No Fun League: How the NFL can Fight Declining Ratings

by Leave a Comment

For decades, the National Football League (NFL) has dominated not only professional sports television, but the entire field of network programming. During the 2015 season, the NFL owned all of the top 25 programs on television after years of climbing ratings and brought in $15 billion in revenue (The Ringer). However, the 2016 season has been a different story. Through Week Six, overall NFL ratings were down 11%, causing the national media to question if the NFL was beginning a permanent decline. Ratings have slightly rebounded, but the NFL has been exposed as a vulnerable property, something that was once unthinkable. The decline in NFL ratings can be attributed to a combination of competition from other entertainment sources, oversaturation of games and a lower quality product, issues it will have to resolve to stay relevant.

nfl-ratings-usa-today

2016 has been a rough year for the NFL because it has faced unprecedented competition for viewers from the historic presidential election and Major League Baseball (MLB) playoffs.  NFL ratings have declined in the past due to the presidential election, with declines of -10% in 2000 and -2% in 2008 (Washington Post). However, declines were as high as -15% during the 2016 election (Washington Post). This can possibly be written off as a product of the media circus surrounding this election, but is nonetheless the highest decrease in recent history. After the election, games did slightly rebound, with the Cowboys-Steelers prime time game finishing +2% and the Patriots-Seahawks prime time game finishing +16% (Forbes). Still, the regional games on Fox finished -19% while the CBS regional games were down -7% (Forbes). The election is likely partially responsible for the decline in overall ratings, but is not the sole culprit.

Perhaps more concerning was the success of the MLB against the NFL. While football ratings languished, baseball ratings skyrocketed. This culminated in the October 30th Chicago Cubs-Cleveland Indians World Series matchup having more viewers than the Dallas Cowboys-Philadelphia Eagles Sunday Night broadcast. This is only the third time the MLB beat the NFL since they began going head-to-head in 2010 (USA Today). The World Series even drew 40.045 million viewers for the final game, more viewers than any NFL game since Super Bowl 50 (Rum Bunter). Like the election, this unlikely success for baseball might be due to the exciting narrative of the Cubs snapping their 108 year drought against the similarly long-suffering Indians. Ultimately, baseball beat football for the first time in the 2010’s and the NFL proved it was not matchup-proof.

Another simple economic explanation for the NFL is the supply for the product has increased, causing demand to decrease. For much of its history, NFL games were on Sunday afternoons with one Sunday night game and one Monday night game. Now, the NFL airs 15 games per season on Thursday nights along with the Sunday and Monday night games, which are sometimes doubleheaders (The Ringer). The NFL has also added 9:30 a.m. EST games in London to build an international audience (The Ringer). There are also multi-game packages geared towards fantasy football players such as DIRECTV Sunday Ticket and streaming options on WatchESPN and Twitter. Others simply follow games at bars or via scoring or fantasy apps on their phone.

The NFL has created a problem for itself by making its product too widely available. By increasing its supply of games, it is making it harder for viewers to devote time to games. Viewers used to be able to watch their team’s Sunday afternoon game interspersed with highlights from other games, leaving time to watch the prime time matchups. Committing to a Thursday night game, three Sunday games and a Monday night game is a lot of time for a person to spend watching television. It doesn’t help that games run for three hours, much of which is advertising. Encouraging people to spend more time watching football does not reflect trends in television viewership. Since 2010, the time Americans spend watching TV has dropped 11 percent (Washington Post). For social media-obsessed people under 24, TV time has plunged more than 40 percent (Washington Post). As commercial-free streaming options such as Netflix and HBOGo continue to grow, less people will want to watch three hours of ad-heavy football. Time is scarce, and people are choosing to spend less of their time watching television. The NFL is fighting this trend by making their product less of an event and demand is decreasing as a result.

The oversaturation issue is further amplified by the concern that the quality of product the NFL is pushing has declined. Thursday night games are frequently criticized as less entertaining than Sunday and Monday games. Teams have only four days to create a game plan and recover from injuries, resulting in sloppy games that often end in blowouts. The average margin of victory for 2016 Thursday night games is over two touchdowns while the Vegas underdog team has only won twice (Sports Illustrated). This is not just a Thursday night issue, competition is down overall. Through Week 12, Vegas underdogs have only won 39% of the time (Sports Illustrated).

