Market as God, Pundit as Priest

Clayton Cramer points to this rather odd post on Hollywood and wholesome movies. Cowen "concludes" that there is no market for more family-oriented fare because if there was, Hollywood would make them.

By that reasoning, all cars should still have tailfins and weigh 5,000 pounds. After all, if there was a market for smaller, more Teutonic cars, Detroit would have offered cars like that in 1958.

Markets are efficient information processors, but they are not omniscient. Buyers can only purchase what is presented to them by producers. Since producers are not gifted with perfect foresight, they often miss opportunities. That is why innovators and new entrants can reap high returns. As Clayton M. Christensen shows in The Innovator's Dilemma, established firms usually are locked into existing customers and are blind to the profits to be found in new or underserved segments.

It is not easy to identify new opportunities. That is as true for Hollywood as it is for Wal-Mart. It helps if you have good metrics about customers, buying patterns, product-line profitability, etc. Wal-mart does and that is one reason for their astounding success. Hollywood accounting is notoriously murky. The studio heads may be greedy, but they can't exploit what they cannot see.

Even six months ago no studio thought there was a market for the Passion. That shows a pretty big collective blind spot given that movie's huge box office.

The movie industry is as much a creative community as it is a business. Tom Wolfe has skillfully dissected the "compound mentality" that can infect such communities. Artists begin to care less about what customers want, and worry a great deal about what their peers think. Again, such groupthink (does Cowen think this only happens in government bureaucracies?) can create blind spots.

Cramer's post has more on Hollywood's cluelessness about the state of religious belief in America.