This final section of our editorial considers what questions we expect to motivate future research, given this digital transformation. It provides a bit of a research agenda.
We intentionally organized the working groups around industry segments and business models, and the chapters follow that focus. But most “Mallen Group” members identify also with a discipline, and a large share of past research on the film industry has been published in disciplinary journals. We expect that these disciplinary lenses will continue to direct research attention, so we have organized our outlook in terms of three broad groups of scholars: economics and finance, marketing, and organization theory and strategy.
But before we put on the disciplinary lenses, let us highlight some fundamental changes, and challenges, that digitalization imposes on all scholars of filmed entertainment. The attractiveness of film as a research setting stemmed in part from being able to treat each film as an independent project and product with a relatively clear measure of performance—most of the revenues either came from or have been highly correlated with box office sales.
The rise of streaming raises multiple issues. More and more of the content being produced appears in serial form, meaning that researchers cannot treat the projects as independent or easily isolate the performance of an individual project. Also, streamers control access to viewing data and have so far displayed limited interest in opening it to partners, including researchers. Success, itself, has also become a fuzzier concept, as individual productions can create value for a subscription-based platform in so many ways (e.g., Kübler et al. 2021).
Lest scholarly readers’ despair, digitalization also offers many research opportunities. Streaming services amass an unprecedented amount of information on the consumption of filmed entertainment, and companies such as Filmchain—a budget and revenue management service based on blockchain technology—allow fine-grained monitoring of cash flows from exhibitors to rights holders. Should these companies cooperate with researchers, we could greatly improve our understanding of what, why, and how people consume filmed entertainment, to the benefit of both science and the platforms. To avoid becoming irrelevant as film scholars, we must accept that digitalization also changes our world and adapt our data, methods, and topics to the new realities of the industry.
Finance and economics
One of the fundamental questions from a finance and economics perspective has been the risk and return characteristics of the film industry. Films have historically been a business of hits and misses, with far more misses than hits. Because of the highly skewed nature of the returns, these hits account for the vast majority of the profits in the industry (De Vany & Walls 1996).
Much research has therefore focused on the nature of the risk-return trade-off in the industry (e.g., De Vany & Walls 1999, 2002; Palia et al. 2008; Ravid & Basuory 2004). One of the most consistent findings, dating back to Ravid (1999), has been that sequels and franchises (but not remakes) may be the holy grail of the industry, with projects featuring lower risk and higher return (see also Bohnenkamp et al 2015; Filson & Havlicek 2018; Palia et al. 2008). Filmmakers can use information from the sales of a successful early film to decide whether or not to produce the next one, thereby exercising a real option.
Streaming platforms appear to have learned this lesson. As they moved into production, they have focused more on creating serialized content than on stand-alone movies. But streaming platforms often commit to producing an entire series upfront. That has advantages in terms of reducing the costs of production. But it also carries a price-tag: producers cannot capitalize on the information gained from an earlier installment to determine whether or not to produce the next one, losing the real option value of serial content in the process.
Production companies and studios that sell movies outright to streaming platforms also transfer both the risk of failure and the benefit of success to a platform. This arrangement will change the risk and return from their point of view. It will probably affect the mix of movies studios would like to produce. High-risk blockbusters, for example, may seem less attractive. Platforms may dictate the types of movies that they will buy (this already happens to some extent), but platforms have a very different risk profile. They may opt for sure-bet crowd pleasers, but, as discussed in Kübler et al. (2021), platforms can potentially profit also from films even if they appeal strongly only to a niche audience.
One effect of these decisions has been a blurring of the boundaries between made-for-television movies, television series, and theatrical movies. Theatrical movies have been differentiated from other forms of filmed entertainment. Theatrical movies have had larger budgets, and higher production values, than TV productions and were intended for the big screen. However, current serialized content often has the same production budgets and values once reserved for the theater.
These changes also have implications for career paths. Research on the careers of actors, directors, and producers has usually focused on one mode of production, since different types of projects had different and distinct characteristics (e.g., Baker & Faulkner 1991; Faulkner & Anderson 1987; Han & Ravid 2020; John et al. 2017; Zuckerman et al. 2003). However, increasingly, talent has been moving across the various types of productions. Although these eroding boundaries will make careers more difficult to study, they may also raise a novel set of career-related questions.
Digitalization also promises to raise interesting questions about contract design and industry structure (Chisholm 1997; Filson et al. 2005; Palia et al. 2008). For instance, contracts with exhibitors will have to adjust as studios no longer have an interest in guaranteeing exhibition windows. These changes will affect the incentives and the entire business model of movie exhibition.
Another interesting aspect of contract design relates to pricing. Box office sales have traditionally been an important leading indicator of value. These sales have therefore helped set prices for subsequent channels, such as international markets and home video. Everyone had access to the same information; they agreed on its validity. But in streaming, performance data remain proprietary, introducing information asymmetry into any negotiations with other parties.
Finally, the largest question concerns the structure of the industry as a whole. The new streaming services have begun to compete on exclusive content. Will this trend continue, or will contracts allow multiple aggregators to compete over offering the same films to consumers, either on a pay-per-view basis or as part of a subscription service. The “new” film industry may therefore provide a rich environment for future research in industrial organization economics and finance.
Marketing scholars study the creation of value through transactions by and relationships with market partners. Consumer preferences play a central role. Those companies that can best address consumers’ preferences create the most value.
Digitalization, however, has been fundamentally changing these preferences. It has influenced the types of filmed entertainment that consumers want. It has changed the channels they favor for consuming these offerings. It has affected the prices they consider appropriate. And it has altered the ways in which and extent to which they attend to messages from marketers and from their fellow consumers. Here are some of the most pressing, yet underesearched, marketing issues that this transformation has raised.
