The Economics of Film Distribution

Abstract

The film industry, namely Hollywood, is characterized by a pattern of large budget releases during what may be termed peak seasons. The peak seasons are centered on holidays, when demand is high, which in turn leads to greater box office revenue. This environment creates competition for release during these days and as such, distributors must compete in releases. This dissertation analyzes this behavior by incorporating game theoretic models to determine optimal release patterns. An economic history of the film industry and film distributors provides the foundation to current film practices. The economic history entails distributor practices through the various eras of Hollywood. A brief analysis of the major film distributors is also given. Chapter three introduces two-player noncooperative games. The first group of games centers on two players engaging in simultaneous play. From these games, a coordination failure arises and the second group games are specified under a correlated equilibrium. With correlated equilibria, it is possible to increase expected payoffs to distributors and increase social welfare. The game theory models are then tested with a series of regressions with data from 1998 – 2008. Two measures of competition are proposed and found to decrease box office revenue. Policy regarding release schedules is presented in the conclusion.