Mengting Guo Yuxiao Ning Haig Shishmanian Ma 331 – Final Project Investing in Major Film Productions Analyzing Profitability Determined by Film Characteristics Abstract: The film industry continually produces very successful box-office hits. Where there is profit, there is investment opportunity. A study was done for the purpose of advising potential investors in what films to become financiers of. Specific aspects of films were chosen as factors potentially contributing to profitability. Recent films from the past 5 years were sorted based on 3 factors: The source of the story, the genre of the film, and the MPAA rating given to the film. First, the analysis showed that there is no direct relationship between budget size and profitability. Next, two very profitable combinations were determined: PG-rated Adventure Sequels and PG-rated Dramas based on original stories. Lastly, G-rated films were analyzed separately because of their being rare and consistently profitable.Introduction: The multi-billion dollar film industry is apparently very successful. Why? Major films became an integral part of the international community in the 20th century and, currently, the population is increasingly hungry for entertainment. A high stake is put on ideas that will lead people to buy tickets. What contributes to the profitability of films released in theatres? What details of a film’s production contribute (consciously or subconsciously) to a person’s paying money for increasingly overpriced tickets? Which of these characteristics can be known during the time of production so that people can choose to invest in a film? The group chose to analyze the effect of three explanatory variables on profitability. Profitability was defined as the International Gross of Ticket Sales – Film Budget. The variables were chosen out of a plethora of distinct characteristics that films have. Some of the variables that we rejected are the films distributor, the location of its filming, and the director. Throughout the analysis, the three variables chosen differed in their validity to the study. For instance, the genre of films proved to have a greater effect on non-G-rated films. G-rated films were analyzed separately and were observed to not really depend on genre for profitability. The first variable chosen was the genre. The genre was considered as an obvious determinant of the popularity of a film because certain genres seemed to be consistently profitable just by observing the data. The most popular genres of major film productions in the past 5 years have been comedy, action, adventure, and drama. Second was the MPAA rating because of the obvious way that it determines the film’s audience as well as the type of content that is expected in the film. The MPAA is the official organization that decides what ages are suited for viewing the content of a film. It gives four different ratings: G (For all audiences), PG (For most audiences, suggesting parental guidance for children), PG-13 (For viewers aged 13 and over), and R (Restricted – admitting only those viewers aged 17 or older). The MPAA rating of a film can be assumed before production because of the very standardized rating methods of the organization. Up to a certain amount of violence and sex will be tolerated for a PG-13, and after a very standardized amount of such inappropriate material, a film will be rated R. In the same way, a G-rated film is very clean andappropriate for even toddlers, while a PG-rated film will have some darkness, negativity, unpleasantness, or angst. The third variable was the source. The source of a film is what the idea for the storyline has come from. In most cases, the source is either an original screenplay, a sequel to a famous movie, or it is based on a book, television program or real-life event. It was found that this is an important aspect of a movie and only considered whether the films were original, sequels, or based on something. Original films tend to be most original and creative in plot. Sequels are often very popular because nobody makes a sequel of an unsuccessful movie (and people are always happy to see more enjoyable material). Films based on stories or television programs interest those people who follow such forms of entertainment. In order to be able to offer valuable advice to investors, 3 questions are raised by the study and are answered separately: 1. Is there a direct correlation between budget and profitability? 2. What combination of factors is most profitable when investing in a movie? 3. Is there a reason for G-rated movies’ consistent high profitability? Methodology: To answer the first question, two linear regression models and a plot are performed to see the relationship between the budget and the profit of the movie as well as the relationship between the budget and the profit-percentage. Then, the second question, which is the main question in the analysis, could be answered. In order to answer this question, two-way ANOVA, three-way ANOVA and Interaction plot were used to pick out the features for a highly-profitable movie. For the G-rated movies, Interaction plot and one way ANOVA were included to help the authors to analyze the result. Results: 1. In this part, the two relationships between profit vs. budget.Gross and profit.percentage vs. budget were obtained separately by applying the plot and the linear regression model.Plots: After the linear regression model, theR-squared was obtained for the two of them: 0.3686 and 0.01385 respectively. 2. In the second part, 2-way interaction plots were performed for each of the 6 combinations. (Genre vs. Mpaa rating, the reverse, Genre vs. Source, the reverse, and Source and Mpaa rating, the reverse.) Then 2-way ANOVA was performed and the best combination was selected. The result was put into a 3-way ANOVA by profit and by percentage.Interaction plots (profit interactions):(Percentage interactions):Significant results for two-way ANOVA: By profit: GenreAdventure:SourceSequel 414882963 77538863 5.351 4.76e-07 *** MPAA.RatingR:SourceSequel -302240616 111250232 -2.717 0.00765 ** By percentage: GenreAction:SourceOriginal 13.0861 3.7369 3.502 0.000667 *** GenreComedy:SourceOriginal 14.9207 3.5537 4.199 5.44e-05 *** GenreDrama:SourceOriginal 25.9063 3.4837 7.436 2.32e-11 *** MPAA.RatingPG-13:SourceOriginal -17.5007 3.4794