The Film Audience: Theater Versus Video Consumers

Michael D. Basil, University of Leghbridge
ABSTRACT - Feature film producers maximize profits using a form of price discrimination called Awindowing.@ Here, films are released to theaters before the video market. For a consumer, waiting for the video release offers a potential cost savings. This study makes use of Lifestyles data to model movie and video consumption. The results demonstrate that consumer choice is rational and generally compatible with the windowing model. Specifically, people with higher incomes see more movies in theaters. People from larger families see more videos. The desire to be the first to own a new product predicts the ratio of theater to video viewing.
[ to cite ]:
Michael D. Basil (2001) ,"The Film Audience: Theater Versus Video Consumers", in NA - Advances in Consumer Research Volume 28, eds. Mary C. Gilly and Joan Meyers-Levy, Valdosta, GA : Association for Consumer Research, Pages: 349-352.

Advances in Consumer Research Volume 28, 2001     Pages 349-352

THE FILM AUDIENCE: THEATER VERSUS VIDEO CONSUMERS

Michael D. Basil, University of Leghbridge

ABSTRACT -

Feature film producers maximize profits using a form of price discrimination called "windowing." Here, films are released to theaters before the video market. For a consumer, waiting for the video release offers a potential cost savings. This study makes use of Lifestyles data to model movie and video consumption. The results demonstrate that consumer choice is rational and generally compatible with the windowing model. Specifically, people with higher incomes see more movies in theaters. People from larger families see more videos. The desire to be the first to own a new product predicts the ratio of theater to video viewing.

Previous theorists have questioned what happens when a new product is introduced that threatens an established product (Carpenter & Nakamoto, 1989; 1990). In the specific domain of mass media, some research has examined what happened to newspapers when radio diffused to a majority of the population, and what happened to the film and radio industries with the diffusion of television (Dimmick, Patterson & Albarran, 1992; Levin, 1998). A similar situation can be seen today with the diffusion of videocassette players on motion pictures.

Immediately after the invention of home video recording devices in the 1970s, there was a period where the industry was unsure of what material would provide content for these machines (Sommer, 1980). At first, they were used by the industry to prerecord television programs for later broadcast. With the invention of the handy videocassette in the 1980s, taping television programs off the air appeared tobe the main utility of this device (Anonymous, 1984; Hall, 1984; McLaughlin, 1987). In the 1980s, Sony’s Beta and RCA’s VHS represented two formats competing for dominance with this new media form (Gross, Brull & Grover, 1997). This period was quickly followed by the accumulation of major feature film titles for home viewing (Klopfstein, 1989, p. 31-32). With this focus, the VCR and video market began to take off (Caravatt, 1985; Sherrid, 1983). Retail outlets began to buy these releases and rent them to consumers (Keith, 1986).

With the diffusion of VCRs, film industry has taken several steps to protect their profits. The foremost of these is a specific form of price discrimination on the public’s need to see the latest film. The theatrical release of feature films is later followed by release to videocassette, sometimes referred to as "windowing" (Owen & Wildman, 1992; Litman, 1999). Under this approach, a feature film is held in first-run theaters for several months before it is released on videotape, similar to what used to happen with second-and third run theaters. Some evidence suggests this is a useful strategy for maximizing profits (Owen & Wildman, 1992; Litman, 1999).

The question remains, however, of whether and how consumers adapt to this strategy. This paper will address this question from the perspective of the consumer. Specifically, to what extent is movie theater attendance distinctive from video consumption? What is the relationship between feature films and video consumption B that is, who consumes more movies and who consumes more videos?

THEORY

Some previous research has shown that people can and do substitute home videos for going out to see a film at the theater (Greenberg & Lin, 1989). Further, other research has shown that home videos can be seen by consumers as similar to the film viewing experience (Krugman, Shamp & Johnson, 1991). Therefore, there appears to be the possibility of some substitution between these products.

There are, however, also reasons to believe that there are differences between seeing a film in a theater and seeing it on video. For one, the theater experience is often communal (Austin, 1989, p. 45). As such, it is often the excuse for a date with friends or romantic interests (DeSilva, 1999, p. 153-154). A second difference between film attendance and video is the cost of attending a movie. Film attendance is priced on a per-seat basis. Therefore, when a large group of people are interested in seeing a movie, the price rises quickly (DeSilva, 1999, p. 154). As the number of audience members increase, so does the cost of seeing a movie in a theater. In addition, babysitting, transportation, and food costs often increase, too.

