Suman Basuroy

How Critical Are Critical Reviews? The Box Office Effects of Film Critics, Star Power, and Budgets

The authors investigate how critics affect the box office performance of films and how the effects may be moderated by stars and budgets. The authors examine the process through which critics affect box office revenue, that is, whether they influence the decision of the film going public (their role as influencers), merely predict the decision (their role as predictors), or do both. They find that both positive and negative reviews are correlated with weekly box office revenue over an eight-week period, suggesting that critics play a dual role: They can influence and predict box office revenue. However, the authors find the impact of negative reviews (but not positive reviews) to diminish over time, a pattern that is more consistent with critics’ role as influencers. The authors then compare the positive impact of good reviews with the negative impact of bad reviews to find that film reviews evidence a negativity bias; that is, negative reviews hurt performance more than positive reviews help performance, but only during the first week of a films run. Finally, the authors examine two key moderators of critical reviews, stars and budgets, and find that popular stars and big budgets enhance box office revenue for films that receive more negative critical reviews than positive critical reviews but do little for films that receive more positive reviews than negative reviews. Taken together, the findings not only replicate and extend prior research on critical reviews and box office performance but also offer insight into how film studios can strategically manage the review process to enhance box office revenue.

Managerial Objectives, the R-Rating Puzzle and the Production of Violent Films

We analyze project choice in the motion pictures industry and find evidence consistent with revenue maximization and excessive hedging. We focus on the production of violent films and films that feature sex and violence. We find that such movies do not provide excess returns, but they increase revenues, particularly in the international market. Further, they tend to lose money

Auction or agent (or both)? A study of moderators of the herding bias in digital auctions

Abstract Recent research has shown that buyers in digital auctions are susceptible to the herding bias —gravitation toward listings with existing bids and inconsideration of listings without any bids, manifested in categories of listings that are either coveted or entirely overlooked by buyers. This article investigates two specific types of moderators of herding bias: auction attributes (volume of listing activity, and posting of reservation price) and agent characteristics (seller and bidder experience), and increases our understanding of mechanisms underlying this bias. Practical implications for participants and organizers of digital auctions are discussed, and promising future research opportunities are highlighted.

Innovation Sequences over Iterated Offerings: A Relative Innovation, Comfort, and Stimulation Framework of Consumer Responses

Innovations commonly involve changes to iterated market offerings (e.g., new games, car models, film sequels). To better understand consumer iteration responses, the authors develop and test a theoretical framework grounded in (1) prior innovations serving as reference states (comparators) for later innovations and (2) consumer desires for both comfort and stimulation. In Study 1s online game, prior innovations and loss aversion (greater loss than gain impact) moderate evaluations of current innovations, whereby an introduction-weaker-stronger innovation sequence (Periods 1–3 of four periods) generates more entertainment than an introduction-stronger-weaker sequence because the formers weak-opening-then-rise does less harm than the latters strong-opening-then-drop. Study 2 replicates Study 1 and shows that an introduction-weaker-weaker sequence produces enough habituation and diminishing negative returns to outperform an introduction-stronger-weaker sequence at Period 4. Study 3 offers marketplace corroboration with a film industry test in which minor (fewer) innovations perform better (e.g., sales, return on investment) earlier in franchises, whereas major (many) innovations perform better later, thereby reconciling prior researchs opposing prescriptions for the use of major versus minor sequel innovations. The framework and results implicate carefully sequenced innovations for managing consumer iteration responses, including the possibility of interspersing weaker/minor innovations among stronger/major innovations.

What is Advertising Content Worth? Evidence from the Motion Pictures Industry

The large literature on the impact of advertising on consumers and firm behavior in marketing and economics has tried to distinguish between the informative and the persuasive roles of advertising. The extant literature typically uses advertising expenditure and implicitly assumes that advertising content is homogeneous. We analyze the contents of print ads in the motion picture industry to see whether the persuasive content or the informative content is more impactful on revenues. We estimate a simultaneous equation system via the GMM method and find that the persuasive content (role) of advertising is more significant than the informative content (role). Overall, we find that content elements matter in different ways. External validation components – persuasive contents, are much more important than other ad contents for predicting revenues and returns. Thus, we provide an interesting insight to this debate.

Intellectual Property Contracts: Theory and Evidence from Screenplay Sales

This paper presents a model of intellectual property contracts. We explain why many intellectual property contracts are contingent on eventual production or success, even without moral hazard on the part of risk-averse sellers. The explanation is based on differences of opinion between buyers and sellers, and reputation building through multiple transactions. Our model predicts that more reputable sellers will be offered a very different mix of cash and contingency payments than inexperienced sellers. We also discuss the probability of sales as a function of seller and product characteristics. The theoretical model is tested on a data base of screenplay contracts.

