Why Do Moviegoers Go to the Theater?

The Role of Prerelease Media Publicity and Online Word of Mouth in Driving Moviegoing Behavior
Feng Wang, Yin Zhang, Xiaoling Li, and Huawei Zhu The Journal of Interactive Advertising Vol. 11, Issue 1, Fall 2010

Title: Author(s): Source: Issue:

Why Do Moviegoers Go to the Theater? The Role of Prerelease Media Publicity and Online Word of Mouth in Driving Moviegoing Behavior Feng Wang, Yin Zhang, Xiaoling Li, and Huawei Zhu The Journal of Interactive Advertising Vol. 11, Issue 1, Fall 2010

Why Do Moviegoers Go to the Theater? The Role of Prerelease Media Publicity and Online Word of Mouth in Driving Moviegoing Behavior
Feng Wang, Yin Zhang, Xiaoling Li, and Huawei Zhu ABSTRACT: Using the Bass new product diffusion model, the authors explore how media publicity and word of mouth (WOM) about a to-be-released new movie drive moviegoing behavior in emerging markets. Empirical data collected from the Chinese motion picture industry reveal that prerelease media appearance (a proxy for publicity) and online WOM conversation (a proxy for WOM) influence moviegoing decision making, but they play different roles. Media publicity determines moviegoers innovation probability, whereas WOM determines both innovation and imitation probability. This article provides a better understanding of the decision making involved in moviegoing, as well as effective ways to market and release new movies in emerging markets. Keywords: moviegoing, prerelease, media publicity, word of mouth The motion picture industry is an "experiential product" market, characterized by product quality information asymmetry between firms and consumers (Eliashberg and Sawhney 1994). Before viewing a new movie, consumers have difficulty evaluating its quality. Thus, there is impetus for firms to provide quality signals (e.g., star power, advertising expenditures, screening width) and for consumers to look for them, as well as for signals from third-party sources (e.g., media publicity, word of mouth, critic reviews) to form quality perceptions and movie choice behavior (Basuroy, Desai, and Talukdar 2006; Neelamegham and Jain 1999). Many authors discuss whether and how firm-created quality signals about a to-be-released new movie influence movie choice. For example, star power may signal the role of warranty and brand extension. It could stimulate media and consumer attentions rather than movie choice directly (Basuroy, Chatterjee, and Ravid 2003; Elberse 2007; Liu 2006). Advertising expenditures increase both media and consumer attention and movie choice (Basuroy, Desai, and Talukdar 2006; Joshi and Hanssens 2009; Zufryden 1996). Screening breadth also incurs more viewing accessibility during the buying stage (Elberse and Eliashberg 2003; Sawhney and Eliashberg 1996). Moreover, the role of criticsreviews has been examined. Greater consensus in criticsreviews (positive or negative) about a movie lower evaluation uncertainty about its quality among potential moviegoers before its release (Basuroy, Chatterjee, and Ravid 2003; Eliashberg and Shugan 1997).
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Media publicity and word of mouth (WOM) about a to-be-released new movie may be perceived as useful, but their role in driving movie choice has received disproportionately less attention than firm-created signals and is not yet well understood (Eliashberg, Elberse, and Leenders 2006; Wang, Cai, and Huang 2010). First, media publicity is generated by paid media, as well as so-called free press or free advertising (Stephen and Galak 2009). Media publicity is an independent signal and may be credible because the deception of consumers by aggressive advertising can backfire. Second, WOM is user-generated content. It is usually perceived as more credible and trustworthy than advertising (Liu 2006), and it may reflect popular taste better than critic reviews (Holbrook 1999). As a result, though studios and critics provide abundant quality signals about a tobe-released movie, media publicity and WOM still may be perceived as useful and serve as complements to rather than substitutes for other signals. In this article, we develop a framework (Figure 1) and rely on an empirical approach to address two key questions: First, how do media publicity and WOM about a to-be-released new movie influence movie choice? We employ a Bass new product diffusion model (Bass 1969) to describe movie choice decision making. Empirical tests from the Chinese motion picture industry show that media publicity determines innovation probability and that WOM determines both innovation probability and imitation probability. Second, can media publicity and WOM assist in forecasting marketing performance prior to the release of a new movie? We test the forecasting accuracy of the penetration rate of the opening and second weeks. Empirical results indicate that these two signals can accurately forecast penetration rate. The rest of this article is organized as follows: In the next section, we outline a framework and the behavioral rationale for movie choice. We then present a data sample containing 51 movies released from November 2006 to March 2009 in the context of the Chinese motion picture industry. Following the presentation of the methodology and empirical analysis, we discuss some theoretical and managerial implications and provide suggestions for further research. The marketing effort prior to the release of a new movie is intensive. On average, 90% of marketing expenditures are spent before the release date (Elberse and Anand 2007). Studios provide the public with information about the release date, release pattern, cast, storyline, and criticsopinions. This information generates awareness and quality perceptions among media, potential moviegoers, and other constituencies. Furthermore, media-generated publicity and user-generated WOM about a to-be-released movie may be useful for movie choices. The movie choice decision process can be characterized by the Bass (1969) model: At any time, the probability that potential moviegoers who have not viewed a new movie will do so is a linear function of innovation probability and imitation probability. The marketing performance of a new movie depends on this collective probability.

