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The impact of supplier bargaining power on the advertising costs of movie sequels

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Abstract

Movie sequels, a type of brand extension, are prevalent in today’s motion picture industry. Prior literature on brand extensions supports the intuition that attaching established brand names (e.g., titles of box-office hits) to new products decreases advertising costs. We counter this intuition and examine factors that may increase advertising costs for movie sequels. Specifically, we investigate the consequences of asset specificity and bargaining power—concepts from transaction cost economics—in the context of the motion picture industry. We find a positive relationship between the bargaining power of the movie studio’s suppliers and advertising expenditures for the movie sequel. We also find evidence of a moderating effect: higher bargaining power of the movie studio dampens the impact of supplier bargaining power on advertising. This is the first study to measure the effect of supplier bargaining power on movie studios’ marketing decisions. In a broader context, our findings not only challenge the notion that brand extensions are cost saving, but are also novel in linking transaction cost constructs to the advertising behavior of firms.

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Notes

  1. Available upon request from the authors.

  2. We address the question of whether the studio or the stars contribute more to the success of the original film in the “Tests of Robustness” section.

  3. In the movie industry, the six film studios with the largest market share are known as the “Big Six” and comprised of Paramount Pictures, Warner Bros. Pictures, Columbia Pictures, Walt Disney Pictures/Touchstone Pictures, Universal Pictures, and twentieth Century Fox. Following Eliashberg et al. (2006), we identify these six studios as “major studios.” “Mini-majors” (i.e., MGM, Lion’s Gate, Miramax, and New Line Cinema) are a group of studios that have smaller market share than the Big Six, but still more industry power than independent filmmakers (Eliashberg et al. 2006). In an alternative analysis, we used a dummy variable that instead distinguishes among movies produced by major studios, mini-major studios, and other filmmakers. The results are robust.

  4. In an alternative analysis, we used the logarithm of pre-release advertising and box office revenue figures. The results are qualitatively similar to our main findings that are presented in Table 4.

  5. Result tables for all robustness tests are available upon request.

  6. There was a third case that used a back-to-back strategy in shooting the sequel and second sequel. Since the original film was shot by itself, we did not consider this case.

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Authors and Affiliations

  1. Lally School of Management and Technology, Rensselaer Polytechnic Institute, 110 8th Street, Troy, NY, 12180, USA

    Judy Ma, Dongling Huang & M. V. Shyam Kumar

  2. Naveen Jindal School of Management, University of Texas at Dallas, 800 West Campbell Road, Richardson, TX, 75080, USA

    Andrei Strijnev

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  1. Judy Ma
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  2. Dongling Huang
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  3. M. V. Shyam Kumar
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  4. Andrei Strijnev
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Correspondence to Judy Ma.

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Ma, J., Huang, D., Kumar, M.V.S. et al. The impact of supplier bargaining power on the advertising costs of movie sequels. J Cult Econ 39, 43–64 (2015). https://doi.org/10.1007/s10824-014-9223-4

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