Wednesday, November 17, 2010

What Has Two Thumbs and Can Increase Movie Revenue

I'm always happy to take blog request and reader Brett asked me take on the question "Specifically, what is the value of critical acclaim (or criticism) to a movie? "

My first thought was this would be hard to figure out, since if a movie is good more people will see it and critics will rate it more highly. So high critic ratings might not actually be causing the result. I did a literature search and Reinstein and Snyder (2005) in the Journal of Industrial Economics take on this vary question.

The abstract starts by saying "An inherent problem in measuring the influence of expert reviews on the demand for experience goods is that a correlation between good reviews and high demand may be spurious, induced by an underlying correlation with unobservable quality signals." In other words critics like movies audiences like.

So how do they deal with this. They use the timing of Siskel and Ebert's reviews to see if they had an impact on a movie's revenue. In other words they compare opening weekend revenue for movies that get a thumbs up during or before opening weekend and those after. Reviews released after should have no impact on revenue. Unless Siskel and Ebert choose when to review movies based on how good they are. Luckily the paper shows that timing is not influenced by quality.

So how much is a thumbs up worth? About 37% increase in revenue for art house films and a 51% increase for dramas. Siskel and Ebert appear to have had no impact on comedies or action movies.

This paper came out in 2005 and uses data I think from the late 90s (ie the time before wide use of the internet). I wonder if any of the major critics have the same impact today.

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