hollywood, California.The upcoming Academy Awards ceremony has been engulfed in controversy over race and gender. But films are not just about values or even about art; they are a big business. However, research carried out with some colleagues over almost two decades has come to the surprising conclusion that the economic impact of the Academy Awards may be limited at best.

One might think, for example, that the winner of the best actor or actress award would be a trove of gold for future films. This turns out not to be true.

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Actress Jennifer Lawrence accepts the Best Actress award for 'Silver Linings Playbook' during the Oscars held at the Dolby Theatre on February 24, 2013 in Hollywood, California.

The statistics are not easy, since one has to take into account many variables which may affect the financial success of films, such as release dates, genres, reviews and ratings in addition to star participation. Then one has to tease out the value of decorated actors and actresses. In other words, just looking at the revenues of the latest film by Brad Pitt or Jennifer Lawrence means very little.

In fact, once the analysis is done, any correlation between star (past Academy Award winners and nominees) participation and the rate of return on film investment disappears. So, while having a big-name star headline a film does not hurt, film companies looking to strike gold with their next release should worry less about signing those A-listers. For example, "Monuments Men" (2014), with recent Oscar winners Jean Durjadin and Cate Blanchett, as well as with nominees George Clooney, Matt Damon and Bill Murray, ended up with tepid reviews and lackluster box office success.

If Academy Award winning actors do not matter, why do profit-oriented studios use stars? And should we look elsewhere in the award ceremony when it comes to ROI?

The first question is the harder one. However, some work we have done seems to suggest that stars serve as an insurance policy for executives. The movie industry is a business with few successes and many failures. Executives' tenure tends to be short in general; even shorter for those who greenlight movies that do not shine. If a star is attached to a project, then the "who knew" argument (who knew that a film with Johnny Depp would flop, to take a recent example) may save someone's job.

As to the second question, several decades of research have brought us much closer to understanding what makes movies tick. Our work shows that there are several types of movies, in particular family films and sequels, that are more profitable, everything else equal. Studios have taken notice, and regardless of which very worthwhile movie wins the Best Film award, we can expect more family oriented sequels in the foreseeable future.

Moreover, we need to look away from the acting awards. Our past and present work suggests that there is a correlation between highly valued screenplays and financially successful movies and that experienced directors can dramatically increase the rate of return on their film investment.

An interesting illustration is that in 40 years of Academy Awards (up to 2013), the director of all but one Best Picture winners ("Driving Miss Daisy") was nominated for an Oscar, and 83 percent of these nominated directors won. On the "dark side", 97 percent of the directors of the worst pictures were nominated for Razzies and 67 percent "won."

Similarly, screenwriting awards are also highly correlated with decorated films. So, if I were handicapping this year's awards, the most surprising Best Film win would be Mad Max, the only contender where the screenwriter is not nominated for an Oscar, or "Bridge of Spies, " the only nominated film with no nod for the director. On the other hand, Steven Spielberg is Steven Spielberg so my vote for the most unlikely winner still goes to "Mad Max."

And for the film studio executives in the audience and at home, the scientific evidence is consistent: Ignore the Best Actor and Actress Awards. And tune out after the winner of the Best Director and Best Screenwriter are announced so you can immediately hire them for the next sequel.

Commentary by S. Abraham Ravid, Sy Syms Professor of finance and chairman of the finance department at the Syms School of Business at Yeshiva University. Previous full time and visiting appointments include the University of Chicago, Yale, Cornell, NYU, Columbia, UCLA, Rutgers and institutions in Europe and in Israel. Prof. Ravid's research has been published in top journals in finance, economics, and marketing and cited in the Wall Street Journal, New York Times, NPR, CNBC, BBC and other media around the world. He created courses on the economics of the movie business at NYU, UCLA and Yale.

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