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Revenue‐Sharing in Movie Exhibition and the Arrival of Sound
Author(s) -
Hanssen F. Andrew
Publication year - 2002
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/40.3.380
Subject(s) - revenue , exhibition , renting , economics , sound (geography) , revenue management , incentive , advertising , business , microeconomics , finance , law , political science , art , visual arts , geomorphology , geology
During the silent film era, film companies rented the vast majority of their films to exhibitors for flat per‐day fees. A technology “shock” in the form of the coming of sound led to the widespread replacement of flat fees by revenue sharing. This article seeks to determine why. It finds that sound technology altered the structure of incentives in movie exhibition, significantly reducing the scope for exhibitor shirking, reducing the cost of dividing attendance revenue ex post (necessary for revenue sharing), and, initially at least, raising the difficulty of negotiating lump‐sum rental fees. As a result, percent‐of‐gross pricing became the norm. These findings allow additional light to be shed on the reasons for share contracts in general—most previous studies have been limited to an examination a cross‐section of contracts.