Revenue-Sharing in Movie Exhibition and the Arrival of Sound

F. Andrew ()
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F. Andrew: Department of Agricultural Economics and Economics, Montana State University, Bozeman, MT 59717.
Authors registered in the RePEc Author Service: F. Andrew Hanssen ()

Economic Inquiry, 2002, vol. 40, issue 3, 380-402

Abstract: 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. Copyright 2002, Oxford University Press.

Date: 2002
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