Advertising and Word-of-Mouth in Motion Picture Industry

Motion picture industry is characterized by extensive advertising and word-of-mouth among (potential) consumers. We develop a simple computational model of consumer behavior to study the interaction between these two forces. WOM that propagates through fixed social network is affected by the mismatch between consumer’s expectations and realized quality of the film. As a result, intensive advertising is running a risk of generating overly negative WOM, while moderate levels of advertising generate positive WOM that is complementary to advertising efforts. The most striking finding is that marginal returns to advertising can become negative high levels of advertising. This effectively means that for intensive advertising campaigns an additional commercial might result in the reduction of the audience.