Motion Picture Industry the Relationship Term Paper

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Interestingly, results indicated that the three timing variables investigated, which were releases prior to long weekend, during summer, or during Christmas, did not demonstrate relation to total revenues (Simonoff & Sparrow, 2000). However, the third quartile grosses were noticeably higher for seasonal releases in comparison to non-seasonal releases (Simonoff & Sparrow, 2000).

One of the most important factors involved in determining the success of a film in terms of box office revenue is the release date (Simonoff & Sparrow, 2000). Simonoff and Sparrow (2000) explain how movie studios often will plan a release date for a film up to a year in advance and leak this info to the media in an attempt to "scare off" competing films. Furthermore, this occurs among major blockbuster motion pictures as well as small budget films, as it is unlikely to find two movies targeting the same audience released in the same weekend (Simonoff & Sparrow, 2000).

Specifically, Simonoff and Sparrow (2000) used a linear regression to predict gross revenues in which some or all of the predictive variables could be incorporated simultaneously. This regression model was used to model the logarithm of the total gross revenue. Results indicated that the model predicted the revenues of some movies well, and other movies not so well. The box office revenue of a children's movie and a movie with a high degree of star power both were significantly predicted by the model. However, the revenue of other films such as big budget blockbusters and surprisingly successful sleep films were not accurately predicted by the model that used pre-release information (Simonoff & Sparrow, 2000). If budget could have been used as a predictive variable, the model may have been more accurate in its predictions. However, the exact numbers involved in the budgets of films are not readily available (Simonoff & Sparrow, 2000).

The opening weekend of a film's release is a very important time that is closely monitored by the film industry. This is due to the fact that movie's open at the height of their success, and the initial strength demonstrated by the box office revenue for films in their opening weekend determines many of the decisions regarding the film's financial future (Simonoff & Sparrow, 2000). This is due to the fact that there is major competition with regards to screen space in theaters, and theaters generally only will keep a film longer than the two-week obligatory period if it has demonstrated initial success in terms of box office revenue.

However, there are some circumstances in which a film with a less-than-stellar opening weekend goes on to experience overall box office success (Simonoff & Sparrow, 2000). For instance, the movie studio may invest in further marketing of the film, possibly targeting campaigns to a wider viewing audience than what was targeted initially. Furthermore, the opening weekend box office results can act as a gauge for the movie studio, indicated whether the marketing strategy was appropriate or whether it needs some adjustments (Simonoff & Sparrow, 2000). Adjustments to the marketing campaign after the theatrical release of a film can ultimately save the movie, resulting in longer theater runs and increased box office revenue.

The results of the study by Simonoff and Sparrow (2000) investigating predictive variables from after the release of films indicated that box office from the opening weekend of a film is highly predictive of total box office revenue to a certain extent. Furthermore, the strength of the relationships between opening revenue and total revenue were different for movies with low total revenue than for those with higher total revenue (Simonoff & Sparrow, 2000). It was demonstrated that it was considerably more difficult to predict total box office revenue from opening weekend revenue for films with limited initial theatrical release. Small-release movies are screened and marketed different, often being niche-market pictures, like independent productions, documentaries, or foreign films, which are limited in where they are shown (Simonoff & Sparrow, 2000). Also, these movies are variable as to how long they run for, which depends upon competition, festival recognition, word of mouth among movie-goers, and critical reviews. The latter two factors are especially influential in determining the length of time that small-release films are kept in theaters and subsequent revenue. One marketing strategy employed by some studios is called "platforming" (Simonoff & Sparrow, 2000). This marketing strategy involves an intentionally slow opening for a film in just a few select cities and then slowly expanding to other centers. This strategy slowly builds up momentum for a film, generally depending heavily on word of mouth and reviews.

Upon examination of the merit of a model that used predictive variables after the release of a motion picture, findings indicated that films that opened on more than 10 screens the first weekend of their release experienced higher total box office revenue. This model factored in genre, first weekend gross, and number of opening screens. Results indicated that the extent to which opening weekend revenue was predictive of total revenue varied according to genre. For example, children's movies do better in terms of total revenue than would be predicted by opening weekend box office revenue, which suggests that the total box office revenue for this genre of film is built up slowly. On the other hand, films in the horror genre generally have strong opening weekend revenue that quickly drops off, resulting in revenues that finish 20% lower than what would be predicted from opening weekend revenue (Simonoff & Sparrow, 2000). Overall, however, knowing the opening weekend revenue for a film provides an excellent means for predicting total box office revenue (Simonoff & Sparrow, 2000). Furthermore, once box office revenue from opening weekend is known, any other information that was previously useful, such as star power or rating, become irrelevant and do not contribute any more in regards to predictive power of the model (Simonoff & Sparrow, 2000).

Simonoff and Sparrow (2000) also examined the predictive effects that Academy Award recognition has on box office revenue of films. How much impact does this recognition have? Results indicated that the number of Academy Awards actually won did not significantly add predictive power to the model. However, the number of nominations a film received did affect the predictive power of the model. The greater number of nominations received, the greater the total box office revenue for the film (Simonoff & Sparrow, 2000).

Overall, the analysis by Simonoff and Sparrow (2000) illustrated that total box office revenue of films can be predicted rather accurately using readily available information. The accuracy of these predictions is especially keen following the opening weekend for movies that opened on more than ten screens (Simonoff & Sparrow, 2000). Nominations for Academy Awards also predict box office success, but only in films that have not been in release for several months prior to the nomination.

De Vany (1997) explained how there is a high level of uncertainty in regards to revenues of motion pictures. The movie industry is likened to a complex adaptive system, in which there is a critical sensitivity of total box office revenues to performance during opening weekend. This sensitivity is seen as a reflection of the sensitivity to conditions considered characteristic of deterministic chaos (De Vany, 1997). Furthermore, if films show particular sensitivity to initial conditions, like competition, season, or peripheral economic events, these conditions have the ability to produce large changes in regards to total box office revenue (De Vany, 1997).

Jaeger (2003) outlined the nature of the motion picture industry as explosive, due to the massive growth of ancillary markets like home video, cable, and foreign television markets. Films with marketing and production costs that are high often entail bigger risks with a smaller chance of return than low-cost movies that are released in non-theatrical markets (Jaeger, 2003). The stream of revenue and net profit that comes from films is greatly reduced due to marketing and promotional costs, distribution fees, overhead, interest and expenses, and gross participation (Jaeger, 2003). Release in theatrical markets is costly. The average negative cost of a studio film, which includes the cost of production, studio overhead, and capitalized interest, was $47.7 million in 2001, and the average initial marketing costs, including prints and advertising, for a feature film is over $20 million (Jaeger, 2003). Therefore, recouping costs for a feature motion picture can be quite a feat (Jaeger, 2003).

In regards to some average statistics, feature films have first run releases of approximately 8 weeks. During this 8-week period, usually between 1000 and 2700 screens are garnered, and the films earn approximately $10 to $40 million in box office revenue (Jaeger, 2003). There are approximately 16 new major studio release films introduced each month into the theatrical marketplace, on an average of about 1650 screens (Jaeger, 2003). On…

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