So then, one might ask, why bother going out to the movies at all? When faced with this threat to their theater audience the film industry hit on an ingenious solution. Theories of price discrimination suggest that consumers often have different elasticities of demand. Managerial theories suggest the optimal profit maximization function occurs through the segmentation of consumers based on their willingness to pay (Owen & Wildman, 1992). In the case of films, the film industry tries to maintain its theater audience by making it the only route to see the latest film. Most typically, this occurs by not releasing a video version of a film for several months, most typically a period of 6 to 12 months.

We knowthat for a large number of consumers, there is a desire to be up-to-date, have the latest and newest gadget, or, in this case, see the latest movie. Previous research on the importance of this factor has shown that the desire to be up-to-date depends on a number of factors including personality characteristics of the adopter, interest in the product category, and "venturesomeness" [a construct speaking to people’s willingness to take risks associated with buying the newest product] (Hoyer & Ridgway, 1984; Mitchell, 1994; Rogers, 1995). Therefore, it appears that an individual’s desire to see the latest movie should be a predictor of his or her willingness to pay the premium associated with the price discrimination windowing practiced of the film industry.

HYPOTHESES

Research has shown that young people appear to be especially interested in films, both in terms of going to the theater (DeSilva, 1999) as well as being more likely to rent videos (Greenberg & Lin, 1989). In general, this appears to be due to an amalgam of factorsCa greater value for entertainment (therefore interest in the product category), a greater likelihood of being single (and therefore only need to buy a single seat; DeSilva, 1999), and being more likely to live at home (therefore often have higher percentage of disposable income). In addition, however, younger people often see theater attendance as a venue for a seeing friends and dating (DeSilva, 1999, p. 153-154). Therefore, we predict that:

H1: Younger people will (a) attend more movies, (b) rent more videos, and (c) buy more videos. Further, given the desire for out-of-the-house activities, we predict that young people (d) will be more likely to see films in theaters than on video.

One of the largest predictors of movie attendance is age and income, with younger and affluent people seeing more films (DeSilva, 1999). In addition, people who are more affluent often show a propensity for the latest product (Mitchell, 1994; Rogers, 1995). The cost of renting or purchasing videos, as well as the relative price discrimination for seeing the latest film becomes relatively less for people with larger incomes. Therefore, we predict that:

H2: Affluent people will (a) attend move movies, (b) rent more videos and (c) purchase more videos. Further, because the premium for theaters appears less imposing, we predict that more affluent people (d) will be more likely to see films in theaters than on video.

In addition to income, as the number of people in each household increases, the cost of attending a movie (on a per-seat basis) rises quickly based on the increasing number of seats that must be purchased as well as the cost of babysitting (DeSilva, 1999, p. 154). The cost of video, however, is on a per-day basis. Therefore, we predict that

H3: People from larger households will be (a) less likely to attend movies, but (b) more likely to rent and (c) more likely to purchase videos. Further, we predict that as household size increases, (d) people will be less likely to see films in theaters than on video.

Finally, Litman (1999, p. 74-75) predicts that classes of consumers can be identified for whom different elasticities exist. This leads us to predict that:

H4: People with more interest in newer products will (a) attend more movies and (b) rent fewer videos. Perhaps most critically, they will (c) see a higher proportion of films in theaters than on video.

Because the window for video purchases is between theater showing and average rental dates, no prediction is made with regard to purchasing videos.

TABLE 1

NEW MOVIES

TABLE 2

MOVIE VIEWING

METHODS

The data for this study were compiled from DDB Needham’s Lifestyle Survey, a mail panel survey conducted in 1996. Quota sampling was used to generate a list of 5,000 people who were representative of all US adults. The sample was stratified (balanced) on age, gender, marital status, race/ethnicity, income, region, household size, and population density. This group of potential respondents was supplemented by a mailing to 420 households (210 low-income households and 210 minority households) to compensate for low response rates among African Americans, Hispanics, and people with low incomes.

