When You Wish Upon A Monopoly

Disney’s Hostile Take-Over of the Film Industry and Hotelling’s Law in Motion

In any introduction to Economics course, you will learn about Harold Hotelling’s Law from Stanford University. It is the explanation of why competing stores are built beside each other. Why Superstores and Safeway’s gravitate towards one another. The following is a famous hypothetical example explaining the Law:

There are two competing ice-cream shops on a beach; there is ice-cream shop A and ice-cream shop B. There are two assumptions:

  • 1) The ice-cream and prices of the two shops are identical. The consumers are indifferent between either shops
  • Thus 2) the only deciding factor is their distance between their location and the shop.

The following are three hypothetical beaches with different placements of A and B. As well, we also make the assumption that the beach is evenly distributed.

Graph of three beaches, each with different placements of shops A and B. The top numbers represent the distance the consumers are from ice-cream shop B. The bottom numbers represent the distance the consumers are from ice-cream shop A. On the right end of each beach is the average distance between every consumer and the ice-cream shops. This is an example of Hotelling’s Law.

As the ice-cream shops move towards the centre of the beach, the average distance between all the consumers and the ice-cream shops decrease. Because of our assumption that distance is the only contributing factor to consumer decision, the shops’ positions at the centre are where they will have the highest yield of consumers and maximized profit.

This is an explanation of why Starbucks and Second Cups are always built next to one another. However, note that Hotelling’s Law is a useful theory that can be applied in many other ways in our world other than proximity of stores. (For more on Hotelling’s Law see Addendum A).

And now you are asking me, how does this relate to Disney and the Film Industry?

Instead of a horizontal line, imagine it is multiple horizontal lines that cross at the centre creating a wheel. Where on the end of each line is a particular genre of film. The wheel overall represents all the genres. This is a standard deviation rotated about the y-axis to demonstrate all the possible genres of film.The apex or centre of this model is a impossible arbitrary movie that is considered to be in every genre that everyone loves. The more centre a film is to the apex, the more consumers from different genres they incapsulate. See Addendum C for more information on this arbitrary model.

Now applying this to Disney. Their goal is to maximize profit by increasing their number of audience/consumers. To do so, they have began making films that fit into many categories; making films that are closer to the centre of this model. Movies that include humour, and romance and drama, and thriller and action, etc.

Take for instance The Avengers: The Age of Ultron, the third highest grossing movie of 2015. There are the romantic scenes of Mark Ruffalo and Scarlett Johansson, as well as intense action scenes of the fight between Hulk and Tony Stark’s “Veronica”. But there are also very humorous scenes such as when the team is convivially celebrating in Stark’s living room trying to lift Thor’s hammer. If you look at Disney’s top grossing movies such as Iron Man 3 or Jurassic World you will see that there is a mix of several genres. Moreover, one of the most distinguishable characteristics of increasing homogeneity is the growing presence of The Joss Whedon Effect (See Addendum C). This is when film-makers use charming dialog and comical humour to playfully disarm the audience. Like the classic scene when The Hulk grasps Loki by the legs and smashes him on the ground. Or when Kylo Ren furiously stabs into the console of the ship, while two Stormtroopers slowly back away. Or basically anything that Tony Stark says. It is a light way to relieve the tension and pull the film away from being just an action movie.

By being able to make a stake in all of these genres, these movies are capable of maximizing their consumer yield and profit. Consumers ranging from die-hard Marvel comic book fans, to young children or even middle-aged men who saw the Star Wars Episode IV: A New Hope, in theatres. This may be a possible reason for why Disney has been dominating the box-office this past year. They bought out Pixar, then LucasFilms. They are becoming one of the biggest “superpowers” (wink) of the film industry.

The top 5 U.S. grossing movies in the past three years. Note that their Distributor is bolded to demonstrate Disney’s growing success. Especially in 2015 where they distributed 4 out of the 5 top grossing movies. Sources: IMDB. (Note: Mistake in the year 2015 column. Minions was the fifth top grossing movie.)

Now what does this mean for the Film Industry and the development of films?

I am an Economics and Mathematics student who is a film enthusiast. I am not a Cinema Studies major, so I honestly have no clue how this genre homogeneity will affect the future of films. What do you think? What is the impact of a monopoly in the film industry? Will this only encourage the production of tasteless summer blockbusters that pleases the masses?

Thank you for reading and have a great day!

Addendum:

  • A: Hotelling’s Law can also apply to many other aspects of our world. For example, instead of a coast, imagine if it was the left or right of a political spectrum? It could explain more about why political campaigns seem to look more and more similar, questioning the effectiveness of a democratic system. Another example is population distributions and increased urbanization. If this is not enough, another example is Hotelling’s Law and natural resources. If you are more curious about the origins of this theory, you can read Hotelling’s original paper on the matter: “Stability in Competition.”
  • B: This three dimensional shape is the standard deviation, rotated on the y-axis. This is just an oversimplification of the actual deviation of fans to their respective genres. It is almost impossible to actually build an accurate model, because it is impossible to pinpoint every consumer. Furthermore, this is just my own theory. It is extremely vulnerable to holes and flaws. If you find any issues or comments you would like to point out, please comment.
  • C: The Joss Whedon Effect: This is a term I am quoting. This is in reference to the short-lived Science Fiction show, “Firefly.” This “effect” has definitely been executed before FireFly, but when Joss Whedon directed the first Avengers, that is where I felt this presence the strongest in Disney films.
  • D: Is Disney an actual Monopoly in the film Industry? I make the claim that they are making a “hostile-takeover” and that they are a monopoly of the film industry, however that is yet to be determined. If you truly want, comment below and I will shortly make another post analyzing markups, HHIs etc. to make an educated guess on whether it is a Monopoly and the implications of having a monopoly in the film Industry.
  • E: Note: This Medium post is not a criticism of Disney films. I am simply demonstrating Hotelling’s Law in motion and raising a conversation about Economics and films today.

Matthew Fok is an undergraduate student at the University of Toronto, completing a Mathematics and Economics B.Sc. with a Minor in Germanic Studies. Originally from Edmonton, Alberta and is now aimlessly wandering the streets of Toronto.


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