The Dynamics of Movie Purchase and Rental Decisions: Customer Relationship Implications to Movie Studios

Transcription

1 Te Dynamics of Movie Purcase and Rental Decisions: Customer Relationsip Implications to Movie Studios Eddie Ree Associate Professor Business Administration Stoneill College 320 Wasington St Easton, MA 02357, USA. Abstract Researc on movie purcase and rental is rare wen ome movies are important for movie studios for te revenue potential. In tis paper we study te similarities and differences of consumer s movie purcase and rental decisions by investigating te factors associated wit te decisions. We collect data using national online survey on te consumer beavior and perceptions about movie purcase and rental and test ypoteses tat address te factors using bivariate probit regression. We discuss te results and managerial implications to te movie studios and te future extension of te study. Keywords: Movie Purcase; Movie Rental; Relationsip between Movie Purcase and Rental Decisions; Customer Relationsip Management. 1. Introduction Te motion picture industry is an important sector in te entertainment industry tat generates a substantial amount of revenues for various firms associated wit movies. Te firms in tis industry include movie studios, movie teatre operators, TV broadcasters, cable and satellite operators, retailers of movie-related goods, video rental companies, and video game publisers. Te key players in te motion-picture industry are movie studios tat serve as cannel captains in te industry. Tey produce te movies and manage ow teir movies are distributed in te cannel structure. Te box office sales ad traditionally been an important source of revenue for te movie studios but te ome movie sales and rentals ave now become a dominant revenue source for tem. In 2012, box office sales in Nort America totaled $10.8 billion (Germain 2013) but te ome movie sales were $18 billion tat included movie purcases and rentals (Orden 2013). Since a larger cunk of revenue is from ome entertainment market, it would be crucial for te movie studios to understand ow teir movies are sold and rented in te market. Specifically, tey need to understand te similarities and differences of consumer s ome movie purcase and rental beaviors. Ten te movie studios will be able to target te appropriate market segment and to allocate teir resource more efficiently. Wile te studies about te dynamics of ome movie purcase and rental are rare, tere arerelatively recent studies about te ome movie purcase. Xing and Tang (2004) discuss te pricing beavior in te online movie market using transactional data. Mortimer (2007) discusses optimal pricing of ome movies using analytical model wit no empirical applications. Hui et al. (2008) discuss pre-order sales using a retailer s transactional data. Tere are studies about ome movie rental. Lemann and Weinberg (2000) discuss te movie s optimal release time for te rental market. Dana and Spier(2001) discuss te value of revenue saring in te rental market. Van der Veen and Venugopal (2005) support te revenue saring contracts in te video rental supply cain. All of tese studies use analytical models wit no empirical applications. Terry and De Armond (2008) study te determinants of ome movie rental revenue using aggregate movie rental data. About te studies about te dynamics of ome movie purcase and rental, Prosser (2002) discusses te prediction of ome movie revenue tat includes bot movie sale and rental using an aggregate ome movie market data. Knox and Eliasberg (2009) study te consumer s rent vs. buy decision from te retailer s perspective. 42

2 Center for Promoting Ideas, USA Using a transactional database, tey study te ome movie subscriber beavior, te customer segmentation and pricing. Tey use te expected number of viewings as te main tresold value for te consumer s buy vs. rent decision. As te literature review sows, te studies about te dynamics of ome movie purcase and rental are very rare. Even te existing studies are eiter teoretical wit no empirical applications or empirical studies applied to a transactional database were a direct measure of consumer perception and satisfaction is missing. Te current study investigates te dynamics of ome movie purcase and rental decisions and measures consumer perception and satisfaction by a national online consumer survey. Te major advantage of our study over te previous ones is tat using a consumer survey it is able to ask te consumers directly about teir past beavior and teir perceptions about te movie purcase and rental and to provide insigts beyond te