Inflation

Originally intended for submission to an online magazine, presented here because their editor disovered embarassing gaps in my research.  My life is a story of facts not living up to fiction.
  August 8, 2004

We live in an era of box office monsters.  Never before did rivers of money flow so plentifully into studio coffers; never before did people part with so much for so little.  Just last week, the BBC reported that in June, the monthly box office totals in the US had topped $1 billion for the first time.  Spider-Man 2 has recently made history by passing the $200 million mark in eight days.  Go to the Internet Movie Database (IMDB) and take a look at the list of cinema’s all-time highest earners.  You will discover that out of the top 10, only two—Star Wars and E.T.—were made before 1990 and both probably stayed at the top thanks to recent re-releases.

These facts are cited by the industry and the media with pride, awe, or the wringing of hands, depending on whom you talk to.  They are rarely doubted despite leading occasionally to odd, even sinister conclusions.  What should one make, for instance, of Rush Hour 2 gathering more viewer dollars than The Exorcist?  How to explain Austin Powers in Goldmember ranking above Gone with the Wind?  And what of the more politically loaded statistics: the success of The Passion of the Christ, touted by the conservatives; the Midas touch of Michael Moore, cheered by the liberals?

There is a not-so-subtle secret behind most of the box-office hype.  It’s pernicious but simple: the numbers you see aren’t adjusted for inflation.  Economists call inflation-adjusted revenues “real”; what we usually get instead is the “nominal”, or uncorrected, raw data.

The oversight may seem trivial, but it isn’t.  To give you an idea, a dollar in 1937—the year of the earliest film in IMDB’s rankings—could buy about as much as $13 buys today.  Assuming the reported gross take of 1937’s Snow White originated entirely in that year, it must be multiplied by 13 to compare meaningfully with the revenues of the current blockbusters.  So corrected, it comes to almost $2.4 billion, leaving the official US and the world’s box-office champion—1997’s Titanic—in the dust with only a $688.5 million real domestic take.  Applying adjustment methods to other films on the list reveals Gone with the Wind as the likely highest-grossing movie of all time, with $2.6 billion of real revenue in the US and an astonishing $5.2 billion worldwide.  Of course, both Snow White and Gone with the Wind have had recent theatrical re-releases, which means some of their nominal revenues must be adjusted at a lower rate.  But even if the numbers I quote are somewhat off, they still highlight the official rankings’ fatal flaw—their inflation-fueled bias in favor of the new.

This bias does not apply just to revenues.  There has been plenty of kvetching in Hollywood over the years about soaring production costs, yet hardly anyone mentions that at least part of the problem is that today, a dollar buys less.  As with revenues, expenses padded by the trickery of depreciating money is an argument too tempting to stay unused; like a balloon filled with hot air, it can get a flightless story off the ground.

To be fair, fuzzy statistics aren’t exclusive to the movie industry.  Virtually any business that stands to benefit from impressive numbers has made good (or bad) use of them at some point.  Take art auctions, for example.  This May, the art press was abuzz with the news of Sotheby’s setting the new record for selling the world’s most expensive painting.  The piece in question was Picasso’s Garçon à la Pipe, which fetched $104.2 million; the record it smashed was the $82.2 million paid in 1990 for Van Gogh’s Portrait of Dr. Gachet.  Yet compared in real terms, the results of these two auctions reverse: in today’s dollars, the Van Gogh sale is still the winner at about $116 million.

It’s too bad that not all misrepresentation is as easy to correct.  Going back to cinema, I have tried and failed to produce the list of the real all-time highest-grossing films.  Publicly available information is simply too patchy to be useful here.  Besides knowing the precise dates and revenue contributions of both the original and repeat releases, one also needs data on older movies that never made it to the current lists but whose seemingly paltry numbers, properly recalculated, would place them in the deserved positions at the top.  This information may be out there, scattered like gold sand across the riverbed of the public and private domains.  But gathering it is a nearly impossible task for an armchair researcher.  I do hope to see an industry expert, better connected and equipped, take on this challenge some day—and share the knowledge with us.

(The editor of the publication to which I sent this piece fired back an e-mail that said, among other things:

[H]ow do things like this affect the article?:

• http://www.boxofficemojo.com/alltime/adjusted.htm
• http://www.the-numbers.com/movies/records/#inflation_adjusted
• http://www.the-movie-times.com/thrsdir/alltime.mv?adjusted+ByAG
• http://www.boxofficereport.com/atbon/adjusted.shtml

Let me know what you think.

Feeling like a complete idiot, I wrote back with a light-hearted apology.  The matter—and the article—were thereby put to rest.  Now that I think about it, the answer to his question would be “not much”; only the last paragraph would have to go completely.  First, the adjusted information he found is using flawed measures of inflation: it’s not just average ticket prices you want to compare across time but the overall price levels, since consumption decisions are made by weighing the relative merits of all available goods.  Second, even if adjusted data are available for the inquiring minds, most minds don’t inquire: they absorb.  And what’s presented obtrusively for absorption are the distorted facts I dissected above.)

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