Cinema Demand in Germany

Cinema Demand in Germany

Michael Westermann

Department of EconomicsUniversity of Duisburg–Essen

Germany

December 12th, 2003

XXVIII Simposio de Análisis Económico 2003Universidad Pablo de Olavide – Sevilla

XXVIII Simposio de Análisis EconómicoCinema Demand in Germany December 12th, 2003

1. Introduction

2. Historical Development

3. Theoretical Framework

4. Data and Empirical Methodology

5. Results

6. Summary

Guideline


• Subject of this presentation is the German cinema market• Empirical analysis using time series data over a period of 52

years from 1950 to 2002• Literature on cinema market

– Cameron (1986, 1988, 1990, 1999): Analysis of cinema demand and supply, impact of video recorder technology, and rational addiction in cinema demand

– MacMillan and Smith (2001): Explaining Post-War Cinema Attendance in Great Britain

– Fernández-Blanco and Baños-Pino (1997): Cinema Demand in Spain: A Cointegration Analysis

• No existing analysis for Germany

1. Introduction



Source: German Federal Film Board (FFA), Spitzenorganisation der Filmwirtschaft e.V. (SPIO)

Figure 1: Cinema Attendance in Germany

05

1015

020

040

060

080

0

1950 1960 1970 1980 1990 2000

number of tickets sold

per capita attendance

per capita

tickets (in millions)



Source: German Federal Film Board (FFA), Spitzenorganisation der Filmwirtschaft e.V. (SPIO)

Figure 2: Cinema Supply in Germany

500

1000

1500

2000

2500

3000

3000

4000

5000

6000

7000

1950 1960 1970 1980 1990 2000

number of screens

number of seats

seats (in 1000)

screens



Source: Spitzenorganisation der Filmwirtschaft e.V. (SPIO), Federal Statistical Office Germany

Figure 3: Gross Real Revenues50

010

0015

0020

00

1950 1960 1970 1980 1990 2000

million of Euros


Reduced demand and supply since the mid/late 1950s

• Invention and diffusion of TV sets and Video Cassette Recorders in the 60s and the 70s

• Enormous increase of disposable per capita income during the last 50 years leads to an increasing variety of other forms of entertainment

Increase in revenues since the 1990s

• Structural change within movie markets.

2. Historical Development – Reasons


Theoretical Approaches for Cinema Demand

• Conventional Approach

ATTR(t)=f[P(t),Pother(t),Y(t),Z(t)]

• Myopic Behavior

ATTR(t)=f[ATTR(t-1),P(t),Y(t),Z(t)]

• Rational Addiction

ATTR(t)=f[ATTR(t-1),ATTR(t+1),P(t-1),P(t),P(t+1),Y(t),Z(t)]




Empirical Specification of Rational Addiction

• Becker, Grosmann, Murphy (1994)

ATTR(t)=0+1ATTR(t-1)+2ATTR(t+1)+3P(t)+4REUNION

• Chaloupka (1991)

ATTR(t)=0+1P(t)+2P(t-1)+3P(t+1)+4ATTR(t-1)+5ATTR(t+1)+6REUNION

ATTR(t)=0+1P(t)+2P(t+1)+3ATTR(t+1)+4STOCK(t)+5REUNION



Simultaneous Approach for Cinema Demand and Supply

• Cinema Demand

ATTR(t)=f[P(t-1),Pother,Y(t),SCREEN(t-1),TV/VID/PRIVATE]

• Cinema Supply

SCREEN(t)=g[ATTR(t-2),LOAD(t),POP(t),TV/VID/PRIVATE]


Data

• German Federal Film Board [www.ffa.de]• Spitzenorganisation der Filmwirtschaft [www.spio.de]• Federal Statistical Office Germany [www.destatis.de]

Empirical Methodology

• Test of integration• Cointegration analysis between cinema attendance, ticket

prices and real disposable income• Estimation of the different approaches of cinema demand• Simultaneous approach

– 2SLS (identified equations)– SURE (possibly contemporaneous correlation in disturbances)

4. Data and Empirical Methodology


5. Results

Tabular 1: Cinema Demand – Conventional Approach

Note: All variables are in log-form, except dummy variables. Robust covariance matrices are calculated using the Newey-West estimator. The t-ratio for each parameter appears in parentheses. Instrument used is P(t-2). */**/*** indicates significance at the 1%/5%/10% level of confidence.


5. Results

Tabular 2: Cinema Demand – Myopic Behavior1

1 Estimation Method: Instrumental Variable. Instrument used is P(t-2).


5. Results

Tabular 3: Cinema Demand – Rational Addiction

Note: The t-ratio for each parameter appears in parentheses. Robust covariance matrices are calculated using the Newey-West estimator. Instruments used are 4 lagged and 4 leading prices. The variable STOCK was created as the average number of per capita attendance of the past four periods (See Dewenter 2002). */**/*** indicates significance at the 1%/5%/10% level of confidence.


5. Results

Tabular 4: Simultaneous Equation Estimation – Demand

Note: All variables are in log-form, except dummy variables. Robust covariance matrices are calculated using the Newey-West estimator. The t-ratio for each parameter appears in parentheses. */**/*** indicates significance at the 1%/5%/10% level of confidence. REUNION is dropped in all specifications due to missing significance.


5. Results

Tabular 5: Simultaneous Equation Estimation – Supply

Note: All variables are in log-form, except dummy variables. Robust covariance matrices are calculated using the Newey-West estimator. The t-ratio for each parameter appears in parentheses. */**/*** indicates significance at the 1%/5%/10% level of confidence. REUNION is dropped in all specifications due to missing significance.


Summary

• There is a cointegrating relation between attendance, prices, and income

• Strong evidence for habit effects in cinema attendance • No confirmation of the rational addiction hypothesis• But

– Biased estimates when not considerating of habit effects– Rational Addiction in annual data must be interpreted carefully

• Evidence for interdependencies of cinema admission and screens supplied

Outlook

• Habit effects may be captured more effectively when using individual data

• In order to capture seasonal/regional effects we have to make use of data of higher frequency/cross-sectional data

6. Summary and Outlook


Thank you very much for your attention!

www.vwl.uni-essen.de/westermann/

[email protected]

Documents

Cinema Demand in Germany