RESEARCH BACKGROUND
Conceptual Framework A movie is an experiential product whose quality is often difficult to assess until after it has been consumed (Neelamegham and Jain 1999; Nelson 1974). In distinguishing between high- and low-quality movies before consumption, potential moviegoers look for credible signals. In Figure 1, we depict the conceptual framework we propose to test two signals: prerelease media publicity and WOM. Our framework and estimation procedure is executed in the context of new movie choice in an emerging market. Figure 1. Conceptual Framework: The Role of Media Publicity and WOM in Driving Moviegoing
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Moviegoing and Demand Following Chance, Hillebrand, and Hilliard (2008) and Dellarocas, Zhang, and Awad (2007), we employ the Bass (1969) new product diffusion model to describe the moviegoing decision making. First, the Bass model describes the empirical adoption curve quite well for many new products (Bass 2004; Bass, Krishnan, and Jain 1994). Second, similar to single-purchase products (Zhu and Zhang 2010), movies share characteristics with the durable goods discussed in the Bass model. Third, the Bass model fits the box office curve of a new movie released in both developed and emerging markets (Dellarocas, Zhang, and Awad 2007; Huang and Wang 2008, 2009). The average of the R2 values also reaches 95%. The Bass model posits that the hazard rate, at which potential moviegoers who have not watched a new movie do so at time t, is a linear function:

where p is an innovation coefficient (0 < p < 1), determined by mass media communication; q is the imitation coefficient, determined by interpersonal communication or WOM; F(t) is the cumulative density (i.e., penetration rate of moviegoers) before time t; and f(t)=F(t)is the density function of the time of adoption. In turn, R refers to potential box office revenue, and r(t) is box office revenue at time t. If we let R(t) be the cumulative revenue by time t, r(t) satisfies the following Bass model:

