New Insights on Financial Impact of Movie Product Placements

New Insights on Financial Impact of Movie Product Placements: Competition and Repetition Effects

• Harold L. Stuart Endowed Chair in Business Siva Balasubramanian
• Associate Professor of Finance Haizhi Wang

Abstract:

Previous event studies involving movie product placements (Wiles and Danielova 2009; Karniouchina et al. 2011) show a pattern of positive abnormal returns. Nevertheless, Karniouchina et al. suggest a trend whereby the financial impact of placements may diminish over time. We investigate this suggestion, in addition to exploring two important effects on financial outcomes that have not been previously studied: competition effects and repetition effects.

Specifically, we investigate the impact of movie product placements in the U.S. auto industry for two sample periods (1990-2004 and 2005-2017). Our event studies consider the short-run effects and demonstrate the importance of careful data cleaning procedures to avoid contamination effects. Our short-run findings indicate that movie release events generate abnormal returns for firms whose products are placed in those movies; nevertheless, our results show a downward trend over time for CAAR when we compare the results from two sample periods: 1990-2004 and 2005-2017.

With respect to competition effects, we show that for both sample periods, there are no adverse consequences for competitors from a firm’s product placements. In other words, the results show that a firm can pursue product placements for benefits that accrue to the firm; competitors’ placement activities do not appear to diminish a given firm’s outcomes from placement activity.

With respect to repetition/saturation effects, we focus on four hierarchical forms of repetition/saturation:

(a) movie brand/franchise-centric and sequel-centric repetition, whereby a character or theme is repeated across movies (branded/franchise movies such as the James Bond and Marvel series; and movie sequels such as Men in Black, Men in Black I etc. We seek insights on the magnitude of abnormal returns in the franchise/branded movies; in the case of movie sequels, our research interest centers on the sustainability of abnormal returns beyond the original movie to its sequels.

(b) movie-centric repetition/saturation that captures a movie’s format-based repetition whereby a given movie is released in different formats subsequent to its initial theatrical release (such as VHS, DVD, BluRay) or is released initially only on the Internet; the goal here is to examine if abnormal returns are sustained whenever a movie is released in a new format, 

(c) company-centric repetition/saturation, as evident from regression results that showcase the relationship between company-specific annual utilization of movie product placement opportunities as a proportion of the total movie product placement opportunities available. We hypothesize a negative relationship between product placement saturation and abnormal returns. 

(d) product-centric repetition/saturation within a movie, measured in terms of the 1-5 star rating system, where higher stars correspond to deeper integration of product placements into the movie. 

With respect to franchise/sequel centric repetition, for the estimation period 1990-2018, James Bond movies produced superior abnormal returns for product placement events. Marvel movies did not generate abnormal returns. For the same estimation period, we find that the release of a movie in other formats (VHS, DVD, BluRay) subsequent to its theatrical release has no impact on abnormal returns. With respect to movie sequels, we observed positive abnormal returns to the original movie and first sequel in the 1990-2004 sample; no abnormal returns emerged for movie sequels in the 2005-2018 sample.

For movie-centric repetition/saturation, our results do not show abnormal returns when new formats (other than traditional theater release) such as VHS, DVD, Blu-Ray or Internet are released. For company-centric repetition/saturation, our regression analysis indicates that cash flow and product placement saturation have significant negative impact (as predicted), and R&D expenditures have a significant positive impact, on abnormal returns (CAR 1,1). Finally, with respect to product-centric integration/repetition/saturation, results show that abnormal returns are consistently higher for companies whose product placements receive higher star ratings.

 

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