Film Leverage Essay
Excerpt from Essay :
The film industry produces experience goods for consumer enjoyment and consumption, and substantively relies on consumer differentiation for the economic success of movies. Moviegoers appear to differentiate films primarily on the basis of genre, starring actors, exposure to promotion, recommendations from other moviegoers and film critics, and -- for the dedicated film buffs and connoisseurs -- directors, cinematographers, and even screenwriters associated with the film production (Albert 1998, De Vany 2004, Eliashberg and Shugan 1997, Hand 2002, Krider and Weinberg 1998, Nelson et al. 2001, Ravid 1999, Smith and Smith 1986, Wallace, Steigermann and Holbrook 1993). Access to information about films is related to the resources and networks that moviegoers enjoy, and on the attention that films garner, as expressed by the media and through social networks. Information about films is accessed by moviegoers from many sources: 1) The genre of the film; 2) the rating of the film by the Motion Picture Association of America (MPAA); 3) the country of origin of the film; 4) variables related to star power, as measured: a) by number of actors listed in Entertainment Weekly's list of 25 Best Actor and 25 Best Actresses; and b) the number of actors and actresses who were in the top 20 box office gross in their acting careers, as measured by The Movie Times website; 5) the production budget for the film in millions of dollars; 6) whether the film was a sequel to an earlier movie; 7) the relation of the film's release to holiday weekend, Christmas season, or during the summer from Memorial Day through Labor Day; 8) the number of screens on which the film was shown during the first weekend of its release; 9) gross revenues in millions of dollars for the first weekend of release; 10) the rating given by Roger Ebert, film critic from the Chicago Sun-Times; and 11) the Academy Award nominations and award wins for the film. Of these several predictor variables, the last one -- Academy Award (Oscar®) nominations and wins are of primary interest in this discussion.
Researchers have investigated each of these variables or combination of variable, and a number of prominent studies are discussed here.
The focus of the mainstream movie business in the U.S. is the Academy awards ceremony conducted by the Academy of Motion Picture Arts and Sciences each year in Hollywood. This essay will consider and provide economic analysis for the proposition that the Academy awards and nominations for awards are a significant tool for increasing demand for a film and participation. Although other awards are used in the movie industry, for the purpose of this discussion, the term award refers only to the Oscar® given according to the practices and regulations of the Academy of Motion Picture Arts and Science ("Academy Awards.") The unit of analysis in this discussion is a feature film, inclusive of genres except documentary.
Discussion of Literature
Through estimation of the survival time of films and the weekly box office returns, Deuchert, Adjamah, and Pauly (2005) investigated the effect that awards and nominations by the Academy of Motion Picture Arts and Sciences have on the commercial success of films. Their findings suggest that nominations for Oscars® are a catalyst for substantial additional box office revenue (Deuchert, Adjamah, and Pauly, 2005). However, the researchers also found that actually winning an Oscar® contributed very little to the extra rent (Deuchert, Adjamah, and Pauly, 2005). Nelson, et al. (2001) investigated the effect of an Academy Award nomination, and the effect of an Academy award for best actor and best actress, best supporting actor and best supporting actress, and best picture on three variables: 1) The market share at theatres, 2) the average per screen revenue, and 3) the probability of the films survival. Using a matched sample of films that had been nominated for Academy awards and films that had not been nominated for Academy awards, Nelson, et al. (2001) generated estimates based on weekly box office returns. The researchers found that a nomination and award for best actor or best actress and best picture resulted in substantial financial benefit (Nelson, et al., 2001).
The movie business literature appears divided about the impact of information asymmetry on consumer movie viewing choices. Kaimann (2013) argued that an important alternative to the latent information available to moviegoers before consumption is pre-release market success. Information about pre-release movie success can have
the effect of reducing consumer uncertainty about their viewing choices and purchase decisions (Kaimann, 2013). The variables of ex-ante popularity of actors, the occurrence of industry award nominations, and the size of production budgets have been found to be key mechanisms for the economic success of films (Kaimann, 2013). Word-of-mouth has long influenced the commercial appeal of movies. In recent years social networking has become a prominent way for consumers to communicate about films -- a phenomenon deliberately encouraged by the film industry -- with strong affects on the box office gross and distribution of films (Kaimann, 2013).
