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Cass Professor reveals the formula for a hit movie sequel

Monday, 9 November, 2009

Movie sequels such as Twilight: New Moon generate considerably higher cinema revenues than stand-alone imitator or twin movies, which share characteristics with the sequel film such as genre, budget, advertising expenditure and screen exposure, according to new research*.  This research shows that Twilight: New Moon should be expected to return $34m more for the producers in its US run than a comparable vampire, teen romance movie with the same characteristics. This sum results from the higher average success of sequels compared to original movies, but also from the lower risk when investing in a sequel than in an original new movie.
Professor Thorsten Hennig-Thurau, Research Professor at Cass, who conducted the research together with Mark B Houston from the MJ Neely School of Business at Texas Christian University and Torsten Heitjans from the Bauhaus-University of Weimar, estimates New Moon will generate an overall revenue of $267 million in the US, of which $130.6m would flow back to the producing studio, Summit Entertainment. Once this figure is adjusted for risk at a level of 75% - the producers can expect to generate $109m in revenue.
In contrast, an alternative "twin" movie has projected revenues of $198m, leading to producer revenues of $96.9m, which is, when accounting for 75% risk, equal to $65.5m.
The research examined data from all 101 movie sequels released in North American theatres between 1998 and 2006 and a matched subsample of original twin movies from the same period.  In order to measure the monetary value movie sequels, it compared the success predictions for both sequels and matched original movies. The research reveals a model which enables managers to effectively estimate the monetary value of brand extensions, such as movie sequels. It also takes into account the different drivers that turn a sequel into a success (or flop) and let investors calculate the value of a sequel right for any potential movie. For example, the sequel value of New Moon is substantially influenced by the fact that the stars of the original Twilight movie also participate in the sequel.
In addition, the researchers also monetise the feedback effect that sequels exert on their parent movies. They show that sequel-induced DVD sales of the original movie increase by as much as an additional 1.3 million copies.
Professor Hennig-Thurau says: In addition to balance sheet relevance, determining the value of extending a brand beyond an original movie is essential for buying and selling such rights.  In the motion picture industry studios and financial investors compete aggressively to acquire sequel rights, particularly to dormant or interrupted franchises.
Our research assesses the revenues created by individual brand extensions movie sequels which is critical for accurate firm valuations and for negotiations between potential buyers and sellers of brand extension rights.  What our research reveals is that movies like the Twilight sequel New Moon, are highly lucrative and relatively safe bets if key parameters, such as original cast, are maintained.

* Conceptualizing and Measuring the Monetary Value of Brand Extensions, by Thorsten Hennig-Thurau, Mark B Houston; and Torsten Heitjans, to be published in the Journal of Marketing, Special Issue, Marketing Strategy Meets Wall Street’, November 2009.

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