Not only are games more predictable, there is a growing concern that officials are making them more unwatchable through excessive penalties and fines. Many of these penalties have been unsportsmanlike conduct flags thrown for rather innocent touchdown celebrations by superstars such as Antonio Brown and Odell Beckham Jr. Viewers have taken notice, including Monday Night Football announcer Sean McDonough:

“If we’re looking for reasons why TV ratings for the NFL are down all over the place, this doesn’t help. The way this game has been officiated is not something anybody wants to watch.” (The Ringer)

flag

While individual games struggle, larger NFL narratives that drove the league’s entertainment value for years are also disappearing. For much of the last ten years, the central battle in the NFL has been between its two top quarterbacks: Peyton Manning and Tom Brady. Manning is now retired, while Brady was suspended for the first four games of 2016 and is likely a few years from retirement. Other star players such as Marshawn Lynch and Calvin Johnson have retired over fear of lasting injury from football. There is no Cubs-Indians narrative to excite fans in sight for the NFL. It is difficult to draw people to prime time games without marketable stars.

nfl-are-you-watching-less

 

 

 

 

 

 

 

 

 

 

The NFL’s suspension policy has also been a major public relations issue for the league. The league has faced criticism for giving players found guilty of domestic violence light suspensions, such as Ray Rice (two games) and Josh Brown (one game). Meanwhile, Tom Brady got four games for possibly helping deflate footballs and star running back Le’Veon Bell got three games for skipping a marijuana test. This failure to punish criminal issues while using a heavy hand on comparatively trivial ones is a huge point of contention for many fans, especially women. The league’s handling of players protesting social issues by refusing to stand for the national anthem, led by former starting 49’ers quarterback Colin Kaepernick, has also alienated some fans. According to an October Rasmussen Poll, 32% of respondents said they were less likely to watch a game because of Kaepernick (Sports Illustrated). The NFL has not done a good job of consistently disciplining its players for issues fans deem important, making its stars less marketable.

The NFL needs to take multiple steps to address its slumping viewership. League executives should begin by firing Commissioner Roger Goodell. While Goodell has overseen successful years and has gone on record saying he wants to grow the league to $25 billion in revenue by 2027, he has made many poor decisions (The Ringer). Goodell oversaw the expansion of the unpopular Thursday night games and has failed to address the domestic violence and concussion issues while encouraging punishments for touchdown dances. He inherited a wildly successful organization and has not been able to effectively grow it or tackle controversies. Like when a corporation suffers a scandal and fires its CEO, a change in leadership would show the public that the NFL has heard its criticism and is willing to head in a new direction.

roger-goodell-012615-getty-ftr-usjpg_2injpggbta2k17v2aq1e6hgxq

That new direction should tackle two of the largest issues that the NFL faces and has control over: decreased quality of play and oversaturation. The NFL should begin with eliminating Thursday night games. This will attract more viewers to Sunday games as all but two teams will be playing on one day. Placing most games on Sunday will also make it easier to show marquee matchups in prime time. Almost every team would plan on playing the same day and there would be more daytime slots available to help tweak the schedule in favor of a good Sunday night game. The NFL can combine this with looser rules on penalties, allowing fans to watch a more uninterrupted, clean product. This will help make football what it is meant to be: an entertaining experience. Cleveland Browns left tackle Joe Thomas summarized the best approach for the NFL, saying, “I think [officials] would be wise to remember that the NFL is about entertaining — first and foremost — and they do not want to do things that take fun and excitement out of the game.” (Baltimore Sun)

The NFL can improve the viewer experience while avoiding an impending revenue crisis by focusing on streaming. Streaming services are quickly becoming the norm as more people stop buying expensive cable packages. The NFL’s consistent ratings dominance has been the reason cable companies stay relevant, but it is now beginning to show chinks in its armor. Major cable companies and carriers have committed a total of $50 billion to the NFL through the early 2020’s (The Atlantic). They are willing to spend such large amounts money on the NFL because advertisers are willing to pay top dollar ($5 million for a 2016 Super Bowl ad) for the large, consistent audiences the NFL promises (CNN Money). The NFL may soon lose these audiences if they do not adapt to the changing television landscape, causing advertisers to seek less expensive alternatives such as hockey, baseball and eSports.