CEO compensation, customer satisfaction, and firm value

Purpose - – The purpose of this article is to examine whether the design of chief executive officer (CEO) compensation generates incentives to engage in managerial behavior that enhances customer satisfaction and whether these incentives, in turn, lead to higher firm value. Design/methodology/approach - – A unique dataset combining customer satisfaction and executive compensation data was used, and the relationship between option sensitivity, customer satisfaction and performance was modeled using simultaneous equations modeling with industry and year fixed effects. Findings - – Findings suggest that CEO compensation plays an important role in explaining the variation in customer satisfaction and firm value. Specifically, CEO short-term compensation (salary or bonus) has no affect on customer satisfaction or firm value; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes is positively related and also exhibits an inverted U-shaped relationship with customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts negatively with CEO longevity and industry concentration but positively with advertising expenses in affecting customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to both stock price changes and customer satisfaction positively affect firm value; and the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts positively with customer satisfaction to affect firm value. Research limitations/implications - – This study suffers from several limitations. First, the sample is limited to firms with ACSI scores available. Second, this study is limited to only publicly traded firms, which limits our ability to generalize regarding customer satisfaction, option sensitivity and firm value. Practical implications - – This study has several important implications for researchers and managers. The first is that the corporate board appears to view investment in customer satisfaction as similar to an investment in other intangible assets or technology, in that they reward managers with a nonlinear payoff profile. To encourage managers to invest discretionary funds wisely, incentive compensation is important. Second, compensation committees of corporate boards should not allow the option sensitivity to reach extreme levels because, at some point, managers’ incentives appear to shift more toward short-term earnings objectives and away from investment in intangibles, which have a longer-term payoff. Third, if boards are concerned about customer satisfaction and market value, when designing compensation packages, they should shift their focus from the structure of pay to the sensitivity of pay to performance. The exception to this is that for CEOs with very long tenures (or for those close to retirement), high levels of option sensitivity may distort incentives away from a focus on customer satisfaction. Finally, our results indicate that strategies that enhance customer satisfaction provide an incremental benefit in terms of firm value, beyond incentive compensation strategies. Social implications - – The results indicate that a “stakeholder focus” which includes customers is value adding for shareholders as well. The results also imply that perhaps using a “balanced scorecard” approach to assessing performance in terms of customer satisfaction outcomes, or at least acknowledging the drives of customer satisfaction explicitly, could be an alternative to using highly sensitive incentive-based compensation when such compensation schemes are less desirable. Originality/value - – Prior research has found that the structure of fixed versus incentive-based compensation impacts customer satisfaction. However, this is one of the first papers to investigate the relationship between the sensitivity of CEO compensation and customer satisfaction. Findings have important implications for boards who seek to structure CEO pay so that CEOs have incentives to enact policies that benefit customers and, in turn, firm performance.

Design Crowdsourcing: The Impact on New Product Performance of Sourcing Design Solutions from the “Crowd”

The authors examine an increasingly popular open innovation practice, “design crowdsourcing,” wherein firms seek external inputs in the form of functional design solutions for new product development from the “crowd.” They investigate conditions under which managers crowdsource design and determine whether such decisions subsequently boost product sales. The empirical analysis is guided by qualitative insights gathered from executive interviews. The authors use a novel data set from a pioneering crowdsourcing firm and find that three concept design characteristics—perceived usability, reliability, and technical complexity—are associated with the decision to crowdsource design. They use an instrumental variable method accounting for the endogenous nature of crowdsourcing decisions to understand when such a decision affects downstream sales. The authors find that design crowdsourcing is positively related to unit sales and that this effect is moderated by the idea quality of the initial product concept. Using a change-score analysis of consumer ratings, they find that design crowdsourcing enhances perceived reliability and usability. They discuss the strategic implications of involving the crowd, beyond ideation, in helping transform ideas into effective products.

One for All or All for One: Does the Category Captain Play Favorites

Category management is challenging for retailers that sell thousands of products across hundreds of categories and often lack the resources and capabilities to manage all of them intensively. Picking one supplier to be the category captain (CC) to manage the category – including rival’s brands – through pricing and merchandising is a recent retail management initiative that aims at improving a retailer’s overall performance in a product category. Despite tremendous retailer and manufacturer interest in CC and its adoption in the industry, much uncertainty exists about the consequences of CC. This paper empirically examines the role of CC by utilizing a unique data set on ready-to-eat cereals category, characterized by high concentration and market power, before and after the transition into category captain management. We find that after the transition, CC acted to improve its own market shares and those of private labels. A private label is designating a product under the name of the retailer rather than the name of the manufacturer and often offers higher profit margins for the retailer. In addition, CC improved its market shares by focusing on its core competency brands at the expense of some of its smaller brands while CC improved private labels’ market shares through an uniform increase across all private label brands. Using estimates from a structural model, we find consumer welfare is increased by 8.8% after the transition into category captain management.

E-Services and the New World of Retailing

The growth of on-line transactions has forced retailers to unify channels by offering e-services and lessening their reliance on brick and mortar outlets. Jupiter Research predicts that by 2008 Americans will spend close to