Role of Advertising and Consumer Interest in the Motion Picture Industry

Abstract

Abstract Advertising is commonly used as a major marketing tool by many firms to support their new product release. Quantifying the effectiveness of pre-release advertising campaigns, however, is both challenging, since no sales data are available, and costly, because of the need to conduct consumer surveys. This is especially true for movie industry for which the majority of advertising dollars are spent before the movie’s release. Using the recent availability of online data on consumer search behaviors on a popular website dedicated to the movie industry, we construct a consumer interest measure to help the decision makers evaluate their advertising effectiveness. We build a dynamic model to show how this cost-efficient measure of consumer interest can be used to capture pre-release advertising dynamics, and the impact of advertising on weekly movie revenues starting with the opening week. Using a procedure based on Naik, Mantrala, and Sawyer (1998) and controlling for endogeneity, we estimate response, forgetting and wear-out of pre-release and post-release advertising for a large sample of movies. Our empirical results show that advertising generates goodwill, and that the resulting goodwill is associated with increased revenues. Our results suggest that big-budget movies can increase advertising effectiveness by making small adjustments to their advertising dynamics, but that spending more advertising dollars will likely not be effective. The data on the evolution of consumer interest can be a valuable and inexpensive tool for measuring advertising effectiveness and understanding sales dynamics.