The cultural economics of film

This week a collection of papers looking at the cultural economics of films focussing on – among other things – how the stock market reacts to movies, the behaviour of exhibitors and distributors, and how reducing financial risk allows exhibitors more freedom (which is of obvious interest in light of the BFI’s recent New Horizons document).

As ever, the version of a paper linked to may not be the final published version.

Chisholm D, McMillan M, and Norman G 2010 Product differentiation and film-programming choice: do first-run movie theatres show the same films?, Journal of Cultural Economics 34 (2): 131-145.

We present an empirical analysis of product differentiation using a new dynamic panel data set on film programming choice in a major U.S. metropolitan motion-pictures exhibition market. Using these data, we compute two measures of film programming choice which allow us to investigate the determinants of strategic product differentiation in a multi-characteristics space. Our evidence is consistent with the idea that the degree of product differentiation between theatre pairs reflects a balance between strategic concerns and contractual constraints. Similarity in one dimension is offset by differentiation in others. Finally, we find that ownership matters: theatres under common ownership make more similar programming choices than theatres with different owners.

Collins A, Scorcu AE, and Zanola R 2009 Distribution conventionality in the movie sector: an econometric analysis of cinema supply, Managerial and Decision Economics 30 (8): 517-527.

This paper empirically analyzes the impact of several factors on a ‘conventionality index (CI)’ in the specific context of the cinema exhibition sector. To our knowledge, it is the first time that a standard CI has been constructed for this purpose. Econometric analysis of the determinants of variation in this index provides decision-makers with an empirical focus for analyzing distributional aspects of the movie exhibition market, with particular emphasis on product differentiation. Specifically, (i) do cinemas based in a city area have a different or ‘specialized’ focus in contrast to cinemas in small towns? or (ii) do multiplexes have a different or more specialized focus in comparison with cinemas? To this end, cross-sectional econometric models are estimated to help analyze these effects in three Italian regions for a sample of cinemas covering the 2006 season.

Einav L and Ravid SA 2009 Stock market response to changes in movies’ opening dates, Journal of Cultural Economics 33 (4): 311-319.

How does the market react to news regarding large uncertain projects? We analyze stock market reactions to information about changes in opening dates of movies, and present two main findings. First, we find systematic negative stock price responses to the scheduling changes we consider, suggesting that any changes are interpreted as bad news by the market. Second, we find that the market reaction is greater for movies with higher production costs, but is unrelated to subsequent box office revenues. This may point to a limited ability of the market to predict the box office performance of a movie, and to increased sensitivity of the market to cost effects, which are easier to forecast.

Joshi AM and Hanssens DM 2008 Movie advertising and the stock market valuation of studios: a case of “great expectations?”, Marketing Science 28 (2): 239-250.

Product innovation is the key revenue driver in the motion picture industry. Because major studios typically launch fewer than 20 movies per year, the financial performance of a single release can have a major effect on the studio’s profitability. In this paper we study how single movie releases impact the investor valuation of the studio. We analyze the change in postlaunch stock price and predict the direction and magnitude of excess returns based on the revenue expectation built up for a movie release. That expectation is set, in part, by media support; i.e., highly advertised movies are expected to draw larger audiences than others. By using an event-study methodology, we isolate the impact of a movie launch on studio stock price and track the determinants of that change.

We examine a comprehensive data set comprising over 300 movies released by the largest studios. Our results indicate a clear interaction between the marketing support received by a movie and the direction and magnitude of its excess stock return post launch. Movies with above average prelaunch advertising have lower postlaunch stock returns than films with below average advertising. Our findings also suggest that movies that are hits at the box office may result in a lowering of stock price if they had high media support because of high performance expectations built up prior to launch. Thus prelaunch advertising plays a dual role of informing consumers about a movie’s arrival as well as helping investors form expectations about the studio’s profit performance.

McKenzie J 2012 The economics of movies: a literature survey, Journal of Economic Surveys 26 (1): 42-70.

The film industry provides a myriad of interesting problems for economic contemplation. From the initial concept of an idea through production, distribution and finally exhibition there are many aspects to the film project and the film industry that present new and interesting puzzles worthy of investigation. Add to this the high level of data availability, and it is little wonder that an increasing number of researchers are being attracted to this industry. To date, however, there are no comprehensive surveys on the contribution of economists to this literature. This paper attempts to fill this void and unify what is known about the industry. It also identifies and discusses potential areas for new research.

Pokorny M and Sedgwick J 2010 Profitability trends in Hollywood, 1929 to 1999: somebody must know something, The Economic History Review 63 (1): 56-84.

This article presents an overview of the development of the US film industry from 1929 to 1999. Notwithstanding a volatile film production environment, in terms of rate of return and market share variability, the industry has remained relatively stable and profitable. Film production by the film studios is interpreted as analogous to the construction of an investment portfolio, whereby producers diversified risk across budgetary categories. In the 1930s, high-budget film production was relatively unprofitable, but the industry adjusted to the steep decline in film-going in the postwar period by refining high-budget production as the focus for profitability.

Wang F, Zhang Y, Li X, and Zhu H 2010 Why do moviegoers go to the theater? The role of prerelease media publicity and online word of mouth in driving moviegoing behaviour, Journal of Interactive Advertising 11 (1): http://jiad.org/article139.

Using the Bass new product diffusion model, the authors explore how media publicity and word of mouth (WOM) about a to-be-released new movie drive moviegoing behavior in emerging markets. Empirical data collected from the Chinese motion picture industry reveal that prerelease media appearance (a proxy for publicity) and online WOM conversation (a proxy for WOM) influence moviegoing decision making, but they play different roles. Media publicity determines moviegoers’ innovation probability, whereas WOM determines both innovation and imitation probability. This article provides a better understanding of the decision making involved in moviegoing, as well as effective ways to market and release new movies in emerging markets.

Werck K, Grinwis M, and Heyndels B 2008 Budgetary constraints and programmatic choices by Flemish subsidized theatres, Applied Economics 4 (18): 2369-2379.

We analyse programmatic choices of Flemish theatres and examine how they are affected by the theatres’ budgetary situation. Following Lancaster’s characteristics approach, we identify several output characteristics of individual Flemish theatres during the period 1980 to 2000. A simultaneous equation approach is used to capture the theatre managers’, subsidizing government’s and consumers’ behaviour. We find that changes in the budgetary situation of a theatre are translated into changes of both the ‘amount’ and the nature of the theatre’s output. The budgetary impact on artistic choices has intensified since the introduction of a 4-yearly instead of yearly allocation of subsidies. The decrease in financial risk for the individual theatres leads to an increase in artistic risk-taking.

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About Nick Redfern

I graduated from the University of Kent in 1998 with a degree in Film Studies and History, and was awarded an MA by the same institution in 2002. I received my Ph.D. from Manchester Metropolitan University in 2006 for a thesis title 'Regionalism and the Cinema in the United Kingdom, 1992 to 2002.' I have taught at Manchester Metropolitan University and the University of Central Lancashire. My research interests include regional film cultures and industries in the United Kingdom; cognition and communication in the cinema; anxiety in contemporary Hollywood cinema; cinemetrics; and film style and film form. My work has been published in Entertext, the International Journal of Regional and Local Studies, the New Review of Film and Television Studies, Cyfrwng: Media Wales Journal, and the Journal of British Cinema and Television.

Posted on May 31, 2012, in Film History, Film Industry, Film Studies, Motion Picture Distribution, Motion Picture Exhibition and tagged , , , , . Bookmark the permalink. 1 Comment.

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