Gross Seasonality and Underlying Seasonality: Evidence from the U.S. Motion Picture Industry
Strong seasonality in demand, a short product life cycle, and the absence of any price competition make the release date of first-run movies one of the main strategic decisions taken by movies' distributors. These endogenous timing decisions, in turn, generate a strong seasonal pattern of release dates. Therefore, the observed seasonal pattern of sales is a combination of both seasonality in underlying demand and seasonal variation in the quality of movies released. In analyzing the strategic timing game over the release dates of movies we must take the endogeneity of release dates into account by breaking down the observed seasonal pattern of sales into these two components. The absence of good observable measures of product quality creates a difficulty in separately identifying the two layers of seasonal pattern. I identify these layers by estimating weekly demand for movies, using movie fixed-effects, a long panel of movies' weekly revenues, and reasonable restrictions on their decay pattern. I find that the estimated seasonal effects in underlying demand are much smaller than the observed seasonal pattern of sales. This happens because the biggest movies are released at times when demand is highest, amplifying the underlying seasonality. I suggest that price rigidities in the industry may play a major role in facilitating this amplification effect.