A Study on the Sensitivity of Film Demand to External Events

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Torres, Enrique J

The purpose of this research project was to investigate the relationship between unique external events, such as news stories and the Superbowl, and the sensitivity of film demand. The initial hypothesis was that unique external events would reduce consumers’ leisure time which reduces their demand for movies. Understanding this relationship would provide movie studio managers with better information when making decisions. The desired end result was to improve the decision making process. Closely related to unique external events are seasonal events so their effects were also tested for. These events typically increase leisure time so we expected seasonality to increase movie demand. The first step towards reaching a conclusion involved the accumulation of the appropriate data. Our sample consists of the top 60 films and their specific characteristics from April 2000 until November 2003, a 189 weekend time period. This information was complemented by historical film performance data which would serve as a benchmark in our analysis. Lastly, a list of events whose effects were to be measured was compiled. To test our hypothesis several forms of analysis were performed. A parsimonious regression analyzed the effect unique external events had on overall weekend results. An average based model regression examined the average performance differences for a weekend while controlling for certain film specific variables. A movie specific regression examined how events affect film demand on a movie by movie basis. The results of our analysis suggest that unique external events do negatively affect film demand. For large national events, for instance going to war, this effect was proven to be statistically significant, and it was estimated to decrease revenues by $21 million over an entire weekend. However, events not classified as “national” that were included in the other categories of news, sports, weather, and other holidays did not prove as conclusive. They may have affected film demand, but this effect was not large enough to be considered statistically significant. Seasonality, meanwhile, always demonstrated an observable increase in film demand at a statistically significant level. Our lack in ability to make more detailed conclusions is a shortcoming of this analysis and indicates the need for further research. Properly addressing these shortcomings should provide the quality of results needed to make good decisions. One difficulty we encountered was how to select and group the unique external events that were to be tested. There was no hard and fast rule as to which events should be included within the analysis. Grouping the unique external events into subgroups allowed us to better understand the difference between events and their effects. Our analysis highlights the importance of how each type of event differed. Proper analysis would include a larger amount of data so the specific effects of each type of event can be quantified. This level of information detail is needed before decisions can be significantly improved. As it stands now there is only incomplete information from which decisions can be made, yet this is still better than no information at all. In conclusion, this research project can be considered a success due to the results it was able to achieve and the improvements its shortcomings will have on future research. Managers will be better prepared to make decisions that react to unique external events. By understanding how the events affect film demand, managers will seek to minimize any decrease it causes. The film decision making process will be improved as a result of this information.

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