When its cable contracts expire, the NFL should create a comprehensive streaming package, either separately or through an established provider such as Netflix. One of the bright spots in the NFL’s recent history is the creation of Sunday Ticket, a package that grants fans access to all NFL games. The well-received package is perfect for fans who want to see highlights from many games, such as fantasy football players, due to its RedZone component that constantly switches between highlights from current games. It also keeps fans who want to watch one game at once happy. This model could easily be adapted to a subscription streaming service and allow the NFL to consolidate its viewership by placing all games in one place rather than across multiple media outlets on multiple days. The NFL has already had success with the WatchESPN streaming app, which grew by 73% in 2015 (Washington Post). This would help the NFL become less reliant on ad revenue as fans are directly paying for the games, not a cable package that offers them.

The NFL is not going to start losing money any time soon, but has been notified by its fans thats it is not infallible. Television habits are changing, and the NFL is not immune, especially if it fails to address concerns about its product. The NFL must take steps to adapt to the changing television landscape before its revenue begins to fall as its ratings have.

Word Count: 1917

Works Cited:

http://www.si.com/nfl/photo/2016/10/20/nfl-television-ratings-decline-causes

http://www.si.com/nfl/2016/11/29/nfl-thursday-night-football-future-schedule-ratings

https://www.washingtonpost.com/business/economy/nfl-ratings-plunge-could-spell-doom-for-traditional-tv/2016/10/14/a7a23dc2-915f-11e6-9c85-ac42097b8cc0_story.html?utm_term=.6ec7aac0843e

http://www.theatlantic.com/business/archive/2016/10/nfl-ratings-just-fell-off-a-cliff-why/503666/

http://www.forbes.com/sites/maurybrown/2016/11/15/heres-the-real-reasons-why-nfl-tv-ratings-will-continue-downward/#12006b957f18

http://www.baltimoresun.com/sports/ravens/bs-sp-ravens-tv-1116-20161115-story.html

https://theringer.com/nfl-tv-ratings-crisis-81fd9dbd53a#.8k7mkxgvv

http://www.denverpost.com/2016/12/04/nfl-tv-ratings-down-denver-post-survey/

http://money.cnn.com/2016/11/11/media/nfl-ratings-roger-goodell/

The World Series beat Sunday night NFL in TV ratings and that doesn’t actually mean much

When Trade Goes Wrong: The Economics of Cargo Theft

by Leave a Comment

rio-arrest

In 2015, 8.2 million TEUs (twenty-foot equivalent units, a standardized maritime industry measurement for counting cargo containers) passed through the Port of Los Angeles (Port of Los Angeles). Few people consider the economic impact when a trade supply chain this large is disrupted. However, cargo theft is a growing problem that can have major effects on local, national and even global economies.

The FBI defines cargo theft as, “the criminal taking of any cargo including, but not limited to, goods, chattels, money, or baggage that constitutes, in whole or in part, a commercial shipment of freight moving in commerce.” (FBI) Cargo theft can happen at any point on a supply chain from origin to final destination. This can manifest itself in a variety of ways such as stealing containers from a warehouse, hijacking a truck or even attacking a container ship at sea as Somalian pirates have done.

cargo-theft-product-type

Cargo theft has both direct and indirect economic effects. In 2014, 29 U.S. states reported 547 incidents of cargo theft to law enforcement with losses from the stolen goods totaling $32.5 million. (FBI) However, losses go far deeper than the goods stolen. Manufacturers who have goods stolen lose customers to competitors as they cannot keep up with demand, potentially long-term due to lack of trust. Owners of the affected part of the supply chain also risk losing business. Insurance premiums also rise after cargo theft incidents, forcing companies to either spend more on security or run the risk of paying high insurance.

