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The Eclectic Economist

Latest Star Wars film may be ‘biggest movie of all time’ – just not at the box office

Say cheese! Reuters

This weekend, the newest Star Wars movie will start playing in cinemas throughout the world. Pundits in places like Forbes and the International Business Times are already predicting it will be the “biggest movie of all time.”

The headlines and superlatives about this movie’s box office records will dominate entertainment news during the winter. However, it is important to understand that the hoopla surrounding box office records is a regular occurence: Hollywood uses special effects for both making movies and discussing how a movie does financially.

Hollywood movies consistently break box office (ticket sales) records because the industry does not adjust sales for inflation.

Instead of recording the number of people who view a film, the movie industry records the amount of money taken in by ticket sales. Because both the general cost of living and ticket prices have increased substantially over time, movies that debuted years ago are unfairly compared with movies that debut today.

A fair comparison of how movies have fared financially must include an inflation adjustment, which yields quite a few surprises.

Why the hoopla?

The latest Star Wars movie is titled Episode VII, The Force Awakens.

It is generating huge excitement since it reunites the original Star Wars cast. It brings back Harrison Ford as Han Solo, Mark Hamill as Luke Skywalker and Carrie Fisher as Princess Leia.

Moreover, the film is directed by JJ Abrams, who cocreated the hit television show Lost, as well as directing blockbuster movies such as Mission Impossible III and two Star Trek movies. Bringing together famous actors and a famous director does not guarantee success, but makes the chances much more likely.

The movie is expected to break box office records when it opens since it has already broken presale records in the United Kingdom, Russia, Canada and the US. Variety is estimating that the movie will reap US$400 million in worldwide ticket sales between its mid-December opening and New Year’s Eve.

How well have previous Star Wars movies performed?

The table below shows the worldwide sales in millions of dollars that each of the six previous Star Wars movies earned.

The top-grossing movie is the 1999 Phantom Menace, which earned a bit over $1 billion. The lowest-grossing movie in the series is The Empire Strikes Back, which earned slightly more than half a billion dollars. The original movie, A New Hope, that started the franchise in 1977 only earned $750 million, ranking it in the middle of the pack among the six movies.

Best to worst Star Wars movies based on worldwide ticket sales (in millions of US $). Author's calculations based on data from Nash Information Services' website

What happens after adjustment?

The above table, however, provides a rather distorted view of the six Star Wars movies because it is unfair to compare a movie’s box office take in 1977 with the box office take decades later.

Wages and ticket prices in the 1970s and 1980s were much lower than they are today. To collect the same ticket revenue, a movie that was released when the average ticket price was $1 will need to bring in ten times more customers than a similar movie that is released when the average ticket costs $10.

One simple way of adjusting is using the US Bureau of Labor Statistics’ inflation adjustment calculator. This online tool (available here) uses data on the price US consumers have paid for a wide variety of goods and services from 1913 to the present. Typing in the box office values and the year when each movie was released results in a new table, shown below.

Adjusting for inflation changes the rankings dramatically. The original Star Wars movie A New Hope is no longer in the middle of the pack. Instead of only $750 million, it made over $3 billion in movie ticket sales after adjusting for inflation. The Empire Strikes Back moves from the very bottom of the list to second place with over $1.5 billion in inflation-adjusted ticket sales.

After adjusting for inflation, best to worst Star Wars movies based on worldwide ticket sales (in millions of 2015 US$). Author's calculations based data from Nash Information Services' website

How much would it take to claim the record?

To break the record held by the very first Star Wars movie, the current episode would have to earn at least $3.1 billion in worldwide ticket sales.

When adjusting for inflation, it turns out a classic movie made in 1939 grossed the most. Gone with wind via

Earning this would not only make it the all-time Star Wars leader but also break the “box office record,” which is currently held by the 2009 hit Avatar. That science fiction movie about blue giants living on another planet racked up $2.8 billion in worldwide ticket sales, or $3.1 billion, after adjusting for inflation.

The real bar, however, that this current Star Wars movie needs to break is held by Gone with the Wind, which had ticket sales of about $200 million. While this may not seem like much, it is important to understand that it earned this in 1939 when movie ticket prices were just 25 cents. After adjusting for inflation, Gone with the Wind earned $3.4 billion in inflation-adjusted money, eclipsing both Avatar and the first Star Wars movie.

Hollywood will almost definitely declare that the newest Star Wars movie is a box office record-breaker very shortly. However, to truly say this movie is financially Hollywood’s top performer, older movies’ ticket sales must be adjusted for inflation.

Without adjusting, the newest “record-breaking performance” is just another visit to finance and marketing’s “dark side” that is simply designed to increase hype and focus attention on a new movie release.

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