Under the initial condition F(0) = 0 , F(t) is

Under the initial condition R(0) = 0 , r(t) is

Equation 3 indicates that the penetration rate is determined by p and q. A prerelease forecasting of the penetration rate aims to estimate p and q prior to the release of a new movie. Effect of Prerelease Media Publicity on Innovation Coefficient Media publicity plays a central role in generating awareness and moviegoing demand. A movie with substantial publicity should be popular and attract considerable attention and interest from the public (Joshi and Hanssens 2009). Thus, according
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to signaling theory, prerelease media publicity offers a signal of quality and adjusts expectations and adoption (Joshi and Hanssens 2009; Kopalle and Lehmann 2006). When a movie receives more substantial prerelease media publicity, awareness of and expectations about it increase. As a result, more consumers should visit theaters in the opening week, and the proportion of innovators who initially adopt the new movie in a social system should rise. Similarly, in the Bass model, the innovation coefficient depends on mass media communication (Bass 1969, 2004). Therefore, prerelease media publicity likely determines the innovation coefficient in the Bass model. Effect of Prerelease WOM on Innovation and Imitation Coefficients Word of mouth, especially over the Internet, has become a key information source that provides references to help moviegoers formulate their decisions (e.g., Duan, Gu, and Whinston 2008). Potential moviegoers appreciate WOM as trustworthy and prevalent (Holbrook 1999). In general, it determines the success of entertainment goods, because such experiential goods are often consumed collectively and figure in daily conversations (Chevalier and Mayzlin, 2006; Eliashberg, Elberse, and Leenders 2006; Mayzlin 2006). The underlying effects of prerelease WOM are twofold. First, prerelease WOM is a type of interpersonal communication and may determine the imitation coefficient. Similarly, in the Bass model, the imitation coefficient depends on interpersonal communication (Bass 1969, 2004). The volume of WOM has a significant informational effect on awareness of a movie (Liu 2006). When the volume of WOM increases, moviegoers are more predisposed toward expecting an upcoming movie to be popular and more susceptible to its influence. Second, prerelease WOM may determine the innovation coefficient. The volume of the prerelease WOM conversation indicates the number of innovators in a social system. From a social capital perspective (Stephen and Lehmann 2009), information leaders (innovators) tend to stimulate more prerelease WOM conversation for two reasons. On the one hand, they want to strengthen their relationships and increase the span of their social influence. On the other hand, they behave as consultants for seekers (imitators) who wish to solicit fresh information about an uncertain topic. When the volume of prerelease WOM increases, the proportion of innovators in a social system rises, and more potential consumers head to theaters in the opening week. In summary, prerelease WOM tends to influence both imitation and innovation coefficients in a social system.

EMPIRICAL ANALYSIS
Data Source China is the largest emerging economy. The data for this study come from the Chinese motion picture industry, which has enjoyed steady growth in the past decade through increasing attendance and investments. In 2009, box office revenues in China reached a total of 6.2 billion RMB, making that year the most successful in its history. However, it remains in its infancy stage compared with other markets (e.g., the box office revenue of North America grossed $10.6 billion in 2009), suggesting immense growth potential. Our empirical focus is exclusively on theatergoing performance. The data pertain to all movies released by major Chinese studios from October 2006 to March 2009. Time-varying variables, such as box office revenues, media publicity, and WOM, are coded with weekly indexes. The opening week is denoted "1," and prerelease weeks are denoted with negative integers.
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After excluding movies with missing values, we achieved a final sample of 51 movies (see the Appendix). Because it is challenging to collect perfect revenue data in China, we gathered the weekly box office revenues of each movie from a U.S. portal (www.boxofficemojo.com), then converted them into Chinese RMB, according to historical rates. The media publicity and WOM data were obtained online, because the Internet has become an important information source for consumers to assess product quality and for researchers to track information flow (Godes and Mayzlin 2004; Trusov, Bucklin, and Pauwels 2009). Following Stephen and Galak (2009) and Trusov, Bucklin, and Pauwels (2009), we employ the appearances of a new movie's title in media as a proxy for media publicity. We define these media appearances as the media exposure frequency of a movie's title from the date it was first posted to the date immediately prior to official release. For each movie, media appearances were collected from www.sina.com.cn, a popular online news portal in China. This Web site publishes news reports from both electronic and traditional mass media (e.g., www.chinanews.com and Beijing News). Media appearances are indexed numerically by date when posted on sina.com.cn. Following Liu (2006) and Godes and Mayzlin (2004), we use online WOM conversation as a proxy for WOM. For each movie, we collected online conversations from Baidu Tieba (www.tieba.baidu.com), a popular online social community in China, where conversations about the same movie get organized into one group ("Tieba"). For each group, after excluding conversations unrelated to the movie, we index the prerelease WOM numerically by post dates from the date of the first conversation to the date immediately prior to its official release. Because the valance of prerelease online WOM has no effect on moviegoing (Liu 2006), we did not code the content of these online conversations. Control variables such as the country of origin, lifecycle, release timing, and day of the week were collected from www.mtime.com. Country of origin pertains to the place where the movie was produced. It therefore reflects the learning effects of imported movies (Elberse and Eliashberg 2003), because imported movies have been released previously in their countries of origin. Lifecycle refers to the number of weeks the movie remains on theater exhibition. This variable controls for exhibiter entry and exit decisions, as well as the screening strategy, which influence movie accessibility in the purchase period (Sawhney and Eliashberg 1996). Seasonality refers to release timing and can control for the effects of macroeconomics and competition. We use day of the week to control for the effects of weekend releases. Measurement We use two dimensions to measure media publicity and WOM: volume and dispersion. The volume of media publicity is the number of times a movie is mentioned in traditional media. The volume of WOM is the number of times a movie is discussed among consumers. The dispersion of prerelease information represents the distribution variance of media publicity (or WOM) of a movie in a prerelease time span. For movie n, and are the number of media appearances and posts in week t, respectively. Dispersion entails the entropy of information across prerelease weeks to characterize distribution variance, such that it is minimized when all news reports (online WOM conversations) are posted in one week. In this scenario, the effects of media publicity and WOM are likely minimal. We calculate the dispersion of prerelease media publicity and WOM as follows:

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where and are the cumulative volumes of media appearances and WOM posts prior to release, respectively. The frequencies of media publicity and WOM are defined as the ratios of to and of to respectively. The country of origin is a dummy variable that takes a value of 1 if the movie is produced in China. Lifecycle is a count variable of the number of weeks the movie is in theaters. Seasonality is another dummy variable, which takes a value of 1 if the movie is released during December or January (New Year holidays). Finally, the day of the week dummy variable assumes a value of 1 if the opening day falls on a weekend. We provide the basic descriptive statistics of movie samples in Table 1. Following Wang, Cai, and Huang (2010), we conducted our analyses within a span of five weeks prior to release, to cover the most interesting and active periods during the marketing of a new movie. Table 1. Key Descriptive Statistics of the Movie Samples

As Table 1 indicates, the peak box office revenue occurs in the second week in the Chinese market, which is considerably different from the U.S. market, where box office revenue typically peaks in the opening week (Huang and Wang 2009). A possible explanation might note that Chinese consumers tend to be more collectivistic and risk averse (Hofstede 2001), such that they may rely more on interpersonal communication to formulate decisions about new movie adoptions after release. Furthermore, media appearances and online WOM The media publicity and WOM were most active during the prerelease weeks, and media publicity gradually decreased after the release. The volume of media appearances was greater than that of online WOM prior to release; however, the reverse became true after release. The second week indicate the largest WOM volume, which confirms that Chinese moviegoers are predisposed toward depending more on interpersonal communication to

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formulate their moviegoing decisions. Figure 2. Dynamic Patterns of Media Publicity and WOM for Shi Quart Jiu Mei

METHODOLOGY AND RESULTS

Parameter Estimation Weekly box office revenues are discrete time-series data. We apply the following discrete analog (Bass 1969) to calculate the actual innovation and imitation coefficients of each movie: gradually increase with time during the prerelease period, such that the quality signals of media publicity and WOM may become increasingly appealing with the arrival of a new movie. For illustrative purposes, in Figure 2 we plot how the volume of media appearances and online WOM for the film Shi Quart Jiu Mei changed over time, from five weeks prior to its release to the first three weeks after its release.

where p, q, and R are the parameters to be estimated; r(t) is the box office revenues for week t; and.R(t-l) is the cumulative box office revenues up to week t - 1, with the initial condition R(0) = 0 . For each movie, we fit a weekly box office curve to Equation 7 using ordinary least squares (OLS). In Table 3, we provide the basic descriptive statistics for the innovation and imitation coefficients. The average R2 is 90.6%, which verifies that the Bass model fits the box office curves well and can describe the moviegoing decision process. Table 2. Key Descriptive Statistics of Innovation and Imitation Coefficients