traditional measure of expected number of viewings. Te objective of te study is to investigate te similarities and differences of te ome movie purcase and rental decisions and to examine te relationsip between te two decisions. We develop a survey instrument and administer it to te general public using a national online survey. Te survey measures te movie going beavior, genre preferences, and te consumer perceptions of ome movie purcases and rentals. Te empirical results sow support for most of te ypoteses and a negative relationsip between te movie purcase and rental decisions. Te result also offers directions to te movie studios about teir targeting effort and customer relationsip implications. Te remainder of te paper is organized as follows. We first discuss te ypoteses about te purcase and rental decisions. Ten we discuss te movie purcase and rental survey study discussing te description of te online survey and te caracteristics of te data and te respondents. We ten detail te data analysis metod for testing te ypoteses and discuss te estimation and ypotesis testing results. We conclude wit a discussion of managerial implications and te future researc opportunities. 2. Development of Hypoteses Hypoteses are set up to investigate te similarities and differences of te ome movie purcase and te rental decisions. Tey are about te number of teatre visits, te expected number of ome movie viewings, perceptions about ome movie, and te relationsip between ome movie purcase and rental decisions. Te number of teatre visits is a general factor tat may influence te decisions. Te expected number of viewings is a measure tat te previous studies ave discussed but te perception measures are te unique factors tat te current study investigates. Finally, understanding te relationsip between te two consumer decisions is important for te movie studios in developing customer relationsips for te ome movie sale and rental markets. 2.1 Teatre Visits Collins and Hand (2005) discusses te relationsip between movie teatre visits and ome movie usage. Movie teatre visits and ome movie usage are considered as complements to eac oter since frequent movie teatre visits can allow consumers to know wat movies are available in te oter medium. We argue tat te consumers wo visit movie teatres frequently are more likely to buy and rent ome movies since frequent teatre visits would indicate a general interest in movie products. Terefore, we ypotesize te following: Hypotesis 1a: Te more often te consumers go to movie teatres, te more likely to buy ome movies. Hypotesis 1b: Te more often te consumers go to movie teatres, te more likely to rent ome movies. 2.2 Expected Number of Home Movie Viewings Te consumer wo expects to watc te same ome movie more frequently would be more likely to purcase te movie even toug owning movies would mean greater financial investment. Knox and Eliasberg(2009)supports te same argument and use te expected number of viewings as teir major tresold measure for rent vs. buy decisions. Te following ypoteses capture tis argument: Hypotesis 2a: Te larger number of times te consumers would watc te same movie, te more likely to buy ome movies. Hypotesis 2b: Te larger number of times te consumers would watc te same movie, te less likely to rent ome movies. 43

3 2.3 Consumer Perceptions about Home Movies Te consumer perceptions about ome movies would be igly related to te ome movie purcase and rental decisions beyond te traditional measure of expected number of movie viewings. Tey include te perceived value of te movie ownersip, perceived pleasure level of te second viewing, and te perceived quality of rented movies. Wen te consumer would like to carge iger price if tey were to sell te movie tey own, teir perceived value of teir movie ownersip can be considered ig. Zeitaml (1988) suggest tat te perceived value is te consumer s overall assessment of te utility of a product based on wat is received and wat is given. Higer perceived value of teir movie ownersip will ten naturally increase te cance tat tey buy movie rater tan rent. Terefore, Hypotesis 3a: Te iger price te consumers would carge te movie tey own if tey were to sell, te more likely to buy ome movies. Hypotesis 3b: Te iger price te consumers would carge te movie tey own if tey were to sell, te less likely to rent ome movies. Wen te consumer perceives te pleasure and excitement on watcing te movie te second time te same as or close to te first time, te consumer would ave iger perceived value of te investment in te movie purcase and ence tere would be iger cance tat tey buy te movie. Terefore, Hypotesis 