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Cofinancing to Manage Risk in the Motion Picture Industry

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  • Ronald L. Goettler
  • Phillip Leslie

Abstract

Cofinancing is a term used in the movie industry to describe films for which multiple firms share the cost of production and revenues. We find that one‐third of movies produced by major studios between 1987 and 2000 are cofinanced. Anecdotal evidence strongly indicates that cofinancing is for the purpose of risk management. However, the major studios are publicly traded firms, which allows investors to make their own diversification decisions, leading us to question the importance of cofinancing for risk management. Contrary to industry claims, we find that cofinancing decisions are unrelated to the distribution of individual movie returns—studios do not appear to cofinance relatively risky films. But we do find that studios are more likely to cofinance movies that account for a large fraction of their total annual production budget, which reduces portfolio risk via the law of large numbers. Toward an alternative explanation for cofinancing, we also find that cofinancing between two major studios impacts the release dates of their other movies.

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  • Ronald L. Goettler & Phillip Leslie, 2005. "Cofinancing to Manage Risk in the Motion Picture Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 231-261, June.
    • Handle: RePEc:bla:jemstr:v:14:y:2005:i:2:p:231-261
    DOI: 10.1111/j.1530-9134.2005.00041.x
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    Cited by:

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    2. Gabriel Natividad, 2013. "Multidivisional Strategy and Investment Returns," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 594-616, September.
    3. Anita Rao & Wesley R. Hartmann, 2015. "Quality vs. variety: Trading larger screens for more shows in the era of digital cinema," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 117-134, June.
    4. Anita Rao & Wesley Hartmann, 2015. "Quality vs. variety: Trading larger screens for more shows in the era of digital cinema," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 117-134, June.
    5. Jordi McKenzie & W. Walls, 2013. "Australian films at the Australian box office: performance, distribution, and subsidies," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 37(2), pages 247-269, May.
    6. Jordi McKenzie, 2023. "The economics of movies (revisited): A survey of recent literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 480-525, April.
    7. Wen-jhan Jane & Wei-peng Chen & Yuan-lin Hsu, 2015. "The impact of deregulation on the movie box office after Taiwan’s entry into the WTO: the difference-in-differences estimation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 289-308, December.
    8. Ricard Gil & Wesley R. Hartmann, 2009. "Empirical Analysis of Metering Price Discrimination: Evidence from Concession Sales at Movie Theaters," Marketing Science, INFORMS, vol. 28(6), pages 1046-1062, 11-12.
    9. Darlene Chisholm, 2014. "External and slate financing in motion pictures: a review of “Co-Financing Hollywood Film Productions”," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 38(4), pages 385-389, November.
    10. Christian Opitz & Kay H. Hofmann, 2014. "Adverse Selection and Moral Hazard in Equity Partnerships: Evidence from Hollywood's Slate Financing Agreements," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 811-838, December.
    11. W. Walls, 2010. "Superstars and heavy tails in recorded entertainment: empirical analysis of the market for DVDs," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 34(4), pages 261-279, November.
    12. Darlene Chisholm & Víctor Fernández-Blanco & S. Abraham Ravid & W. David Walls, 2015. "Economics of motion pictures: the state of the art," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(1), pages 1-13, February.
    13. Gordon H. Hanson & Chong Xiang, 2009. "International Trade in Motion Picture Services," NBER Chapters, in: International Trade in Services and Intangibles in the Era of Globalization, pages 203-222, National Bureau of Economic Research, Inc.
    14. Moez Hababou & Nawel Amrouche & Kamel Jedidi, 2016. "Measuring Economic Efficiency in the Motion Picture Industry: a Data Envelopment Analysis Approach," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 3(3), pages 144-158, December.
    15. Yanhao Max Wei, 2020. "The Similarity Network of Motion Pictures," Management Science, INFORMS, vol. 66(4), pages 1647-1671, April.
    16. John, Kose & Ravid, S. Abraham & Sunder, Jayanthi, 2017. "Managerial ability and success: Evidence from the career paths of film directors," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 425-439.
    17. W. D. Walls, 2009. "The Market for Motion Pictures in Thailand: Rank, Revenue, and Survival at the Box Office," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 8(2), pages 115-131, August.
    18. Ricard Gil & Wesley Hartmann, 2007. "The Role and Determinants of Concession Sales in Movie Theaters: Evidence from the Spanish Exhibition Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(4), pages 325-347, June.
    19. Gil, Ricard, 2007. ""Make-or-buy" in movies: Integration and ex-post renegotiation," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 643-655, August.
    20. Darlene C Chisholm, 2011. "Motion Pictures," Chapters, in: Ruth Towse (ed.), A Handbook of Cultural Economics, Second Edition, chapter 39, Edward Elgar Publishing.
    21. Gil, Ricard & Hartmann, Wesley R., 2008. "Why Does Popcorn Cost So Much at the Movies? An Empirical Analysis of Metering Price Discrimination," Research Papers 1983, Stanford University, Graduate School of Business.

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