The impact of online reviews on exhibitor behaviour: evidence from movie industry

This paper explores the effects of online reviews in the empirical context of movie industry. Quality uncertainty and hedonic consumption render movies a particularly interesting category to study quality signals and social influence. Online consumer chatters about a movie are readily available in popular movie-related websites. These data, coupled with movie-specific sales and advertising information accessible online or from commercial sources, provide unique opportunity to explore the implication of word-of-mouth (WOM) for consumer behaviour and business strategy. We thus examine how online reviews impact on business strategies, in this case, exhibitor behaviour, through an empirical analysis of movie industry. First, online reviews are grouped into user reviews and critic reviews. We then use them respectively in two simultaneous equation systems, which regard online reviews, box office revenue and the number of screens as endogenous variables. Next, a three-stage least-square procedure is employed to estimate these two systems using a sample of 141 movies in the U.S. market. The results indicate that the online user reviews’ rating is positively associated with the number of screens, confirming that the online review is influential on exhibitor behaviour. The number of online reviews indirectly influences the number of screens through the box office revenue.