Noting Hollywood's struggle to predict movie sales, the authors set out to create decision-making tools that would aid studios, distributors, and exhibitors as they plan their marketing activities and negotiate contracts.
"By computing information available to a studio like star quality, past performance of similar films, and the number of screens that will debut a particular film, you can make a reasonably accurate forecast of how a film will perform," says Ramya Neelamegham, currently with the University of Colorado, Boulder. "The advantage of this type of forecasting is that as sales figures come in, the model can do more accurate updates at each stage to help plan better."
The study, "A Bayesian Model to Forecast New Product Performance in Domestic and International Markets," appears in the current issue of Marketing Science, an INFORMS publication. The authors are Dr. Neelamegham and Pradeep Chintagunta, University of Chicago. The study uses operations research techniques to reach its conclusions.
Launching in Overseas Markets
The authors forecast the expected number of viewers in a given week by examining information like number of screens, distribution strategy, the film's genre, the presence or absence of stars, reviews and word of mouth about the film.
The authors developed their model by studying domestic box office receipts reported in Variety Magazine for 35 films in the years 1994 - 1996.
They also examined overseas box office receipts for the 13 countries that account for approximately 80% of international receipts: Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico, Netherlands, Spain, South Africa, Sweden, and the United Kingdom.
The model examines viewing patterns in individual countries and makes separate predictions for a film's performance in each foreign market.
The researchers also incorporate less formal rules of thumb that are used in Hollywood.
Factoring additional information that is proprietary and was unavailable to the authors - such as advertising, production budgets, and release schedules - would improve the model's performance, they say.
Help Studios Make Decisions
Because new products are launched sequentially in international markets, increasing amounts of information become available for generating sales forecasts as one moves from the initial stage to the later stages in the launch process.
The authors' model provides information to decision-makers that can help studio executives at five stages. For each stage, the authors examined the critical first week. The stages include:
- The market evaluation stage, when studios have yet to pick a particular move and haven't decided which markets to enter.
- The post-production phase, when decision-makers need sales forecasts to make market entry and mix decisions.
- Immediately prior to the movie's domestic launch, when the number of screens has been determined. Pre-launch forecasts can help determine marketing mix decisions for the entire life cycle of the movie.
- Post domestic release phase, when forecasts are needed to plan the international launch.
- Just prior to the international launch, when first-week forecasts can help fine-tune strategic decisions, assess competition, and plan marketing activities for future weeks.
The model can also help forecast a movie's video sales.
In addition, the research has applications for other types of new products, including those launched in the high tech fields.
The Institute for Operations Research and the Management Sciences (INFORMS) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work primarily in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.