Responses to the general Lifestyle survey mailig numbered 3,748 (75%). Responses to the supplemental mailing totaled 293 (70%). Thus, there were 4,041 respondents in 1996. Of these persons, 3,130 respondents also responded to a subsequent mailing (77%), and thus were included in this sample.

Measures

Demographics. A number of questions on the survey asked about demographics. This study examined the effects of age, gender, race, household income, and household size.

Importance of newness. One item asked for level of agreement with "I like to be the first to try a new product" on a 1-to-6 strongly disagree to strongly agree scale. In addition, a second item asked for level of agreement with "I like to be the first to see a new movie" on a 1-to-6 strongly disagree to strongly agree scale. The responses are shown in Table 1.

Film and video measures. Three items asked about film and video viewing. The first asked, "In the last year, how many times did you go to the movies?" Response categories were "None in the past year, 1-4 times, 5-8 times, 9-11 times, 12-24 times, 25-51 times, 52 or more times. The second question asked, "In the last year, how many times did you buy a movie on video cassette tape?" with the same response categories as item 1. The third question asked about rentals, "In the last year, how many times did you rent a movie on videocassette tape?" also with the same categories. These responses are show in Table 2.

RESULTS

One measure of the potential overlap between film and video audiences can be seen in responses to the question asking about people’s interest in seeing the latest movie. The results suggest that only a minority of the public show a need to be the first to see a new release (15%). This suggests that people may be willing to wait for films to be released on videocassette, more evidence that there may not be a great distinction between film and video audiences.

A second measure of the possible distinctiveness of films versus videos is th correlation between these three forms of film viewing. The correlations between number of films attended with the number of videos rented and number of videos purchased are .278 and .138, respectively (both significant at p < >001). These correlations suggest that the number of movies attended shows a positive relationship with the number of videos rented, and, to a lesser extent, purchased. Therefore, people who see more movies are more likely to rent and buy movies on videocassette. This finding suggests that films are generally appealing to the same audience as videocassettes.

A third measure of the possible overlap between film and video audiences is to make use of a multiple regression to examine the factors determining film and video viewing, and compare across these two media. Four regressions were run B one for each media use measure and one for the ratio of film to videos.

The regression on movie attendance showed that women (Beta = .049, p < .01) and non-whites (Beta = .050, p < .01) attended more movies. Consistent with Hypothesis 1a, younger people attended more movies (Beta = -.191, p < .001). Consistent with Hypothesis 2a, people from households with higher incomes attended more movies (Beta = .201, p < .001). Consistent with Hypothesis 3a, people from larger households attended fewer movies (Beta = -.138, p < .001). After these variables were included, the importance of newness was included in the equation. This variable was a significant addition to the equation (F change [1,3029] = 35.7). As predicted in Hypothesis 4, the desire for new products showed a positive relationship with movie attendance (Beta = .138, p < .001).

The regression of video rentals showed, consistent with Hypothesis 1b, that younger people rented more videos (Beta = -.391, p < .001). Consistent with Hypothesis 2b, people from households with higher incomes (Beta = .109, p < .001) also rented more videos. Consistent with Hypotheses 3b, people from larger households rented more videos (Beta = .106, p < .001). Although not predicted, importance of newness showed a positive relationship with number of video rentals (F change [1,2984] = 30.8, Beta = .091, p = .001).

The regression of video purchases showed that women (Beta = .040, p < .01) purchased more videos. Consistent with Hypothesis 1c, younger people purchased more videos (Beta = -.141, p < .001). Contrary to Hypothesis 2c, people from households with higher incomes did not purchase more videos (Beta = .007, p > .10). Consistent with Hypothesis 3c, people from larger households purchased more videos (Beta = .142, p < .001). Although not predicted, importance of newness showed a positive relationship with number of videos purchased (F change [1,2984] = 10.8, Beta = .059, p = .001).

The fourth regression was run on the ratio of the number of movies attended to the number of videos rented or purchased (the larger the number, the higher the percentage of movies). This regression showed that non-whites were more likely to attend movies than were whites (Beta = .061, p < .001). After controlling for race, younger people were more likely than older people to see films in theaters (Beta = .153, p < .001). People from households with higher incomes were more likely to see films in theaters than were poorer people (Beta = .082, p < .001). People from larger households were less likely than people from smaller households to see films in theaters (Beta = -.189, p < .001). After controlling for these factors, the importance of newness showed a positive relationship with seeing films in theaters (F change [1,2980] = 119, Beta = .192, p = .001).

