Action! Lights, Camera: The Effect of Preannouncements on Experience Goods The Case of the Motion Picture Industry

Michael Wachter—Cleveland State University

Gone with the Wind Brokeback Mountain

Event Details of the Event Date Details of the Event Date

Movie Rights Secured

Selznick pays $50,000 for rights to Gone with the Wind.

07/11/1936 Annie Proulx sells rights to Brokeback Mountain for undisclosed amount.

12/19/1998

Director Announcements

George Cukor is selected to direct Gone with the Wind.

09/12/1936 Gus Van Sant is chosen to direct for Brokeback Mountain.

01/08/1999

George Cukor is selected to direct Gone with the Wind.

09/12/1936 Ang Lee is signed to direct Brokeback Mountain.

01/17/2004

Tallulah Bankhead auditions for Scarlett O’Hara.

12/22/1936 Heath Ledger and Jake Gyllenhaal are selected to play the leads in Brokeback Mountain.

01/18/2004 Selected Casting Announcements

Miriam Hopkins and Clark Gable are cast as Scarlett O’Hara and Rhett Butler.

03/19/1937

Norma Shearer is cast as Scarlett O’Hara.

06/24/1938

Norma Shearer declines Scarlett role due to fans.

08/01/1938

Warner Bros. to loan Bette Davis for Scarlett O’Hara.

09/21/1938

Carole Lombard is cast to play Scarlett O’Hara.

12/18/1938

Vivien Leigh is cast as Scarlett O’Hara.

01/14/1939

Release Gone with the Wind opens in Atlanta amidst parades, balls, and antebellum costuming.

12/15/1939 Brokeback Mountain opens in limited release 12/09/2005. First weekend receipts are $545,000 in five theaters.

12/14/2005

New Product Preannouncement

Message Content

Oscar Buzz Star Power

Number of Changes

Market Anticipation

Box Office Revenues

Studio Advertising

Third Party Reviews

P1 P2

P3 Timing

P4 P5

P6

P8

P7a

P7b

Abstract: Since the Golden Days of the Silver Screen, the motion picture industry has employed preannouncement strategies prior to the release of new movies. Firms developing new products often execute preannouncements to signal the market of its plans to commercialize a new market offering. Following a thorough assessment of the risks and benefits associated with preannouncement, the firm must decide which information to announce to whom and at what time. Much of the research conducted in this stream focuses on search products; little work includes experience goods, such as motion pictures. This research is perhaps the first to link the dimensions of preannouncement strategy to market anticipation for new films and first weekend box office revenues.

Selected Timelines for Preannouncement Publicity

Conceptual Model of the Effects of New Product Preannouncement in the Motion Picture Industry

12/17/2007: Peter Jackson ousted as director; Sam Raimi being courted.

04/26/2008: Guillermo del Toro signed on as director.

06/01/2010: Guillermo del Toro resigns as director.

10/21/2010: Peter Jackson reinstated as director; announces casting decisions.

03/22/2011: Production begins on The Hobbit.

318 references to The Hobbit movie

(Lexis-Nexis)

12,560 tweets (Topsy)

In the consumer decision making process for movies, the “time to decide” is characterized by the consumer receiving intensive information about the film, primarily through market signaling (Sawhney and Eliashberg 1996).

Studios signal potential audiences through casting decisions (Ravid 1999; Treme 2010), prerelease advertising (Basuroy, Desai, and Talukdar 2006; Elberse and Anand 2007; Zufryden 1996), and the production of sequels (Basuroy, Desai, and Talukdar 2006; Terry, De’Armond, and Zachary 2009).

External factors, like third party reviews from critics, also signal about the quality of the upcoming movie (Eliashberg and Shugan 1997; Terry, De’Armond, and Zachary 2009).

Message Content: Homberg, Bornemann, and Totzek (2009) suggest various messages will impact new product outcomes differently.

The connection of a motion picture with “Oscar buzz” has the potential to increase box office revenue (Terry, De’Armond, and Zachary 2009) and generates consumer conversation about the new movie.

