Using Online Reviews as a Proxy of Word-of-Mouth for Motion Picture Revenue Forecasting
Boston University - Department of Management Information Systems
Stephen M. Ross School of Business at the University of Michigan
Xiaoquan (Michael) Zhang
Hong Kong University of Science & Technology (HKUST); Massachusetts Institute of Technology (MIT) - Center for Digital Business
May 10, 2004
Despite the widespread popularity of online opinion forums among consumers, the business value that such systems bring to organizations has, so far, remained an unanswered question. This paper addresses this question by studying the value of online movie ratings in forecasting motion picture revenues. First, we conduct a survey where a nationally representative sample of subjects who do not rate movies online is asked to rate a number of recent movies. Their ratings exhibit high correlation with online ratings for the same movies. We, thus, provide evidence for the claim that online ratings can be considered as a useful proxy for word-of-mouth about movies. Inspired by the Bass model of product diffusion, we then develop a motion picture revenue-forecasting model that incorporates the impact of both publicity and word of mouth on a movie's revenue trajectory. Using our model, we derive notably accurate predictions of a movie's total revenues from statistics of user reviews posted on Yahoo! Movies during the first week of a new movie's release. The results of our work provide encouraging evidence for the value of publicly available online forum information to firms for real-time forecasting and competitive analysis.
Number of Pages in PDF File: 34
Keywords: Online reviews, motion pictures, revenue forecasting, diffusion models
JEL Classification: L82, M31working papers series
Date posted: November 18, 2004
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