ARGs and the Economy: Part 1 of 3

The United States is officially in a recession, job losses are mounting higher every day, and venture capitalists are putting their wallets away. These are scary, uncertain times. And as somebody with a career in freelancing, I'm biting my nails wondering where the next contract will come from -- or whether there are going to be any other contracts at all. After all, the high-profile Lost Dharma Initiative was axed recently, apparently the victim of budget cuts. So are ARGs recession-proof? Well, actually... they might be (or may at least be more robust than you'd been thinking.)

Commercial ARGs are varied and it's difficult to make a solid prediction based on the historic record of any one other industry. We have ties and similarities to movies, advertising, and video games, but we're not quite the same as any of these. Still, looking at how these businesses have done -- and are projected to do -- is helpful in trying to read our own tea leaves.

From a purely rational point of view, one might think that in hard times, movies and games would do poorly as consumers hoard their discretionary dollars for more important considerations. On the other hand, one might expect advertising budgets to increase, as companies fight a little harder to get their piece of a shrinking pie. As it turns out, though, consumers are anything but rational, and neither are businesses.

Movies famously did well during the Great Depression and so are considered recession-proof. But that turns out to be nearly an urban legend:

Although the movie industry considered itself Depression- proof, Hollywood was no more immune from the Depression's effects than any other industry. To finance the purchase of movie theaters and the conversion to sound, the studios had tripled their debts during the mid- and late-'20s to $410 million. As a result, the industry's very viability seemed in question. By 1933, movie attendance and industry revenues had fallen by forty percent.

And there are some important differences between the environment of the Great Depression and of today. Most notably, in the 1930s, the much cheaper alternative, television, hadn't yet saturated American households. But how are movies actually doing? Well, there's some good news and bad news. Actual attendance is down about 3.6% from 2007. But apparently box office receipts hit 2007's tally in mid-November, before the traditional holiday movie season got started. This isn't cause for wild cheering, though, because total box office receipts for four of the last five years have been down, anyway. 

Movies are a doubly interesting metric for ARGs, because our fortunes are so often tied to theirs. Since so much of our work is promotional, rather than box office revenues, we should perhaps look at marketing budgets. Historically, marketing is where a movie budget's big bucks get spent. One could assume that these marketing budgets are hence prone to fall under the axe as times get leaner, as with Dharma Initiative. 

But perversely, one developer I spoke with indicated that he's seeing, if anything, increased interest from potential marketing clients. That's because a shrinking marketing budget means a more judicious eye watching where each dollar goes, and ARGs carry fairly modest budgets compared to traditional media buys.

Still, movies haven't been doing so well in years and years, even in good times, and even as the ARG has seen its star rising in the sky. So let's look at another cousin to see if we can find a more illuminating precedent. Next up in Part 2: Advertising.

This is the first part of a three-part series. Part 2. Part 3.

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