Edward Jay Epstein, The Hollywood Economist, has a good post on the economics of movies and television and how this has contributed to a role reversal:

Once upon a time, over a generation ago, The television set was commonly called the “boob tube” and looked down on by elites as a purveyors of mind-numbing entertainment. Movie theaters, on the other hand, were con sidered a venue for, if not art, more sophisticated dramas and comedies. Not any more. The multiplexes are now primarily a venue for comic-book inspired action and fantasy movies, whereas television, especially the pay and cable channels, is increasingly becoming a venue for character-driven adult programs, such as The Wire, Mad Men, and Boardwalk Empire.

Why? Epstein’s explanation is the rise of Pay-TV. You can understand what has happened with some microeconomics. Advertising supported television wants to maximize the number of eyeballs but that often means appealing to the lowest common denominator (this is especially true when there are just three television stations). The programming that maximizes eyeballs does not necessarily maximize consumer surplus.

See the diagram.

Pay-TV changes the economics by encouraging the production of high consumer-surplus television because with Pay-TV there is at least some potential for trading off eyeballs for greater revenue. In addition, as more channels become available, lowest common denominator television is eaten away by targetted skimming. Thus, in one way or another, Pay-TV has come to dominate television.

The movies, however, have become more reliant on large audiences–at least relative to television. Note that even though the movies are not free, a large chunk of the revenue is generated by concessions–thus the movie model is actually closer to a maximizing mouths model than it might first appear (see also my brother’s comments on how flat movie pricing makes it difficult for indie films to compete). Finally, the rise of international audiences for movies has fed a lowest common denominator strategy (everyone appreciates when stuffs blows up real good). As a result, the movies have moved down the quality chain and television has moved up.

Hat tip: Tyler.