Question:

      Is movie sex an asset or a liability in Hollywood's economy today?

Answer:

     In the early days of Hollywood, director Cecil B. DeMille famously made bathing scenes an obligatory ingredient of his biblical epics on the grounds that nudity--or at least the illusion of it--was necessary to the commercial success of movies. In those days, almost two-thirds of the adult population went to the movies weekly. But today's entertainment economy, dominated by at-home younger viewers, is a very different animal.

The theatrical release of Hollywood movies today is a mere sideshow in terms of earnings for the six major studios. At best, a good run at the box office may help to establish movies for licensing in the home-entertainment market, where the real profits are. Last year (2003), over 80 percent of the studios' worldwide revenue came from selling their movies in the form of DVDs and to television   (see Table 1).

Even the minor share of revenue that still comes from the box office--17.9 percent in 2003--provides little, if any, profit. It cost more in 2003 just to get the average movie and its audience into theaters (advertising and print costs) than most movies ever earned back at the box office.

Sex in movies, especially if it results in an "R" or “NC-17" rating, is now a triple liability: It hurts first at the theaters, then at the video store, and finally on broadcast TV.

For the theatrical release, the MPAA issues a rating that theaters must abide by. While its “G” (“general audiences”) and “PG” (“parental guidance”) ratings permit anyone to buy a ticket, its “R” (“restricted”) rating excludes all children and younger teenagers who are not accompanied by an adult, and its “NC-17” (“no children”) rating excludes anyone under the age of seventeen. In practice, this means that if a theater books a movie with a restricted rating, some of its employees, who might otherwise be selling popcorn, are required to check the identity documents of the teenage audience. To avoid this inconvenience, especially during holiday periods when the teen audience is at its peak, theater owners often resist booking such films–at least in their larger auditoriums. In addition, children-oriented cable networks, such as Nickelodeon, do not accept TV ads for movies with restricted ratings. As a result, the more restrictive the rating, the less money a film makes in the theaters. Virtually every economic analysis of box office earnings demonstrates that G and PG earn more money in theaters than R and NC-17.  

In the after-market of home entertainment, where today's profits are almost entirely made, nudity is even more of a liability. Consider DVDs. In 2003, most DVDs were sold by mass merchandisers, who frequently use them to build storewide traffic for other products, such as plasma TVs, game consoles, and toys. Most of these merchandisers restrict their more prominent shelf space to DVDs that will not offend the family-oriented consumers whose business they seek. For example, Wal-Mart, by far the largest seller of DVDs (and videos), reserves strategic shelf space for DVDs that conform to its "decency" policy on nudity. DVDs that do not hew to these guidelines rarely, if ever, attain multimillion-copy sales. On the other hand, DVDs that pass the Wal-Mart shelf test can sell more than 10 million copies, as did, for example, Shrek, Finding Nemo, and Harry Potter.

Movies with nudity are also a problem for the studios' other main
moneymaker: television. Because the FCC regulates broadcast television (though not pay-TV or cable channels), television stations cannot show movies that violate the FCC's standard of "public decency," which prohibits salacious nudity.

We may live in an anything-goes age, but if a studio wants to make money, it will think twice about how much of “anything” it shows on the big screen. So it is not surprising that in the last 5 years, the number of R-rated films produced by Hollywood has dropped from 212 to 147.   Sex may still sell, but not at Wal-Mart or the on networks.

Corollary Question:
Why did Warner Brothers spend half a million dollars to digitally alter 8 seconds of Stanley Kubrick’s film Eyes Wide Shut?