The long-term box office performance of sequel movies

Abstract

With a 26-year-long database of nationally distributed movies, we estimate the prevalence and effectiveness of sequels over time, while controlling for other factors that might influence demand. In particular, we examine whether the effectiveness of a strategy increases over time (possibly due to managerial learning) or decreases (possibly because its effectiveness is competed away or because of consumer satiation). After taking into account both supply side and demand side effects by using simultaneous equations, we find that sequels have a positive effect indirectly (i.e., supply side effect) through a significantly larger number of theaters showing such movies compared to non-sequel movies. In terms of direct effect (i.e., demand side effect), sequels do better than non-sequels in generating more attendance in the first week and in total. Parent movies, the movies from which sequels originate, also do better than non-sequels in terms of total attendance and first-week attendance. Interestingly, sequel movies generate less total attendance than parent movies. On the other hand, sequels generate more revenues upfront than parents. We also find that the impact of sequels on first-week attendance has been increasing over time, but the number of sequels released has not. Our follow-up analysis suggests that one reason can be due to the higher (inflation-adjusted) production budget of a sequel than of the original (i.e., the parent) movie possibly leading to a decreasing gross margin for sequels within a movie franchise.