Movie Advertising And The Stock Market Valuation Of Studios: A Case of Great Expectations?

Product innovation is the key revenue driver in the motion picture industry. Since major studios typically launch fewer than twenty movies per year, the financial performance of a single release can have a major effect on the studio's profitability. This paper studies how single movie releases impact the investor valuation of the studio. The changes were analyzed in post-launch stock price and predict the direction and magnitude of excess returns, based on the revenue expectation built up for a movie release. That expectation is set, in part, by media support, i.e. highly advertised movies are expected to draw larger audiences than others. By using an event study methodology, the impacts were isolated of a movie launch on studio stock price, and track the determinants of that change.