4a: Te more similar pleasure level te consumers would perceive from a second viewing to te first viewing of te ome movie, te more likely to buy movies. Hypotesis 4b: Te more similar pleasure level te consumers would perceive from a second viewing to te first viewing of te ome movie, te less likely to rent movies. Consumers may perceive te video quality, disc condition, and te packaging of a rented movie differently from tose of te new movie. If te perceived quality of te movie for rental is low, tey would be more likely to buy tan to rent a movie. Aaker and Jacobson (1994), Bolton and Drew (1991), Rust et al. (1995), and Zeitaml(1988) support tis argument tat te consumer s perception of quality drives preferences and consequently satisfaction, loyalty, sales, and profitability. Terefore, Hypotesis 5a: Te more satisfied te consumers are wit te video quality, disc condition, and packaging of te rented movies, te less likely to buy movies. Hypotesis 5b: Te more satisfied te consumers are wit te video quality, disc condition, and packaging of te rented movies, te more likely to rent movies. 2.4 Relationsip between te Movie Purcase and Rental Decisions Tere seems to be a general consensus in te literature tat te movie purcase and rental decisions are mutually exclusive at te individual level (Knox and Eliasberg 2009). Te consumer would decide eiter to buy or rent te movie at a particular sopping occasion. Te current study tests te relationsip between te two decisions at te aggregate level. Knowing te nature of te relationsip between te movie purcase and rental decisions in te market would enable te movie studios to design teir marketing programs accordingly. Hence, Hypotesis 6: Te movie purcase decision is negatively related to te movie rental decision. 3. Researc Metodology 3.1 Survey Development, Sample, and Data Caracteristics Tis study uses an online survey instrument to collect data needed to test te proposed ypoteses. Te questionnaire measures te respondents movie going beavior and genre preferences, teir ome movie watcing beavior, and teir perceptions about movie purcases and rentals. Some key questions of te questionnaire are sown in te Appendix. Te survey is administered to te general public nationwide in te United States. We use 438 responses for study after eliminating for missing values and inconsistent answers. Te respondents in te sample rebalanced in terms of demograpics: 45.7% male; 53.4% age 30 54; 31.3% 4-year college degree; 40.9% ouseold income $25,000-$74,

4 Center for Promoting Ideas, USA Modeling Framework Table 1: Respondent Profile Gender Male 45.70% Female 54.30% Age % % % % % % Education Less tan Hig Scool 1.4% Hig Scool/GED 13.9% In College 9.8% 2-Year College Degree (Associate) 15.1% 4-Year College Degree (BA, BS) 31.3% Master's Degree 19.9% Doctoral Degree 3.9% Professional Degree (MD, JD) 3.2% HH Income before Tax < $15, % $15,000 - $24, % $25,000 - $49, % $50,000 - $74, % $75,000 - $99, % $100,000 - $149, % $150, % Te study tests te ypoteses about te consumer s movie purcase and rental beaviors and te relationsip between te purcase and rental decisions. Te two equations include (i) te consumer s movie purcase and (ii) te consumer s movie rental. Aspects of tis system of equations are detailed in te following sections Consumer Movie Purcase Model Te consumer as te movie seeming to be te most attractive for purcase. More precisely, let te movie purcase of customer be Y. Under te current survey study, te model is a cross-sectional analysis. Ten te purcase can be expressed as: P Y P 1 if te movie is purcased wen U P 0 and 0 oterwise. (1) U is te movie s attractiveness for purcase based on te following model: U P Gender Age Education HHIncome Storage P AA AC Cl Co Do Dr Fam Fan Ho MS Ro SF War Wes Freq _ Teatre 21N _ Viewing 22P _ Sell Sat _ Rnt P ~ N(0,1) P Pleasure Note tat is an error term tat represents any oter unknown factors tat may be related to te attractiveness of P te movie for purcase. (2) 45