CONCLUSIONS

These results are consistent with Hypotheses 1a, b, c, & d C that younger people attend more movies, rent move videos, and purchase more videos. Consistent with Hypothesis 2a, b, & d, more affluent people attend more movies and rent more videos. They did not, however, purchase more videos. Consistent with Hypothesis 3a, b, c, & d, household size does appear to be a significant determinant of whether one sees movies out or rents or purchases videos B with people from large households more likely to rent or buy videos. Finally, as predicted by Hypothesis 4a, the importance of newness is related to greater levels of movie attendance, but contrary to Hypothesis 4b, to higher levels of video rentals. The importance of newness was also shown to have a positive relationship with the number of videos purchased. Finally, consistent with Hypothesis 4c, people who have a higher interest in having the newest products consume a higher proportion of films in theaters than to films on video.

These results show that younger people and people that are more affluent consume more feature films. This finding is consistent with previous research on the movie audience (DeSilva, 1999). In addition, however, younger and more affluent people also buy and rent more videos (Greenberg & Lin, 1989). These results suggest that the most active film fans are more likely to consume feature films in both theaters and on video. For these audiences, entertainment appears to be desired, and entertainment appears to be entertainment, regardless of in which format it comes.

People with lower incomes and larger families are more likely to buy or rent a video than to see a film in a theater. This is consistent with the notion of increased cost of attending movies in terms of the number of admissions that must be purchased or in terms of other costs of seeing films in theaters (DeSilva, 1999, p. 154).

The results of this research, therefore, suggest that consumers are behaving rationally in response to the windowing model. Previous theory has suggested that the timing home video occurs immediately after theater exhibition, and the pricing is slightly lower than theater prices, and before pay-per-view, cable, network, and syndicated TV, respectively. These results suggest that consumers appear to operate consistently with that approach. That is, although there is a good level of overlap between film attendance and video rental and purchase, there are also differences between these windows with regard to a price discrimination model. Accordingly, some consumers appear to be using videocassette purchases and rentals to substitute for other, more expensive, exhibition windows (Litman, 1999). Our research suggests that the level of substitution can be predicted by knowing the consumer’s age, level of income, number of people in their household and desire for new products. These findings generally suggest that the main criterion for price discrimination in the movie industry is people’s desire to see the most recent release.

These results, then, suggest that videos may pose less of a cannibalization threat for first run theater audience than previously thought (Trachtenberg, 1985). It also suggests that the pricing of video releases may be set at a reasonable level to compensate film producers for the reduction in theater attendance (Owen & Wildman, 1992). Because consumers seem to be applying a rational criterion to the choice of seeing films in theaters or seeing them in video, especially when household size gets large, this may suggests that the VCR may be a larger threat to other per viewing pricing structures such as pay per view and premium cable systems (Gruen, 1985; McLaughlin, 1987; Spillman, 1984). Here, other factors such s the desire to see a specific movie, a monthly price versus per-movie price, "bundling" a number of movie channels, or niche-specializations such as exclusive movie rights movies may help to differentiate cable and video outlets for producers and audiences (Collette & Litman, 1997; Gruen, 1985).

It is still not clear, however, whether the positive relationship between seeing movies in theaters, renting videos, and buying videos is a generally positive or negative omen for the film industry. There are four possible scenarios. First, the video window may simply allow audiences to modify their film viewing in theaters for less expensive video window. To the extent that the film industry prices videos to cover the loss in film attendance (minus the lower cost of video distribution), there may be no loss in revenue (Owen & Wildman, 1992). Second, the video venue may allow easier access to feature films, and therefore generating an interest in films and creating a cohort of entertainment active film fans. This would be a positive outcome for the film industry. Third, consumers may have a given entertainment budget and simply allocate this to a variety of possible venues. As the number of film windows increase, people may allocate a constant share of their disposable incomes to selecting between these various outlets. This would be a neutral outcome for the film industry. A fourth possibility is that the increased options for seeing feature films may take away from other entertainment activities such as sports and music events. Further research at both the managerial and consumer levels will be necessary to understand which of these outcomes is occurring, or perhaps which occur under which situations.

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