Treme (2010) suggests 45% of consumers choose a movie based upon actors cast. The audience speculates about the casting decision, increasing the word-of-mouth information about the movie (Liu 2006) which may moderate the impact of negative reviews by critics (Basuroy, Chatterjee, and Ravid 2003).

Timing: Studios potentially benefit from an early preannouncement strategy. Lilly and Walters (1997) list four factors that influence how early an organization can preannounce: lack of competitive retaliation, lack of cannibalization, innovative/new-to-the-world products, and the buyer’s decision making process.

Patents act as a competitive barrier to entry for a firm (Porter 1980). In the motion picture industry, a studio negotiates the exclusive rights to develop a script, limiting a competing studio’s ability to copy the innovation.

Cannibalization is limited as a studio needs a continually renewing portfolio of new movies due to the relatively short product life cycle associated with a new movie (Terry, De’Armond, and Zachary 2009; Zufryden 1996).

Given the social context of motion picture as an experience product, there is a high level of buyer involvement in movie selection (Zufryden 1996).

Number of Changes: Changes to the initial market signal may detract from a firm’s reputation and could prove detrimental to new product launch. Missing promised launch dates and product attributes from preannouncements threatens the firm’s credibility and the success of a new product that does not meet buyer expectations (Eliashberg and Robertson 1988; Herbig and Milewicz 1996).

Changes in the initial announcement do not appear to deter from the studio’s reputation of the movie’s success.

The number of communiqués that a studio can issue for about a particular movie is in direct proportion with the timing of the first announcement.

Market Anticipation: Wind and Mahajan’s notion of creating “marketing hype” for a new product (1987) culminates in building market anticipation by generating interest and curiosity (Schatzel and Calantone. 2006). Word-of-mouth may be a strong predictor of a movie’s box office revenue, particularly in the first few weeks after the film is release (Liu 2006).

Studio Advertising: Research estimates advertising expenditures of 27% of revenues for the motion picture industry compared to about 4% for other experience products (Basuroy, Desai, and Talukdar 2006; Zufryden 1996). Studio advertising seems to have an effect on a modified hierarchy-of-effects model where advertising leads to awareness of the movie, intention to see the film, and finally, a ticket purchase (Zufryden 1996).

Third Party Reviews: Research suggests two roles of critics – as influencers and predictors of a movie’s attendance (Eliashberg and Shugan 1997). Another study quantifies the impact of third party reviews, stating a 10% increase in approval adds $1.2 million to $1.7 million to opening week box office revenues (Terry, De’Armond, and Zachary 2009). Others suggest that, over time, the valence of the review impacts its effect on revenues; the adverse impact of less favorable reviews outweighs the positive impact of favorable reviews especially during the movie’s opening week (Basuroy, Chatterjee, and Ravid 2003). Others posit the quantity of reviews, not the valence, affects a new movie’s outcome (Ravid 1999).

Proposition 1: Audience expectations of the new movie may increase with specific message content. Including information on the casting of well-known celebrities or rumors of award nominations increases levels of market anticipation for an upcoming motion picture release.

Proposition 2: Message content indirect impacts market anticipation due to its partial dependence on new movie preannouncement timing.

Proposition 3: The length of time from the initial preannouncement to the movie’s release impacts market anticipation increases rapidly and diminishes over time non-monotonically in an inverse U relationship.

Proposition 4: The number of changes made to the initial new movie preannouncement positively mediates the relationship between preannouncement timing and market anticipation.

Proposition 5: The number of changes made to the initial preannouncement increases the amount of word-of-mouth about the new film initially, but has a non-monotonic relationship (inverse U) with market anticipation.

Proposition 6: As market anticipation increases for a movie, so do box office revenues, being strongest in the opening weekend of the film release and lessening over time.

Proposition 7a: The level of studio advertising positively influences the relationship between new movie preannouncement behaviors and market anticipation for the new movie.

Proposition 7b: The level of studio advertising positively influences the relationship between market anticipation and opening weekend box office revenues.

Proposition 8: Reviews impact the relationship between market anticipation and opening weekend box office revenues in a direct manner relative to the valence of the review; a positive (negative) review denotes a positive (negative) relationship.

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