5 Te variance of te error term is set to be one for model identification purpose and ence tis is a probit model. In our case, tere are control variables and te variables for te ypotesis tests. Te control variables are included in order to test te ypoteses in control of te individual differences and te individual genre preferences. Te control variables for te individual differences include: Gender = 1 if te consumer is male; Age represents te consumer s age in multiple categories; Education represents te consumer s education level in multiple categories; HHIncome represents te consumer s ouseold income in multiple categories; and Storage = 1 if te consumer as movies on te computer or oter storage devices. Storage is included since owning movies in te storage may influence te purcase and rental beavior. Te control variables for te individual genre preferences include: AA = action and adventure; AC = animation and cartoons; Cl = classics; Co = comedy; Do = documentary; Dr = drama; Fam = family; Fan = fantasy; Ho = orror; MS = mystery and suspense; Ro = romance; SF = science and fiction; War = war; and Wes = western. Te variables for ypotesis testing include: Freq_Teatre = te annual frequency of movie going; N_Viewing = te number of times te consumer would watc after buying a movie; P_Sell = te price te consumer would like to carge if tey were to sell te movie tat is bougt for $15; Pleasure = te points of perceived pleasure (or excitement) level te consumer would give for te second time viewing wen te points of pleasure for te first time viewing is 100; Sat_Rnt = te points of perceived satisfaction te consumer would give to te video quality, disc condition, and te packaging of a rented movie wen te points of satisfaction for a brand-new movie is Consumer Movie Rental Model Te consumer as te movie seeming to be te most attractive for rental. More precisely, let te movie rental of a customer be Y. Ten te purcase can be expressed as: R Y R 1 if te movie is rented wen U R 0 and 0 oterwise. (3) U is te movie s attractiveness for rental based on te following model: U R Gender Age Education HHIncome Storage R AA AC Cl Co Do Dr Fam Fan Ho MS Ro SF War Wes Freq _ Teater 21N _ Viewing 22P _ Sell Sat _ Rnt R R ~ N(0,1) R Pleasure Note tat is an error term tat represents any oter unknown factors tat may be related to te attractiveness of te movie for rental. Te variance of te error term is set to be one for model identification purpose and ence tis is also a probit model. In te interest of investigating te similarities and differences of te ome movie purcase and rental beaviors, te control variables and te variables for te ypoteses testing in tis rental model are exactly te same as in te movie purcase model and ence te definition of te variables in tis model is te same as tose in te purcase model Properties of te Error Terms Te relationsip between te consumer s movie purcase and rental beaviors is modelled troug a covariance matrix on (, ). Te covariance matrix is defined as P R 1 σ P,R 1 Te variance terms in te covariance matrix are ones since te variance of te error terms is set to be one for model identification purpose. Hence te covariance value is equivalent to te correlation of te two equations. (4) (5) 46

6 Center for Promoting Ideas, USA Te correlation of te error terms ( σ P,R ) represents te nature of te relationsip between te consumer s movie purcase and rental decisions. If te correlation is negative and statistically significant, it sows tat tere exists negative relationsip between te purcase and rental decisions. 3.3 Estimation Te coefficients and te correlation coefficient in te system of equations are estimated using bivariate probit regression analysis. 4. Results Te estimation results support most of te ypoteses. About te control variables, tey are used to control for te individual differences and individual genre preferences but tere are a few statistically significant results. Te consumers wit iger education level are less likely to purcase movies. Te consumers are more likely to buy te action and adventure but less likely to buy te animation and cartoons. Furtermore, tey are more likely to rent te drama and orror movies. Table 2: Empirical Results DVD Purcase Model DVD Rental Model Est. Coeff Std Err Est. Coeff Std Err Intercept * Control Variables Gender Age Education * HH Income Storage Action & Adventure * Animation & Cartoons * Classics Comedy Documentary Drama * Family Fantasy Horror * Mystery & Suspense Romance Science Fiction War Western Variables for Hypotesis Tests Freq_Teater * Number of Viewing * * Price to Sell * Perceived Pleasure Level * Perceived Satisfaction of Rented Movie * * Estimate Std Err Covariance * Note: Parameter estimates denoted by (*) are statistically different from zero (p<.05). 47

