Advertising and Expectations: The Effectiveness of Pre- Release Advertising for Motion Pictures

What is the effect of pre-release advertising on the demand for a product? And does the magnitude of that effect vary according to the quality of the good? We empirically examine these questions in the context of the motion picture industry. We make use of a unique, proprietary data set that covers weekly television advertising expenditures, weekly expectations of the market performance, and quality measures for a sample of nearly 300 movies. The focus on expectations creates a valuable advantage: our measure of expectations, which is derived from a stock market simulation, is an accurate predictor of sales; however, while sales data are only available after the product launch, we can observe the dynamic nature of expectations before the release, and relate those to dynamics in the advertising allocation process. We find that advertising affects the updating of market-wide expectations prior to release, and that this effect is stronger the higher the product quality. The latter suggests that advertising plays an informative—and not simply a persuasive—role.