The innovation coefficient is significantly smaller than the imitation coefficient (F = 17.86, p< .001), unlike in the U.S. market, where the innovation coefficient is significantly greater (Huang and Wang 2009; Sawhney and Eliashberg 1996). This result confirms that Chinese consumers are more likely to depend on interpersonal communications to formulate their moviegoing decisions than are U.S. consumers. Model Specification and Main Results

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To explore the effects of prerelease media publicity and WOM on moviegoing, we constructed the following models: respectively; A is the media appearances vector, which contains volume and dispersion measures for five weeks before release; B is the online WOM vector, which contains volume and dispersion measures for five weeks before release; Z is a row vector of four covariates that control for the heterogeneity of new movies; and , I, F, and A are the parameter vectors to be estimated.

where and are white noise, such that"

"

Following Sawhney and Eliashberg (1996), we estimate these models using OLS. With the large data set of explanatory variables (i.e., five weeks of media appearances and online WOM conversations), we can employ the procedures from previous research (Joshi and Hanssens 2009; Litman 1983; Sawhney and Eliashberg 1996). To reduce the number of independent variables, we run stepwise regressions between the values of innovation and imitation coefficients for the 51 movie samples. Most of the variables should produce no effect on the innovation and imitation coefficients; we report only significant marketing information in Table 3 for clarity. Furthermore, none of the variance inflation factors exceed 10; thus, collinearity among the variables is not an issue. Table 3. Summary of Significant Effects on Innovation and Imitation

The final empirical results reveal that prerelease marketing cues can explain 39.6% of the variance in the innovation coefficient and 37.9% of the imitation coefficient. Week -1 is especially prominent for marketing new movies in emerging markets. The number of media appearances in week -1 increases the innovation coefficient and further raises the box office revenue during the opening week. The volume of WOM conversation in week -1 is a potential success indicator that positively

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influences imitation behavior. Managers accordingly should pay more attention and allocate more marketing resources to their efforts during week -1. Moreover, the dispersion of the distribution of prerelease online WOM relates positively to the innovation coefficient, which implies that the innovation coefficient is maximized when online WOM conversations are evenly distributed across all weeks, on the condition that at least one conversation occurs each week. With respect to the effects of control variables, the results show that the number of weeks in theaters and release timing during the New Year holiday reduce innovation probability. The description "Made in China" and a weekend opening enhance imitation behavior. Forecasting Accuracy of Penetration Rate In this section, we test whether these results can help forecast demand prior to the release of a new movie. However, because developing a full forecasting model is not the main purpose of this paper, we examine the forecasting accuracy of penetration rate, which can be calculated with innovation and imitation coefficients (Equation 3). Moreover, we focus on the first two weeks, which account for a sizable proportion of total revenue. For each movie, after estimating the innovation and imitation coefficients, we forecast the penetration rate in the opening week from Equation 3 as follows:

The penetration rate up until the second week, from Equation 3, is:

Finally, the actual penetration rate in the opening week is the ratio of the opening week's box office to the total box office. The actual penetration rate up until the second week is the ratio of the cumulative box office up until the second week to the total box office. Because the sample size makes it difficult to divide the data into an estimation and a prediction sample, we employed a rotating method to conduct the calibration and forecasting tasks. Following Dellarocas, Zhang, and Awad (2007) and Liu (2006), we implemented a k-fold cross-validation procedure Compared with the MAPEs of other models, those of our model are relatively low. For example, Huang and Wang (2009) and Liu (2006) report MAPEs of 38.5% and 38%, respectively, in forecasting the opening weeks box office using online prerelease WOM. In the Chinese market, Huang and Wang (2009) indicate a MAPE of 40.1% for predicting the opening weeks box office. Table 4. MAPE (%) of Prerelease Forecasting of Moviegoing

GENERAL DISCUSSION

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Theoretical Contributions We discuss the effects of prerelease media publicity and WOM on movie choice in the context of Chinese motion picture industry. Our contribution is twofold. First, our findings reveal that prerelease media publicity and WOM play different (Efron and Tibshirani 1993): Each movie was taken in turn as the movie to be forecasted, and the remaining 50 movies were used in the calibration process to generate the estimated parameter. Following Lee, Boatwright, and Kamakura (2003), we used the median absolute percentage errors (MAPE) of the 51 forecasted movies as an indicator of forecasting accuracy. The MAPE can be calculated as follows:

where "

"is the forecasted penetration rate for movie n, and yais the actual penetration rate.

