The Drama That Follows Movie Theater Openings
- June 11, 2015
- CBR - Marketing
When a new movie theater opens, you might expect local rivals to try to compete by screening more popular movies. You’d be wrong.
When towns in the United States go from having one theater to two, incumbents facing new competition actually decrease the number of blockbusters they show, according to research by Chicago Booth’s Pradeep K. Chintagunta, University of Michigan’s A. Yesim Orhun, and University of North Carolina’s Sriraman Venkataraman.
The researchers analyzed movie theaters from September 2003 to December 2004, focusing on US markets where the number of theaters went from one to two with neither theater closing. They find that owners facing new competition screened fewer popular movies: the average popularity of the films screened by incumbent theaters dropped by 17 percent when a rival entered their market. Box-office receipts for the top movie went down 20 percent.
Of course, movie theaters can compete on price, concession options, and other things, but perhaps the most important competitive factor is the movies themselves. As one would expect, popular films bring in more customers but are more expensive to obtain. Less popular movies—or popular films shown long after their initial release—save on distributor costs but risk drawing smaller crowds.
It may seem odd that more competition would lead to fewer showings of popular movies, but that’s because these numbers don’t tell the whole story. The researchers find an important distinction exists between a new theater owned by a rival chain and a new theater that is a corporate cousin.
Theoretically, theaters with the same corporate owner would have less incentive to invest more or fight for customers. Incumbents facing a new competitor with the same owner were an additional 10.4 percent more likely to delay screening a popular film, by an average half a week. They were also an additional 20–30 percent less likely to screen a popular film.
Whereas existing theaters facing new competition from within are slightly less likely to invest in new movies or show a popular film sooner, theaters facing a competitor from a rival theater chain behave more in line with expectations, screening more popular films sooner and more often.
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