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Revenue Sharing Vertical Contracts in the Movie Industry: A Theoretical Analysis

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  • Baranchuk Nina

    (Finance, University of Texas at Dallas, Richardson, Texas75080-3021, USA)

  • Seetharaman Seethu

    (Rice University, Houston, TX77005, USA)

  • Strijnev Andrei

    (The University of Texas at Dallas, Richardson, TX75080, USA)

Abstract

For many years, the movie industry has been characterized by a unique (compared to other industries) type of vertical contracting practice, called sliding-scale contracting whereby the distributor (studio) takes a much larger (usually around 70%) share of box-office revenues than the exhibitor (theater) in the week of a movie’s release, with the exhibitor’s share increasing, in gradual steps, over subsequent weeks. In this paper, we propose a game-theoretic model that provides a new rationale for these contracting choices. Specifically, we show that these contracts effectively resolve conflicts of interest between studios and theaters over movie release timing and display length, in a way that is beneficial for both parties. Our model also stipulates conditions under which sliding scale become dominated by aggregate deals, i.e. deals based on total rather than weekly box office revenue. The testable predictions based on these conditions can be used by future empirical research once the available evidence on the use of aggregate deals in practice goes beyond anecdotal.

Suggested Citation

  • Baranchuk Nina & Seetharaman Seethu & Strijnev Andrei, 2019. "Revenue Sharing Vertical Contracts in the Movie Industry: A Theoretical Analysis," Review of Marketing Science, De Gruyter, vol. 17(1), pages 81-116, June.
    • Handle: RePEc:bpj:revmkt:v:17:y:2019:i:1:p:81-116:n:4
    DOI: 10.1515/roms-2019-0059
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    References listed on IDEAS

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    Cited by:

    1. Yan Zhao & Yuan Ni, 2022. "The Pricing Strategy of Digital Content Resources Based on a Stackelberg Game," Sustainability, MDPI, vol. 14(24), pages 1-16, December.

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