Here is how hedge fund giant Citadel predicts Hollywood hits

Star wars force awakensGetty Images‘Star Wars: The Force Awakens’ hits theatres on Friday.

“Star Wars: The Force Awakens” debuted on Friday and shattered box-office records. 

Citadel’s Stephen Parlett, Evan Ericson, Joe Pasqualichio, and Steven Rosenberg laid out their thoughts on the film — and on predicting financial success in movies — in a Q&A.

Citadel, founded and led by Ken Griffin, has $25 billion in assets under management.

“Our models are built to be extremely dynamic and flexible,” said Parlett, when asked how Citadel calculates the likelihood of a movie’s success and how the firm can change its models when needed.

“In the entertainment industry something can be a hit or a flop; the numbers can change rapidly, and our flexibility enables us to react incredibly fast” he said.

Rosenberg said Citadel spends a lot of time conducting research to better understand consumer trends. He said:

We perform a lot of proprietary research and data analysis. For example, we survey thousands of gamers every year to understand consumer trends, test hypotheses and gauge purchase intent for upcoming titles into the holiday season.

Unsurprisingly, this year’s video game survey showed strong purchase intent for Star Wars: Battlefront. But if you dig a little deeper into the numbers, you start to discover some interesting trends about how and where consumers plan to make their purchases. All that will have an impact on the game publisher’s gross margins.

Parlett added that “not all revenues are created equal”, meaning that Citadel needs to understand “the underlying costs or revenue sharing that are associated with a content company’s revenues.”

Pasqualichio said: :

It’s important to remember that the total revenue generated from a film will include more than just the theatrical release, as Stephen mentioned. Films use the ultimate method of accounting which includes revenue streams beyond the initial theatrical release.

When a film is created, there is a major fixed cost associated with its production. That production cost will be amortized over the life of the film based on how much it generates at the box office, in the premium TV window, in the basic TV window, and how much it generated from consumer products and other ancillary revenues.

Read the full Q&A here.

Here is Steven Rosenberg on how Citadel gets a handle on consumer trends:

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