Spatio-Temporal Analysis of Competition between Independent and Affiliate Movie Theaters

Abstract

This study presents a semi-parametric spatio-temporal regression model to understand how theater level differentiation affects the performance of independent and affiliate movie theaters. Independent movie theaters are privately owned and managed retail establishments, while affiliate theaters are managed by national-level chains such as AMC and Regal. Theater-level performance is measured using two standard industry metrics – theater-level daily revenue and theater-level daily revenue per screen. In our proposed model, we analyze how theater-level differences such as ticket price, movie assortment, geographic location, and theater format (independent vs. affiliate) affect a theater’s competitiveness. Our semi-parametric specification allows us to flexibly estimate how both time- and location-varying competitive effects (due to theater-level differentiation) influence the performance of independent and affiliate movie theaters. Our empirical analysis yields several interesting and novel findings for movie theaters. Some own differentiation strategies affect independent and affiliate theaters differently. For example, contrary to industry belief, none of the independent theaters benefit from the strategy of decreasing ticket price or increasing assortment breadth. However, the majority of affiliate theaters gain from decreasing ticket price and increasing assortment breadth. There also exist some own differentiation strategies that affect independent and affiliate theaters similarly. For example, most independent and affiliate theaters are better off increasing their number of screens. These findings also suggest that the performance impact of theater-level differentiation varies even within theaters of the same format. Furthermore, the effect of competitors' differentiation strategies on theaters’ performance varies by theater format. For example, when a competing affiliate theater increases its assortment breadth, independent theaters face losses whereas other affiliates stand to gain. Another interesting result suggests that the relationship between the individual dimensions of differentiation and the intensity of competition varies substantially across differentiation dimensions. For instance, while competitive intensity decreases almost linearly with assortment breadth, contrary to previous research it changes in a nonlinear and non-monotonic fashion with geographic distance. Armed with our proposed model, independent and affiliate movie theater managers can better understand the impact of theater-level differentiation on their own and competitors’ revenues, and they can use this to make more informed marketing investments.