Roughly 25% of the total domestic box office gross of a movie can be accounted for during the opening weekend of the release of a film (Simonoff and Sparrow 2000). Even so, the box office gross from an opening weekend is not as highly predictive of a movie's total gross. In large part, this is due to the various patterns of release for films. For instance, some films will open on hundreds or thousands of theaters in the first weekend, while other films will only be shown on a few screens, and some movies will start with a small release and gradually build up to a broader release (Simonoff and Sparrow 2000). Long after the release of a movie, the film and/or the people associated with the film can be awarded -- or nominated for -- an Academy Award. The focus of this discussion is whether awards function as a significant tool for increasing demand for the film.
The annual award ceremony of the Academy of Motion Picture Arts and Sciences has recognized outstanding achievement in film every year since 1928 (Pardoe and Simonton, 2008). In the weeks running up to the actual night of awards and ceremony, the public and the media give a great deal of attention to making predictions about who will win an Oscar®statuette (Pardoe and Simonton, 2008). Despite a growing body of theory and models, each year seems to bring surprised about the award winners (Pardoe and Simonton, 2008). The discrete choice problem model developed by Pardoe and Simonton (2008) permits a reasonable degree of success in predicting winners in each of these categories: 1) Best picture, best director, best actor in a leading role, and best actress in a leading role. Moreover, Pardoe and Simonton's (2008) discrete choice problem can be used to reveal instances when nominees truly had low probabilities of winning, yet did better than nominees who were expected to win.
The Academy Awards are associated with prestige, future earnings and opportunities for actors and actresses, and with a considerable amount of money since the studios spend tens of millions of dollars marketing films in order to position them for Oscar® consideration. The primary question is if nominations or actual wins of Academy awards result in a boost to the box office revenues that have already been earned, since the Academy actions follow the release of a film -- when about a quarter of the box office revenue has already been earned -- and many films are still in release during the Academy Awards ceremony.
Interestingly, the number of Oscars® that are won by a film do not appreciably add to the predictive power of the model. However, nominations do have a substantive effect on expected gross revenue. For films that open on 10 or fewer screens, each additional nomination results in a 2.5 multiple (with everything else held fixed). Movies that open on more than 10 screens are likely to increase their expected gross by approximately 30%.
An interesting trend in movie release scheduling sees more films being released within four or fewer months prior to the Academy Award nominations. These films appear to benefit from the publicity associated with the Academy Awards, and are known in the movie industry as "Oscar® Engagements."
The models reviewed herein generally indicate that the box office performance of films can be fairly accurately forecast through a statistical analysis of information that is readily available. Several analyses have shown that the Oscar® nominations and Academy awards in the categories of best picture, best director, best actress and best actor, and best supporting actress and best supporting actor do boost box office revenues (Simonoff and Sparrow 2000). However, a caveat is needed here because this relation is not clear or particularly robust once a movie has been in release for quite a few months at the time of Academy award nominations are announced (Simonoff and Sparrow 2000). Indeed, the forecast models are less reliable when film distributors respond to a lot of word-of-mouth buzz…
Sources Used in Documents:
Albert, S 1998 "Movie stars and the distribution of financially successful fitness in the motion picture industry." Journal of Cultural Economics, 22(4), 249-270.
Chang, B-H and Ki, E-J 2005, Devising a practical model for predicting theatrical movie success: Focusing on experience good property. Journal of Media Economics, 18(4), 247-260.
Chen, Andrew. "Forecasting Gross Revenues at the Movie Box Office" Department of Economics, University of Washington June 2002. 20 July 2006 http://www.econ.washington.edu/user/startz/OldCourses/482_SP2002_studentPapers/econ-482-finalpaper%20Chen.pdf
Decanay, JC, King-Calvo, MT, Santos, AA 2010, Information cascades as social learning: The case of box-office ticket sales in the Philippines. Proceedings of the European Conference on Knowledge Management, 2010 p.334-344.
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