Financial and Nonfinancial Performance Measures for Managing Revenue Streams of Intellectual Property Products: The Case of Motion Pictures
46 Pages Posted: 6 Oct 2019
Date Written: July 26, 2016
Product life cycle revenue management is a topic that has not been well explored in the management accounting literature. In this paper, we conduct an empirical study on this topic within the context of intellectual property (IP) products. Specifically, we examine the role of financial and nonfinancial performance measures in managing revenues derived from motion pictures, a category of IP products with cost and revenue data publicly available. Executives in the industry have developed a business model using release windows, which determines when a movie is shown in theaters, sold in the home video market and then licensed through other distribution channels. Our study focuses on the first two release windows – the upstream theatrical market, and the downstream home video market. The literature suggests that, for motion pictures, revenues in the upstream market have two opposite effects on the downstream market: the information cascade theory predicts a positive spillover effect, whereas the economics of attention suggests a substitution effect. We split the research into three stages. First, we identify a set of financial and nonfinancial measures in the theatrical market that has positive effects on subsequent revenues in the downstream home video market. Second, we find that the same set of performance measures also predicts the motion picture’s life span in the theatrical market. Third, we document that when the actual life span of a motion picture in the theatrical market deviates from its predicted value, the total return on investment in the motion picture decreases. We suggest that the financial and nonfinancial performance measures identified in the first stage of investigation can be used to improve the quality of managerial decisions regarding IP product life cycles.
Keywords: Intellectual property, Motion pictures, Product life cycle, Nonfinancial performance measures, Revenue drivers, Information cascade
JEL Classification: M11, M21, M41
Suggested Citation: Suggested Citation