This paper examines the determinants of box office revenue in the motion picture industry. The sample consists of 362 films released during 2001-2002. Regression results indicate the primary determinants of box office earnings are critic reviews, award nominations, sequels, Motion Picture Association of America rating, and release exposure. A nonparametric Kruskal-Wallis test is employed to compare box office performance on ten different levels of critical acclaim. The results imply that critic approval of forty percent or higher are essential for most motion pictures to enjoy box office success.
The movie industry earns over eight billion dollars annually at the domestic box office and employs over 580,000 people in the areas of film production & services, theaters, and home video. A single movie can be the difference between millions of dollars of profits or losses for a studio in a given year (Simonoff & Sparrow, 2000). Film audiences make hits or flops and they do it, not be revealing preferences they already have, but by discovering what they like (DeVany & Walls, 1996). When they see a movie they like, they make a discovery and they tell their friends about it. Film critics can be viewed as friends that initially view movies for fans and play an integral role in the information cascade that generates a hit. The recent admission of using fabricated film reviews by Sony Pictures, 20th Century Fox, Artisan Entertainment, and Universal Pictures provides anecdotal evidence that industry executives believe that reviews and testimonials have an impact at the box office. In the most extreme case, Sony Pictures admitted to marketing fraud in 2001 by using an imaginary film critic to promote two new releases.
The purpose of this research is to analyze the motion picture industry with a focus on how box office performance is impacted by film reviewers, film classification (sequel, rating, and genre), and industry awards. This paper is divided into four sections. First, a survey of the related literature is discussed. This is followed by an empirical evaluation of the determinants of box office performance for 362 films released during 2001-2002. The third section applies a nonparametric technique in order to compare box office performance by film critic review classifications. The final section offers concluding remarks.
SURVEY OF THE LITERATURE
Many researchers have developed models that explore the potential determinants of motion picture box office performance. One area of interest has been the role of the critic. The impact of the critic has been approached many ways yielding different results, although the majority of studies find that critics play a significant role on the success or failure of a film. Eliashberg and Shugan (1997) divide the critic into two roles, the influencer and the predictor. The influencer is a role where the critic will influence the box office results of a movie based on his or her review of the movie. Eliashberg and Shugan's results suggest that critics do have the ability to manipulate box office revenues based on their review of a movie. The predictor is a role where the critic, based on the review, predicts the success of a movie but the review will not necessarily have an impact on how well the movie performs at the box office. Eliashberg and Shugan show that the predictor role is possible but does not have the same statistical evidence as the influencer role.
Litman (1983) was the first to develop a multiple regression model in an attempt to predict the financial success of films. The original independent variables in the landmark work include movie genre (science fiction, drama, action-adventure, comedy, and musical), MPAA rating (G, PG, R and X), superstar in the cast, production costs, release company (major or independent), Academy Awards (nominations and winning in a major category), and release date (Christmas, Easter, summer). …