ALEX CHADWICK, host:

This is DAY TO DAY. I'm Alex Chadwick.

(Soundbite of ad)

Unidentified Man: They are the world's most deadly assassins.

(Soundbite of gunfire)

Unidentified Man: Their identities are a secret, even from each other.

CHADWICK: The new action movie "Mr. and Mrs. Smith" opens Friday. The identities of the stars are secret to no one, Angelina Jolie and Brad Pitt. They are on billboards and TV commercials all the time now. Studios spend millions to lure us into theaters each weekend, and here's a daunting statistic: On average, they spend more on advertising than they get back in box office receipts. How does Hollywood ever make a dime? Edward Jay Epstein writes on the economics of Hollywood for our partners at the online magazine Slate. He spoke with DAY TO DAY's Madeleine Brand.

MADELEINE BRAND reporting:

Edward Jay Epstein, you write that the major studios spend millions more dollars on advertising than they actually get back from moviegoers. That seems at best counterintuitive. Why are they spending so much on advertising?

EDWARD JAY EPSTEIN (Slate): They believe that if they put a lot of money into advertising on television around teen-age programs, they can turn out a large audience on opening weekend. Now why do they want to turn out a large audience on opening weekend, especially if they don't come on other weekends? It's because in the old days, which was three or four years ago, not a thousand years ago, the video stores, namely Blockbuster, bought their videos depending on how many people came on an opening weekend. It was an automatic formula. So they geared their advertising campaign to producing a large number which other people would take seriously.

BRAND: You say that was just a few years ago. It seems like a long, long time ago that they did this. Now things are changing.

EPSTEIN: Well, what happened is you had the DVD revolution and DVDs, even though they seem the same as videos, are sold in a totally different way. They're sold by stores like Wal-Marts. These stores don't care about the opening weekend. In fact, they'd prefer to have a video that attracts a different audience that comes to the opening weekend. They like people to come in and buy plasma TVs while they're looking for a video. So now you basically have them wasting $34 million on average per movie advertising.

BRAND: So they're not getting it back now from sales or even rentals of DVDs?

EPSTEIN: You know, there's a big argument going on. They don't know. They're getting a lot back from the sales of DVDs but they're not sure that the money they're spending on advertising is what's accounting for it as opposed to the stars' names on the box or the word of mouth. What's happened is a disconnect between the advertising campaigns and the DVD sales. Now the interesting thing is that once Hollywood recognizes this disconnect, the remedy for it is to make movies for adults and to advertise for adults and to aim for a whole different audience. Once you start an advertising campaign aimed at teen-agers, you make movies for teen-agers. If suddenly that advertising campaign doesn't make sense anymore and it's very expensive and you aim for a different audience, you're going to get different movies and maybe much better movies.

BRAND: And we saw that last year with the success of "Sideways." Are studios doing this now?

EPSTEIN: No, they aren't, because their video departments and their advertising departments are going in different directions. Basically they've done things one way. They've worked. Now suddenly there's a revolutionary change in technology--DVDs and digital television. It takes a few years for them to adjust. They're very bright people in Hollywood. They're not idiots or fools, but it does take time and there are people who say, `Look, we're doing things very well now. We're selling $17 billion worth of DVDs. Let's not change things.'

BRAND: Now, Edward, you put together an interesting chart which shows the declining box office receipts at the same time as increasing DVD receipts.

EPSTEIN: Right.

BRAND: So I'm wondering if you see a day not too far in the future where the studios just say, `You know, theaters aren't profitable. We're going to abandon theaters altogether.'

EPSTEIN: I don't think they'll abandon theaters because theaters are a niche audience now and they've been a niche audience really for the last 20 years. What they can do is say, `We're going to open. We're going to have the DVD release the same day as the movie release.' In other words, `Basically we're going to hit one audience and we're going to advertise to one audience at the same time.' That'll mean the movie audience will be smaller 'cause people could buy it on DVD, but there are still people, millions of people, who prefer to go to a movie theater on a Friday night, but the interesting thing for the audience will be now they'll be aiming for a much more adult population 'cause that's who buys the DVDs.

BRAND: So what's the poor teen-ager going to do now?

EPSTEIN: Poor teen-ager goes to the movie theaters anyhow 'cause he has nothing else to do on Friday night maybe.

BRAND: Opinion and analysis from Edward Jay Epstein. He's the author of "The Big Picture: The New Logic of Money and Power in Hollywood," and you'll find his piece on Hollywood advertising at slate.com. I'm Madeleine Brand.

CHADWICK: I'm Alex Chadwick. More coming on DAY TO DAY from NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.