For the forecasting accuracy of prerelease demand in Table 4, we determine the innovation coefficient, imitation coefficient, penetration rate in the opening week, and penetration rate up until the second week according to Equations 8-11, respectively. The in-sample method denotes that the data sample was not divided into two components. roles in the moviegoing decision making process-a phenomenon that has not been clarified by previous studies (Eliashberg, Elberse, and Leenders 2006). Prerelease media publicity only influences innovation, as indicated by the finding that the number of media appearances in week -1 increases the innovation coefficient. However, prerelease WOM influences both innovation and imitation; the volume of online WOM in week -1 and the distribution dispersion of prerelease online WOM relate positively to the imitation and innovation coefficients, respectively. Second, to the best of our knowledge, this study is the first empirical research to focus on ways to market and release new movies in China, which is helpful for refining prerelease demand forecast models for emerging markets. Emerging markets have attracted increasing attention because of their rapid economic growth, substantial market size, and the rising purchasing power of their customers (Cavusgil, Ghauri, and Agarwal 2002).

RECOMMENDATIONS FOR PRACTITIONERS

The findings of this study suggest that practitioners can use prerelease media publicity and WOM to forecast penetration rates accurately. We recommend several steps to forecast moviegoing demand for an upcoming new movie: Step 1: Select previously introduced movies as an analogy and calibration sample. Step 2: Calculate innovation and imitation coefficients for each movie in the calibration sample and collect prerelease information about media appearances (proxy for media publicity) and online WOM conversation (proxy for WOM). Step 3: Determine Equations 7 and 8 using stepwise regression to identify significant vaiables. Step 4: Collect relative information on significant cues for the holdout movie. Step 5: Forecast innovation and imitation coefficients based on the calibrated Equations 7 and 8 from Step 3. Step 6: Use Equation 3 to forecast moviegoing demand for the theater exhibition time.

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Although we focus only on the motion picture industry, the forecasting tool may apply to other entertainment and creative goods, such as books, music albums, and online games. The findings also may have implications for other emerging markets, such as India and Russia.

LIMITATIONS AND FURTHER RESEARCH

Because of the lack of corresponding data in mature markets, this study does not explore whether the effects of prerelease media publicity and WOM on moviegoing in emerging and mature markets differ. Cultural backgrounds may influence the effect of media publicity and WOM; additional research should examine the difference between these two markets. Only a prerelease forecast of penetration rate, other than box office revenue, was conducted in the section on forecasting accuracy testing. Further research should investigate ways to create a full model that can forecast both behavioral aspects and sales performance using more abundant marketing information.

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ACKNOWLEDGMENTS
This project was supported by National Natural Science Foundation Grant (China) No. 70972091,70672067, and 71002078.

ABOUT THE AUTHORS

Feng Wang is a doctoral candidate in Marketing at the Economics and Management School, Wuhan University. His research interests include new product diffusion, WOM marketing, and advertising effectiveness in new media contexts. E-mail: wang.mkt@163.com. Yin Zhang is a doctoral candidate in Marketing at the Economics and Management School, Wuhan University. Her research interests include marketing strategy and organizational marketing. E-mail: zy1282@126.com. Xiaoling Li is a doctoral candidate in Marketing at the Economics and Management School, Wuhan University. Her research interests include electronic business-to-business marketing, channel management, and marketing strategy. E-mail: windy20@126.com Huawei Zhu (Ph.D., Peking University) is Assistant Professor of Marketing, Wuhan University. Her research interests include consumer decision making and brand management. She has published articles in Acta Psychologica Sinica, Economics and Management, China Industrial Economy, and Finance & Trade Economics. She is the corresponding author. E-mail: whuzhuhuawei@126.com.

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