Academic journal article Contemporary Economic Policy

Ratings and Revenues: Evidence from Movie Ratings

Academic journal article Contemporary Economic Policy

Ratings and Revenues: Evidence from Movie Ratings

Article excerpt

Ratings play an increasingly important role in people's decisions. Hospital report cards influence where individuals receive health care (Pope 2009), school report cards influence where people with children choose to live (Figlio and Lucas 2004), and hygiene quality ratings influence where people eat out (Jin and Leslie 2003). Even in settings where the ratings (or other types of information about quality) do not influence individual behavior directly, the introduction of the ratings influences the way that producers design their goods (Golan et al. 2001).

In this article, we examine the role that content ratings play in influencing people's decision of which movies to watch in the theater. In this setting, ratings play an important role in allowing consumers to sort into the type of content that they would prefer to watch, and in protecting children from content that may not be appropriate for their age. This second consideration might be particularly important given the potential effects that violent or sexually explicit content might have on children (Anderson and Bushman 2001).

We show that directors have considerable control over the rating that they receive by determining the amount of profanity and in particular the number of F-words they include in the movie. While the Motion Picture Association of America (MPAA) does not release detailed information about their rating criteria, we are able to infer aspects of the criteria using data from ScreenIt.com, which provides a set of ratings for different types of content (including profanity) as well as a count of the number of specific swear words that are used in the movie. We find that profanity is one of the strongest determinants of a movie's rating.

We use these independent measures of the content of a movie to construct a measure of how close to the margin of a particular rating each movie was. This allows us to compare movies that appear to have content that would make them equally likely to receive a particular rating, but for various reasons ended up with different ratings. We find that, among comparable movies that are on the margin of receiving an R-rating, those that actually receive an R-rating end up receiving about 20% less in domestic revenues and are about 10 percentage points more likely to have their revenues fall short of their budget. We are able to confirm these findings both by using a more narrowly defined range of movies that are more similar in content and by employing an instrumental variable (IV) approach. We instrument for a movie's rating using an indicator of whether the movie included three or more F-words.

I. MOVIE RATINGS

In the early 1920s, Hollywood had a bad string of incidents that provoked public demand for censorship and the cleaning up of the movie industry. In response to the public outcry the Motion Pictures Producers and Distributors of America (MPPDA) formed an association. The leader of this group was the Republican National Committee Chairman, Will Hays. As the new leader of the MPPDA, he drafted what became known as the Hays Code. It outlined strict and specific guidelines as to what was suitable and what was unsuitable for American audiences.

On November 1, 1968, the Hays Code was replaced by the voluntary film rating system, the MPAA. This system gave submitted films a coded rating: G (general audiences, all ages admitted), M (mature audiences, parental guidance suggested but all ages admitted), R (children under 16 not admitted without an adult), and X (no one under the age of 17 admitted). The association later changed M to PG because of common misconceptions that an M was worse than an R-rating. In 1984, the association added the PG-13 and NC-17 categories.

The process for any film to receive an MPAA rating is the same. The producer or director of a movie submits his/her film to the MPAA and pays a scaled fee that is based on the movie's total budget. …

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