Brazil’s recession has led to an increase in cargo theft, as organized criminals capitalize on a weakened police force and residents who cannot afford mainstream goods in the face of 11% unemployment and 8% inflation (Bloomberg). Brazil’s mountainous regions, such as Rio de Janerio, are being hit particularly hard as trucks are more susceptible to theft in such unprotected areas. In June 2016, a truck 25 miles outside of Rio carrying $440,000 in goods was swarmed by a rifle-toting gang and forced to drive to a local favela (Bloomberg). The goods were unloaded onto another truck and sold to locals at much lower costs than conventional retailers. According to Brazilian police, the state of Rio alone is on track for more than 8000 cargo thefts this year that could total anywhere from $100 million to $1 billion, depending on estimates (Bloomberg). These are significant losses, especially in a struggling economy.

global-cargo-theft-1-638

Cargo theft is a difficult issue to deal with because goods can pass through many different countries with different regulations and law enforcement capabilities. For example, a container originating in the United States can be stolen with less effort in Brazil. This could potentially deter manufacturers from selling their goods in Brazil. Companies and supply chain managers should take initiative and invest in security measures. This takes away responsibility from federal governments, who may not have the resources or willingness to fight cargo theft.

Sources:

https://www.portoflosangeles.org/maritime/stats.asp

https://ucr.fbi.gov/cargo-theft-user-manual

http://www.bloomberg.com/news/articles/2016-10-28/rio-s-drug-gangs-squeezed-by-recession-go-on-hijacking-spree

https://www.fbi.gov/news/stories/statistics-on-2014-cargo-thefts-released

Higher Minimum Wage? Expect Maximum Job Losses

by Leave a Comment

In April 2015, over one thousand protestors flooded the University of Southern California campus sporting signs and mega phones. The contingent was primarily made up of fast food workers from the popular chains dotting Figueroa Street seeking a $15 per hour “living” wage. This over 100% increase from the federal minimum wage of $7.25 per hour would have once been unthinkable.

In July 2015, Los Angeles County did the unthinkable by instituting a plan to gradually raise the minimum wage from $9 to $15 per hour by 2022. New York City, Seattle, and Washington D.C. have similar plans (Journalist’s Resource). The minimum wage has long been a hot-button topic in American politics. Democrats tend to support a minimum wage increase, arguing that real-worker pay has unfairly stagnated. There is a long standing concern amongst Republicans that the economic effects of a high minimum wage would reduce profits for businesses and cause businesses to cut employment. Increasing the minimum wage to $15 per hour has potential to force fast food and retail businesses to raise prices and slash labor in order to cut costs.

The minimum wage was first enacted in 1938 as part of the Fair Labor Standards Act to keep money in struggling workers’ pockets (Journalist’s Resource). Since then, it has gradually risen from 25 cents to $7.25 per hour, but it has not been able to keep up with inflation and has actually decreased in real value (Journalist’s Resource). If the minimum wage were increased to $10 per hour, it would be equivalent to its adjusted 1968 value (Journalist’s Resource). Since the last federal increase in 2009, 23 states have taken matters into their own hands by increasing the state minimum wage over the federal (FRBSF). In these states, minimum wages in 2014 averaged 11.5% higher than the federal minimum (FRBSF). However, many of these states also have higher costs of living, providing some justification for the wage elevation.

Percent Difference between State and Federal Minimum Wages, June 2014 (FRBSF)

el2015-37-1

There is historical precedent for elevating the minimum wage, but not to the standard of the proposed living wage. The MIT living wage calculator defines the living wage as the hourly rate that an individual must earn to support their family, if they are the sole provider and are working full-time (MIT). A living wage is dependent on location, cost of living and price indexes. For example, the living wage for one adult in Los Angeles County, CA is $12.56 (MIT). In Beaverhead County, Montana, it is $9.74 (MIT). This casts doubt over the effectiveness of a standardized federal living wage, meaning it is in individual states’ and cities’ best interests to set a minimum wage based on their economy.

