Dynamic Story: Torquing the Hollywood Promo Machine

Leave it to creative industries such as motion pictures, book publishing, and music to put a twist on conventional marketing. Take windowing, for example. This practice involves the drip-distribution philosophy of releasing a new product in different formats in either distinct or overlapping time periods. Consider the typical Hollywood film: it shows first in theatres for a few months before being repackaged for web-based or cable pay-per-view streaming and then for DVD or Blu-ray distribution via retail markets. Books are released first as hardcovers and then later as e-books or paperbacks.

Windowing makes sense for products that have short life cycles. By optimizing a product for different channels, price points, or formats, firms can extend the life of an offering and squeeze the last drop of profit out of a new release. But windowing can also be inefficient. Separate promotional campaigns are usually launched just before release at each stage; when these stages overlap, it is difficult to gauge how to best spend advertising dollars. What do consumers remember from the previous waves of advertising? Are they sick of the ads or happy to see them more often? How does word of mouth affect subsequent ad campaigns? Are there spillover effects?

Marketing researchers Bruce Norris (University of Texas at Dallas), Natasha Zhang Foutz (University of Virginia), and Ceren Kolsarici (Smith School of Business) set out to make sense of this dynamic advertising puzzle. Focusing on the movie industry, they wanted to see how the effectiveness of advertising and word of mouth fluctuate across distribution stages and whether there are more efficient ways to allocate valuable advertising resources.

They first built a model that could link a movie’s revenue to its advertising and word of mouth and evaluate the dynamic effects of weekly advertising and word of mouth on theatre or video demand. The model accounted for variables such as spillover, consumer recall, the wear out of ads across stages, and the interdependence of advertising and word of mouth.

The researchers then fed the model with data from a random sample of 360 films of diverse genres, ratings, and studios. The films’ word of mouth data came from online consumer reviews at Yahoo Movies and IMDb.

Are Movies Like Any Product?

Once they crunched the numbers and assessed the results, the researchers came up with four key insights that should interest movie and book marketing professionals as well as those in other industries that distribute or repackage new products in waves.

One, the diminishing return on ad spending over a product’s life cycle — well proven in consumer packaged goods — also applies to new products with short life cycles such as movies.

As a movie moves from the theatre to streaming or video stages, advertising is less powerful at persuading potential viewers, either because the ad copy becomes boring or the repeated viewing becomes irritating.

As a result, the researchers say, boosting ad expenditures at an earlier theatre stage is more effective in driving demand than at a later video stage, when consumers are knowledgeable about the offering.

Two, if the advertising for a new movie or similar product is well executed, it actually can gain strength after release.

Notwithstanding the real danger of wear-out effects, repeated advertising with entertaining and informational value can boost advertising effectiveness at the theatre stage of distribution.

“When a firm rotates its ads across different themes, such as price offer versus reassurance,” says Kolsarici, “ad repetition may create positive effects on viewers who perceive the ads as fresh. Wear-in could also occur for movie ads because they often embed rich stories and imageries that viewers enjoy.” Drama, story, and demonstration are particularly effective at arousing emotions and keeping the ads feeling fresh, the researchers say.

Three, advertising and word of mouth exert independent yet interdependent influences on demand.

The researchers found that the influence of advertising and word of mouth exhibits distinct patterns both within and across the distribution stages.

While higher spending on advertising increases the ad effectiveness at the theatre but not video stage, the reverse is true for increased word of mouth activities, the researchers found.

Word of mouth shows its marketing value at later distribution stages, just when conventional advertising loses its punch. Searching for videos to rent or purchase, late adopters tend to turn to word of mouth and online crowd-sourced reviews.

“As a result, it becomes a more prevalent meter of a product’s sustained appeal,” says Kolsarici. “More chattering at this stage might also indicate disseminations of new information, such as new formatting, packaging, or pricing at a new stage of distribution, thus increasing the word of mouth effectiveness.”

Four, action films and critics’ favourites can bring in higher revenues if their advertising budgets are better allocated.

The researchers linked the advertising budget of each film in their sample to its characteristics such as genre and critics’ reviews. They found that 69 percent of the films could have generated greater revenues at the theatre stage if they’d had higher ad budgets; 29 percent of the films should have reduced their ad spending to reap higher revenues.

Drilling deeper, films attracting a large number of critics’ reviews as well as science fiction films benefit by having bigger advertising budgets. That’s because strong critical reviews build greater interest and prolongs awareness, while advertising for sci-fi flicks generally have strong wear-in appeal.

Action films, by contrast, are better off reducing the percentage of pre-release ad spending. As this study found, repeated ads for action films wear out potential audiences. There are only so many times you can view an ad for Ninja Assassin before being turned off. 

Kolsarici says their work offers managers a way to more effectively allocate advertising within and across distribution stages. “Although our study focuses on the movie industry,” she says, “the findings underscore the value of investigating cross communication, cross-stage, and cross-product effects. It also suggests that opportunities exist for more efficient media planning in industries that profit from sequential distributions.”

— Alan Morantz