7 About te variables for ypotesis tests, H1a is not supported but H1b is supported. Te more often te consumers go to movie teatres; tey are more likely to rent movies. Bot H2a and H2b are supported. Te larger number of times te consumers would watc te same movie, tey are more likely to buy movies. Te fact tat tey would watc more may mean tat it would be wort te investment to buy and own it. Tis result supports te use of tis variable for buy and rent decisions in te existing literature. However, te larger number of times te consumers would watc te same movie, te less likely to rent movies. H3a is supported but H3b is not supported. Wen te perceived value of movie is ig, tey are more likely to purcasemovies.h4a is supported but H4b is not. Wen te consumers perceive te pleasure (or excitement) on te second viewing more equivalent to tat of te first viewing, tere is iger cance for tem to buy te movie. Bot H5a and H5b are supported. Te satisfaction wit te video quality, disc condition, and te packaging of te rented movie as negative relationsip wit te movie purcase decision but positive relationsip wit te rental decision. Finally, H6 is supported. Te estimated covariance of te movies purcase and rental decisions is negative and statistically significant. In summary, we find tat te people wo view te movie frequently after purcase, wose perceived value of movie is ig and wose pleasure level is still ig on second viewing are more likely to purcase te movies. Wen tey perceive te quality of rented movie satisfactory, tey are less likely to purcase te movies. About te movie rental decision, we find tat te consumers wo go to te movie teatres frequently and wen tey perceive te quality of rented movie satisfactory, tey are more likely to rent te movies. Wen tey view te movie frequently after purcase, tey are less likely to rent te movies. Finally, te movie purcase and rental decisions are found to be negatively related in te market. 5. Managerial Implications Te study identifies te factors tat are associated wit te consumer decisions of purcasing and renting movies and te relationsip between te two decisions. It uses a national online survey and analyzes te data using a system of two simultaneous equations. Te empirical analysis supports most of te ypoteses and sows a negative relationsip between te ome movie purcase and rental decisions. Te negative and significant relationsip between te movie purcase and rental decisions in te study implies tat tere is a segment of consumers tat would sow iger likeliood to purcase te movie wereas te oter segment would sow iger likeliood to rent te movie. Due to tis nature of negative relationsip between te movie purcase and rental decisions, te overall revenue would dramatically decrease if tey direct teir marketing effort to a wrong segment. Te movie studios need to understand te similarities and differences of movie purcase and rental beaviors of tese segments and design teir marketing program accordingly. Table 3: Representative Consumer Segments Consumer 1 2 Predicted Pr(Purcase) Predicted Pr(Rental) Action & Adventure 1 0 Animation& Cartoons 0 0 Drama 0 1 Horror 0 0 Freq of Teatre Visits 2 12 Expected Number of Viewing 2 0 Price to Sell $15 $5 Perceived Pleasure Level Perceived Satisfaction of Rented Movie Table 3sows two representative consumers from eac of te two segments. Te first group of consumers sows iger predicted likeliood to purcase te movie. Tese consumers like action and adventure movies, visited te movie teatre two times te last year, expect two viewings, would sell a used movie for $15, te same price as a new movie, perceive te pleasure level for te second viewing te same as te first viewing, sow perceived satisfaction of rented movie 60% of a new movie. Te second group of consumers sows iger predicted likeliood to rent te movie. 48

8 Center for Promoting Ideas, USA Tese consumers like drama, visited te movie teatre twelve times te last year, expects zero viewing, would sell a used movie for $5, perceive te pleasure level for te second viewing only 70% of te first viewing, sow perceived satisfaction of rented movie 90% of a new movie. For te movie sale market, te movie studios are recommended to promote te action and adventure movies, target te people wo expect to watc te movie more frequently, wo would value teir ome movie iger, wo perceive te pleasure level of te second viewing te same as te first viewing, and wo perceive te quality of rented movie lower. For te movie rental market, te movie studios are recommended to promote te drama and target te people wo visit te movie teatres more frequently, wo do not expect to watc te movie after te first viewing, and wo perceive te quality of rented movie iger. 6. Conclusion Te current study makes contributions to te literature. First, te study is one of very rare studies tat investigate te dynamics of consumer s ome movie purcase and rental decisions. It furter provides te overall relationsip between te two decisions at te aggregate