Recent studies on minimum wage increases have yielded mixed results. A Purdue University study released in July 2015 suggests that paying fast food restaurant employees $15 per hour could result in price increases of about 4.3 percent (US News). Another study by Jeff Clemens from the National Bureau of Economic Research estimates that as many as one million jobs lost from 2006-2010 were a result of minimum wage increases, most of them belonging to lower-skilled workers (US News). Meanwhile, other studies point towards wage growth and spending increases from the lower-skilled worker bracket (US News). In Tacoma, restaurant jobs have actually increased since a bill to raise the minimum wage to $12 by 2018 passed (Grub Street).

The critiques against raising the minimum wage are hard to ignore when examined from a business owner’s perspective. According to a Pew Research Poll, 55% of minimum wage employees are employed in the leisure and hospitality industries, while another 14% are in retail (Pew). This means that minimum wage employees work for both large companies and small businesses, many of which are based in fast food and retail. The effects of a substantial increase would be handled differently from company to company, but the results would be similar.

Ultimately, a business’s job is to make a profit for the owners and investors, while the minimum wage is a form of government regulation intended to protect workers. This conflict between private and public interest was expressed in my interview with a former McDonald’s employee, Hamburger University graduate and small business owner, Patricia Podkowski, 56. When asked how businesses would respond to a $15 per hour minimum wage, she replied, “Business owners are there to put food in their families’ pockets. They will do what they need to do to cut costs.”

What business owners will do to cut costs depends on the size of the business. Many proponents of raising the minimum wage argue that the resulting price increases at businesses such as fast food restaurants are actually necessary. Because the minimum wage has stagnated, fast food prices have as well and can be moderately increased without impacting the profit line. On the surface, small increases makes sense, but the reality is fast food pricing does not follow the basic laws of economics. According to former McDonald’s CEO Ed Rensi,

“If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases.” (Forbes)

97adc5c5bd24ea72498c2f81eb98c386Pinterest

The fast food and retail industries cannot drastically raise prices because their customers are looking for bargains. While an increase from $1 to $2 may not seem like much, a 100% increase may scare off a loyal fast food chain customer who is accustomed to their favorite item only costing $1. The effects of drastic price hikes to cover for labor raises would only result in additional losses for businesses, leading to unemployment.

Employers are not just paying more in salaries from a minimum wage increase, but would have to pay additional costs such as payroll taxes and insurance. This means owners and managers will resort to creative methods to cut labor costs while maximizing productivity. Patricia, a former shift manager at McDonald’s, believes that managers will spread out shifts and decrease the number of employees during slow hours. For example, a fast food chain employee who used to work the 12:00-5:00 lunch shift might find their hours reduced to 12:30-4:30 to account for the downtime between the lunch and dinner rushes. Even if their salary is increased, they will actually end up losing money in a given pay period because they are working significantly less hours. This could be further amplified at small businesses with lower profit margins, where an owner can pick up shifts themselves rather than paying an employee.

If price increases cannot offset increasing labor costs, decreasing labor is the only other option for business owners. A major point of emphasis for Patricia was that business boils down to controllable and uncontrollable costs. Utilities, taxes and production costs are uncontrollable, price is semi-controllable and labor hours are relatively controllable. However, there are still uncontrollable aspects of labor, which accounted for 15-35% of operating costs at different companies she worked for. Business owners cannot cut too much labor because they have to produce enough product for their customers. However, minimum wage workers may soon find their jobs replaced by a less expensive alternative: technology.

In 2011, McDonald’s ordered more than 7000 self-serve kiosks to replace entry-level cashiers (Forbes). The famous Chicago Rock and Roll McDonald’s is planning on thorough automation in an attempt to shake up their image in the eyes of younger customers (Chicago Eater). It is much cheaper for a business owner to invest in and maintain a $35,000 robotic arm to scoop french fries than it is to pay a human upwards of $31,000 a year to do the same task less efficiently. Former McDonald’s CEO Ed Rensi believes that raising minimum wage in the face of automation will only expedite the process of replacing employees with machines, saying, “It’s very destructive and it’s inflationary and it’s going to cause a job loss across this country like you’re not going to believe.” (Forbes)

unknown

http://www.zerohedge.com/news/2016-04-06/mcdonalds-responds-minimum-wage-hikes-launches-mccafe-coffee-kiosk

