Newswise — Movie studios take lower risks investing in sequels compared to original films, but whether a sequel is a hit or a box-office bomb is highly dependent on key variables.
So finds an innovative study quantifying factors that predict the success of brand extension strategies. The researchers focused on motion pictures but say their work is readily adaptable to other industries.
The report is titled, "Conceptualizing and Measuring the Monetary Value of Brand Extensions: The Case of Motion Pictures." It is written by Dr. Mark B. Houston of the M.J. Neeley School of Business at Texas Christian University, and Dr. Thorsten Hennig-Thurau and doctoral student Torsten Heitjans, both of Bauhaus University of Weimar in Germany. The paper will appear in a special "Marketing Strategy Meets Wall Street" issue of the Journal of Marketing later this year.
"We found that sequels have two advantages over original movies that are not sequels: They have higher average box office returns and are less financially risky," says Dr. Houston, a professor of marketing. "We can predict outcomes with more certainty because of the known value of the parent brand. The venture is less risky because of more precision in predicting the outcomes."
The new valuation technique reveals, however, that success or failure lies in the details. They examined variables such as the perceived quality of the parent movie; public awareness of the parent movie; distribution intensity; star power; continuity of the star, director, genre, and rating; and more.
The top four factors turned out to be parent brand awareness (whether the public is aware of the parent movie), distribution intensity (the number of theater screens expected for opening weekend), parent brand image (if the first movie was widely considered good or not), and star continuity (whether the sequel has the same star as the first film).
Parent brand awareness was by far the strongest factor, says Dr. Houston. It carries more than double the impact of the number of screens, and quadruple the effect of either parent brand image or star continuity.
Star continuity, though, was still a kicker. For example, the researchers did the math on whether the first Spider-Man sequel, with all other factors the same, could have succeeded with a star other than Tobey Maguire. They found that making a similar flick not based on the Spider-Man brand would reap better returns than a Spider-Man sequel starring anyone else wearing the Spidey-suit.
This illustrates the utility of the valuation model. Key variables can be plugged in and results examined before investors plow millions of dollars into a project.
"We can estimate beforehand what would happen if there was a different star or a different number of opening-weekend theaters or a different director or rating or genre," Dr. Houston explains.
Data analyzed came from several sources. These included theater revenues and numbers of screens as reported by Variety; home video retail data from Nielsen VideoScan; home video rental data from Adams Media Research/Home Media Retailing. For brand image data they looked at reviews by professional critics (from Metacritic), consumer comments from the Internet Movie Database (IMDb), and industry experts from the Academy of Motion Picture Arts and Sciences.
Information on star continuity came from IMDb Starmeter. Data on continuity of director and genre came from The Numbers, a free resource providing business facts on the movie industry. Continuity of rating information came from the Motion Picture Association of America. Numerous other parameters also were examined.
The study looked only at the first sequels of parent movies, and not at subsequent sequels. Data were gathered for all 101 first sequels released during 1998-2006 in North America. These data were compared with that from 303 non-sequels released during the same time frame that were closely matched in characteristics with the sequels.
To capture the full value of an extension product, the study incorporated "forward spillover." These are revenues expected from a new product because a known parent name is attached. They also factored in "reciprocal spillover," revenues expected for the parent brand from the performance of the related new product.
"We found that the new product complements the parent brand because a sequel stimulates significant new sales for the DVD of the parent film both at the theatrical release of the sequel and when the sequel is released on DVD," says Dr. Houston.
He points out that the valuation model isn't just about movies.
"We created a general framework adaptable to individual industries. While the variables we used were specific to motion pictures, any company can use the general framework as a foundation, employing their own industry-specific measures to predict the value of a possible extension of their parent brand," he says.
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