level and discusses te managerial implications to te movie studios. Second, te study examines te consumer perceptions about movie viewing using a national online survey. Most existing studies in te literature address te topic using eiter a teoretical model or an empirical application to a transactional database and tus fail to incorporate consumer-oriented factors suc as perception and satisfaction levels. Te study provides te understanding of te similarities and differences of te consumer s purcase and rental decisions and implications to te movie studios but it does not address social aspects of te ome entertainment option. Consumers may want to own ome movies instead of renting tem so tat tey can invite friends to come over wenever to enjoy te movie togeter. Te future study can address te social factors in ome movie purcase and rental decisions. It can also test te factors associated wit te retailers. For instance, it can investigate te consumer s retail store coices for te movie purcase and rental decisions. It would provide managerial implications for te retail industry about te consumer s retailer coice for te movie purcase and rental decisions. References Aaker, D.A. and Jacobson,R. (1994) Te Financial Information Content of PerceivedQuality.Journal of Marketing Researc 31 (2): Bolton, R.N. and Drew, J.H. (1991)A Longitudinal Analysis of te Impact of Service Canges on Customer Attitudes. Journal of Marketing55 (1): 1-9. Collins, A. and Hand,C. (2005)Analyzing Moviegoing Demand: An Individual-Level Cross-Sectional Approac.Managerial and Decision Economics 26 (5): Dana, J.D., Jr. and Spier, K.E. (2001)Revenue Saring and Vertical Control in te Video Rental Industry. Journal of Industrial Economics 49 (3): Hui, S.K., Eliasberg, J. and George,E. (2008) Modeling DVD Preorder and Sales: An Optimal Stopping Approac. Marketing Science 27 (6): Germain, D. (2013)2012 Box Office Hits Record $10.8 Billion; Ticket Sales Increase For First Time In 3 Years.Huff Post Entertainment, May 15. Knox, G. and Eliasberg, J. (2009) Te Consumer's Rent vs. Buy Decision in te Rentailer.International Journal of Researc in Marketing 26 (2): Lemann, D.R. and Weinberg, C.B. (2000)Sales Troug Sequential Distribution Cannels: An Application to Movies and Videos. Journal of Marketing 64 (July): Mortimer, J.H. (2007)Price Discrimination, Copyrigt Law, and Tecnological Innovation: Evidence from te Introduction of DVDs.Quarterly Journal of Economics 122 (3): Orden, E. (2013)Home Movie Sales Log Rare Increase.Te Wall Street Journal, Jan 8. Prosser, E.K. (2002) How Early Can Video Revenue Be Accurately Predicted?Journal of Advertising Researc Marc-April:

9 Rust, R.T., Zaorik, A.J. and Keiningam, T.L. (1995)Return on Quality (ROQ): Making Service Quality Financially Accountable.Journal of Marketing 59 (2): Terry, N. and De'Armond, D. (2008)Te determinants of Movie Rental Revenue Earnings.Academy of Marketing Studies Journal 12 (2): Van der Veen, J.A.A. and Venugopal, V. (2005)Using Revenue Saring to Create Win-Win in te Video Rental Supply Cain.Journal of te Operational Researc Society 56 (7): Xing, X. and Tang, F. (2004)Pricing Beavior in te Online DVD Market.Journal of Retailing and Consumer Services 11: Zeitaml, V. (1988)Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Syntesis of Evidence. Journal of Marketing 52: Appendix: Key Survey Questions 1. On Average, How Many Times do You go to Movie Teaters Per Year? 2. Wat types of movies do you like? (Ceck all tat apply.) [ ] Action and Adventure [ ] Animation and Cartoons [ ] Classics [ ] Comedy [ ] Documentary [ ] Drama [ ] Family [ ] Fantasy [ ] Horror [ ] Mystery and Suspense [ ] Romance [ ] Science Fiction [ ] War [ ] Western 3. Wen you buy a ome movie from a retailer and you like te movie after watcing it, ow many times do you watc te movie on average (including te initial viewing)? ( ) One time ( ) Two times ( ) Tree times ( ) Four times ( ) Oter: 4. If te retailers buy back used movies tat you don't want to keep any more, wat is te lowest price would you sell at? Assume tat you bougt a $15 new movie. 5. Suppose tat your pleasure (or excitement) level is 100 points wen you watc your favorite movie for te first time. How many points would you give as your pleasure level wen you watc te same movie for te second time and te tird time? Second time: Tird time: 6. If your satisfaction wit video quality, disc condition, and packaging of a brand-new movie you just bougt is 100 points, ow many points would you give to your satisfaction wit video quality, disc condition, and packaging of a rented movie? point 50