South-Western College Publishing - Economics  
Movie Studios Don't Want to Advertise, But They Just Can't Help Themselves
Subject Summer Movie Advertising Makes Producers Wish They Didn't Have to Advertise
Topic Oligopoly, Game Theory
Key Words

Revenues, Costs, Advertising

News Story

Ever since Twisters opened on the first weekend of May,1996, movie studios have been pushing each other for advertising space and consumers' dollars during the summer movie onslaught. This summer promises to be no different: Two dozen new movies will be vying for consumers' attention and dollars at the theaters. Here's the problem: Studios would rather not have this headache.

Studios spend an average of $40 million to advertise a movie, and even more for a blockbuster. Films that have been heavily advertised, but which consumers don't like, can mean significant studio losses because of high advertising costs. For example, last summer's release of "The Hulk" brought in $62.1 million during opening weekend, but the following weekend only added $18.8 million to the studio's coffers. Studios are left wishing that they didn't have to put up so much upfront money in advertising costs, when it isn't clear what consumers' tastes will be. Further exacerbating the advertising cost problem is the pressure to open a new movie one week after the other. Studios spend money to appeal to the widest spectrum of moviegoers possible, yet to distinguish their movies from those of other studios. The result? Lots of frustration and lost profit.

(Updated June, 2004)


Why can the summer advertising onslaught by movie houses be characterized as a prisoners' dilemma?.

2. Is there a first-mover advantage or first-mover disadvantage to opening a movie during the summer? Why?
3. How can society as a whole be made better off if movie studios change their tactics in their fight consumers' attention? Why?
Source Merissa Marr and Bruce Orwall. "Summer Film Fight." The Wall Street Journal. 26 April 2004.

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