The morality aspect of minimum wage may be the most compelling argument against substantial increases because the result might hurt the marginalized people the minimum wage is meant  to protect. In California, $3.7 billion goes to public assistance to working families (Washington Post). Even with a full-time job in one of the highest minimum wage states, minimum wage employees need welfare to survive. This means the government is essentially subsidizing fast food and retail companies with taxpayer money to keep their payroll low. Executives are not suffering from minimum wage increases, the workers are by becoming stuck in a vicious cycle of economic poverty with no wage mobility. An increased minimum wage is not the way to break this cycle, it will only trick young people into thinking minimum wage is a way to make a living when they should be pursuing an education.

Word Count: 1457

References

http://journalistsresource.org/studies/economics/inequality/the-effects-of-raising-the-minimum-wage

http://www.frbsf.org/economic-research/publications/economic-letter/2015/december/effects-of-minimum-wage-on-employment/

http://livingwage.mit.edu

http://www.latimes.com/business/la-fi-minimum-wage-impacts-20160421-snap-htmlstory.html

http://www.forbes.com/sites/timworstall/2016/05/26/mcdonalds-ex-ceo-says-15-minimum-wage-would-lead-to-robots-and-automation-hes-right/#4fb0dd847860

http://chicago.eater.com/2016/9/27/13078184/chicago-mcdonalds-of-the-future-photos-river-north-touch-screen

http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/

http://www.usnews.com/news/the-report/articles/2016-03-28/ask-an-economist-will-a-minimum-wage-hike-help-or-hurt-workers

https://www.washingtonpost.com/posteverything/wp/2015/04/15/we-are-spending-153-billion-a-year-to-subsidize-mcdonalds-and-walmarts-low-wage-workers/

http://www.thenewstribune.com/news/politics-government/article109295012.html

http://www.grubstreet.com/2016/01/seattle-restaurant-jobs-increase.html

Interview with Patricia Podkowski, 10/5/2016

Trump’s Economic Policy: Make America Poor Again

by Leave a Comment

 

trump

One of the most compelling storylines of the election is whether Republican candidate Donald Trump can make good on his promise to make America’s economy great again. A review of his economic plan shows this is wishful thinking if Trump’s current ideas become American fiscal policy.

The focus of Trump’s plan is growing the American economy by deregulating, shifting trade policy and slashing taxes. In a recent speech at the Economic Club of New York, Trump vowed to cut taxes by a total of $4.4 trillion by lowering the top individual rate to 33% from 39.6% along with raising the standard deduction to close tax loopholes (Reuters). Trump claims his plan would not add to the federal deficit. To help compensate for the tax cuts, he would use a “Penny Plan” that would shrink all government programs outside of defense and entitlement programs by 1% each year (Reuters).

Trump claims the tax cuts would stimulate consumer spending. More realistically, the tax cuts would result in a deficit. The 2015 Fiscal Budget spent about $2.94 trillion of its $3.8 trillion on entitlement and military spending that would not be touchable under Trump’s plan (National Priorities). If 1% of the remaining $860 billion was cut, it would result in a $8.6 billion decrease in spending. This is a fraction of what Trump would need to fund his tax cuts. This means he will either not be able to execute planned government projects, such as his infamous wall, or incur a huge deficit.

pie-chart

From his sweeping immigration reform to his “Americanist” economic policy, Trump’s overall campaign has had an isolationist theme. Combined, they could have a drastic effect on the global economy. Trump plans on making net trade a positive part of the GDP by renegotiating or eliminating trade agreements such as NAFTA and the not-yet ratified Trans Pacific Partnership (CNN Money). This would include high tariffs on major trade partners such as China and Mexico, two of Trump’s favorite bogeymen. Trump promises to make up for lost imports with American products, saying, “We are going to put American steel and aluminum back into the backbone of our country.” (Time)

Trump predicts that his economic plan would result in a growth rate of 3.5% and create 25 million American jobs (CNN Money). These figures sound too good to be true, most likely because they are. Analyses by Oxford Economics and The University of Pennsylvania’s Wharton Budget Model estimate Trump’s policies would result in 4 million jobs lost, sharp declines in consumer spending, a global trade war and a total loss of $1 trillion in U.S. GDP by 2021 (CNN Money). His economic advisors have brushed off criticisms of his policies. “One thing we know about economists is that they never get it right,” said Trump economic advisor David Barrack (CNN Money).

