Lengthy lines, sold-out theaters and high-profile premieres are commonplace for Hollywood's blockbuster productions. But when the credits have rolled and the receipts are tallied, the most commonly referenced movie calculation is missing one key player: inflation. When it comes to ranking movies by revenues, today's higher admission prices give more recent films an unfair advantage.

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Let's examine inflation, how it's calculated and how the "blockbusters" perform when inflation is accounted for.

Inflation
Generally speaking, inflation in the film industry measures the rate at which overall prices are rising. Periods of inflation occur as prices rise, and the purchasing power of each dollar declines. Periods of deflation are identified as prices decline and purchasing power of a single dollar increases.

Over the long-term, prices tend to rise and each dollar becomes less valuable. For example, $1 in 1940 has the same purchasing power as $15.57 today. (What causes inflation? How does it affect your investments and standard of living? Learn the answers in All About Inflation.)

Calculating Inflation
The Consumer Price Index (CPI) is perhaps the most commonly referred to statistic used as a gauge of inflation. The index is calculated by tracking the prices of goods and services in urban areas over time and has been maintained by the Bureau of Labor Statistics since 1919. Changes in CPI are used to evaluate changes associated with the cost of living.

Some items used in the CPI calculation include medical care, food, and utility services such as water and sewer. Some items excluded from the CPI calculation include homes and investments.

Inflation at the Box Office
Recent box office prices have easily outpaced inflation, but when comparing the revenues of new movies to those of previous years and especially decades, it is important to make the necessary adjustments. In the first quarter of 2010, the nationwide average price of a movie ticket increased 8% from the same period last year. (Summer movie season can be a major money maker for big studios, especially if they can produce a smash-hit. Check out The Economics Of Summer Blockbuster Movies.)

Blockbusters Ignoring Inflation
With "Avatar" and "Titanic," director James Cameron can lay claim to the two highest grossing movies of all time in the United States. Domestically, the films brought in roughly $750 million and $600 million, respectively.

Ranked by box office domestic revenue, here are the top five highest grossing movies of all time:

1. "Avatar" (2009) $749 million
2. "Titanic" (1997) $600 million
3. "The Dark Knight" (2008) $533 million
4. "Star Wars Episode IV: A New Hope" (1977) $460 million
5. "Shrek 2" (2004) $441 million

And The Inflation-Adjusted Winner Is…
The list of highest grossing inflation-adjusted movies is commonly found by using current day movie ticket prices and adjusting them to reflect the change in dollar purchasing power. After considering inflation, the list of top breadwinners undergoes a massive rewrite. (Success in Hollywood isn't just measured by ticket sales - development costs play a large part, too. Don't miss Movie Genres That Make The Most Money.)

After accounting for inflation, "Gone With the Wind" is the highest grossing movie of all-time, having earned over $1.6 billion. Avatar falls to fourteenth on the list, after being bested by several pictures ranging from The Exorcist to 101 Dalmatians. Ranked by box office revenue in terms of today's dollars, the top five highest grossing movies are:

1. "Gone With the Wind" (1939) $1.6 billion
2. "Star Wars Episode IV: A New Hope" (1977) $1.4 billion
3. "The Sound of Music" (1965) $1.1 billion
4. "E.T.: The Extra Terrestrial" (1982) $1.1 billion
5. "The Ten Commandments" (1956) $1.0 billion

Of course, each movie on the list has time on its side. The most recent of the top five movies was originally released over thirty years ago, whereas "Avatar" is less than one year old. "Gone With the Wind" also has the advantage of multiple releases over the course of the seventy-plus years since its original release.

Roll the Credits
Since box office revenue is the most commonly quoted statistic on movies, it is understandable for the general public to view the success of a movie as a function of box office receipts. But when comparing the blockbusters, the effect of inflation is too large to be ignored.

Catch up on the latest financial news in Water Cooler Finance: The iPhone Launch, Buffett's Lunch And BP's Lashing.

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