Creation. Digitalization provides those who tell stories via film and those who produce them with powerful tools not only to analyze what kinds of narratives work (see Behrens et al. 2021), but also to visualize these stories. Digital technologies can bring beloved characters, heroes, and villains to the screen in unprecedented ways. Consider the creation of novel footage of the deceased Carrie Fisher’s Princess Leia from bits and bytes stirred with some machine learning. The technical possibilities seem limitless. But who owns the rights? And how will consumers’ react? So far, audiences appear torn between adoration and anger. Mori’s (2012) “uncanny valley” theory might serve as a powerful starting point for a better understanding of their reception.
Digitalization also offers other technological opportunities to filmmakers, such as virtual reality (VR) and interactive storytelling. VR has been a disappointment so far. But its immersive powers appear so enormous that the entertainment industry, and its scholars, should find new ways to create value with the technology. Behrens et al. (2021) suggest that the “killer app” for VR might come from combining the technology with video-game-like interactive storytelling. What business models might best fit such an application?
Distribution. Or will VR become a distribution channel? One could imagine VR being used to create digital venues in which we (or our avatars) meet and watch movies together—a high-tech variant of Amazon’s “Watch Party” feature. Would such a service have mass appeal that might substitute for going to the theater? More generally, how will VR-based products and services interact with the existing business models in the industry? Should industry incumbents invest in their development, despite their potentially cannibalizing effects? Or should they leave them for outsiders, such as Facebook (who owns the current VR device leader, Oculus)?
Even leaving aside the possibility of VR venues, digitalization raises other distribution-related questions. How can studios optimize their release strategies given the new plethora-of-channels environment? With the implosion of the rigid windowing model—with a clear sequencing of releases in various channels—scholars might want to direct their attention toward a contingency approach for film distribution.
Pricing. Discredited by the “nobody knows anything” mantra of the analog era, pricing has played only a supporting role in film research. But the rise of subscription models, with bundling becoming dominant, may allow pricing to headline. Will single purchases persist in a world dominated by subscriptions? How should studios price “premium” video-on-demand offerings, which can generate incremental revenue but potentially at the expense of the value of the subscription bundle? After charging extra for Mulan, Disney released Soul as part of their basic fee. Under what conditions can video-on-demand still add value to consumers—and firms?
Communication. Scholars have argued that the digital environment for marketing communication resembles a pinball machine, with chaotic elements and limited firm control (Hennig-Thurau et al. 2013). How can studios reach large audiences with meaningful messages in such an environment? Research on social media sentiment and topics in the context of films has shed initial light on this issue (Kupfer 2018; Liu et al. 2018), but the ever-proliferating variety of channels (TikTok!) points to a need for more research. The difficulty of reaching audiences in this pinball environment on a limited budget has also contributed to the demise of smaller productions. Can marketing scholars find ways to use the environment that require less ad spend, resurrecting the financial viability of mid-sized theatrical releases?
Organization theory and strategy
As in the other streams, many of the questions examined in the context of film by organization theory and strategy scholars have been ones of broad interest to that group, even beyond film.
Categories—how consumers sort products, services, organizations, and people into groups—have been a vibrant subject of study over the last two decades. One of the important ideas within that research emerged in the context of film. Hsu (2006) found that films that straddled categories (genres), such as a horror-comedy, did better at the box office but received lower average ratings from audiences. These films had broad-but-shallow appeal. Similar results have since been found in a wide variety of settings, from software to careers (Hannan et al. 2019; Zuckerman et al. 2003).
Categories and categorization will undoubtedly remain important. They may even become more so. Streaming services typically organize their offerings according to genre, so users frequently choose a category and select a film. Recommendation systems, moreover, often reinforce these classifications. But streaming also changes the incentives for producers. Offerings with an intense appeal to a niche audience become more valuable relative to those with broad-but-shallow appeal if these offerings attract and retain subscribers. Genres of films may therefore become more distinct, have “sharper contrast” in the language of the literature on categories.
Social relationships have been another active area of study. Connections have been found to influence a wide variety of outcomes in the film industry: who gets cast (Faulkner & Anderson 1987; Grugulis & Stoyanova 2012), the matching of films to distributors (Cattani et al. 2008; Sorenson & Waguespack 2006), the degree to which films get promoted (Sorenson & Waguespack, 2006), and who wins awards (Rossman et al. 2010). At first blush, the transition to digital might not seem to matter here: friends are friends, or at least the devil that you know seems better than the one that you don’t. But the importance of these connections often stems from uncertainty, particularly about quality (Sorenson & Waguespack 2006). As data availability and analytics reduce this uncertainty, these connections may matter less.
But these analytics may introduce other problems. Algorithmic bias—the idea that machine learning and other forms of data analysis may reify existing forms of discrimination—has been a hot emerging topic (Cowgill & Tucker, 2020). As these algorithms become more influential to production and distribution decisions, they could easily create new forms of self-confirming stratification in the industry (cf. Sorenson & Waguespack 2006).
In the strategy literature, the film industry has been an unusually interesting setting for studying corporate strategy, the scope and organization of the firm and its effects on behavior and performance. Vertical integration, for example, appears to buffer producers from uncertainty in distribution and exhibition and to allow exhibitors to respond more effectively to information on film popularity (Gil 2009; Hanssen 2010; Negro & Sorenson 2006). But engaging in multiple markets also strains managerial attention and organizational resources, when unexpected events affect one of these markets (Natividad & Sorenson 2015). With digitalization, this segment of the strategy literature will probably expand. As filmed entertainment firms become more varied in their scope and in the strategies that they pursue, the opportunities for exploring the performance implications of these decisions will expand, as does the need for understanding what works and what does not.