In this case, the economists are right. If Donald Trump influences the U.S. economy, America will take a huge leap backwards. Trump’s plans to increase domestic manufacturing are not compatible with today’s global economy. Many of the parts in Mexican and Chinese goods originate in America. For example, Rich Turner and his 2700 worker denim plant in South Carolina would be out of business because they send most of their denim to Mexico to be sewed into jeans (CNN Money). Trade with Mexico and China helps all parties. Donald Trump’s misunderstanding of today’s economy could make America the opposite of great if he is elected.

Works Cited

http://www.reuters.com/article/us-usa-election-trump-economy-idUSKCN11L27G

http://money.cnn.com/2016/09/14/news/economy/donald-trump-economic-plan-1-trillion/

http://time.com/4386335/donald-trump-trade-speech-transcript/

https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/

Economic Indicator: The Buttered Popcorn Index

by Leave a Comment

Conventional economic wisdom suggests that during recessionary times, most industries will suffer. During recessions, the real estate, retail and other major markets tend to make less money than usual as people are hesitant to make unnecessary or major purchases when times are tough. However, historical patterns suggest that one nonessential commodity does surprisingly well during recessions: movies.

movies_l

According to the National Association of Theater Owners, box office ticket sales increased in the five recession years before 2008 (Kiplinger). Despite being one of the worst years of the Great Recession, the number of movie tickets sold in the first quarter of 2009 increased more than 9 percent from 2008 (Washington Post). This phenomenon is not a new development. Movies have been performing well during economic turbulence since the Great Depression, when Gone With The Wind (the highest-grossing movie of all time when adjusted for inflation) and King Kong broke box office attendance records despite staggering unemployment rates. Meanwhile, 2005 was a rough year for Hollywood while the economy in general, powered by the housing bubble, performed very well.

At first glance, it is not logical for movies to perform well during recessions because they are not necessary for survival and are an easy expense to cut. The reason behind this cannot be explained by simple supply and demand graphs, but makes sense with a bit of behavioral economics. During tough times, people need to be entertained more than usual to distract themselves. The economic worry and unemployment caused by a recession creates more people needing distraction than usual. Movies are a great opportunity to escape from reality for a few hours at a relatively low cost.

6a00d8341c630a53ef0120a7503ed0970b

The type of movies that perform well during difficult economic periods lend credence to the the idea that the box office is counter cyclical to the economy at large. According to the president of Box Office Mojo, Brandon Gray, “Comedies and epics tend to do really well at the box office during economic downturns.” (Fortune) This is because these genres fit into the escapism category that people seek out during economic difficulty. In the box office summer following the terrorist attacks of 9/11, Spider-Man brought in $403.7 domestically (Fortune). In the midst of the Great Recession, The Dark Knight broke the record for an opening weekend and ultimately made over $1 billion (Fortune). It is no coincidence that both of these movies feature likable heroes and themes of overcoming adversity. Additionally, the light-hearted comedies Step Brothers, Pineapple Express and Tropic Thunder were major hits during the summer of 2008. Despite ticket prices hitting an all-time high in 2015, the average ticket price of $8.61 still offers a relatively cheap entertainment alternative to dinners, bars or concerts (Slashfilm).

Unfortunately for economists, box office revenue is a trailing indicator. It does not help predict economic developments because increased ticket sales are people reacting to a recession when it has already taken effect. Still, the correlation between box office sales and the economy demonstrates that economic decisions are largely dependent on human psychology. It may not make sense for people to spend valuable income on something as superfluous as a movie during a recession, but the desire for entertainment can overcome logical decision making.

Sources:

http://archive.fortune.com/2008/08/21/news/companies/Movies.fortune/index.htm

http://www.kiplinger.com/article/business/T019-C000-S001-10-quirky-economic-indicators.html

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100677.html

http://www.slashfilm.com/average-us-movie-ticket-price/