Distribution Planning to Optimize Profits in the Motion Picture Industry

By. Barbara Somlo, Kumar Rajaram and Reza Ahmadi

We consider the distribution planning problem for the motion picture industry. In this problem, the distributor chooses the location of theaters where the movie will be screened, while the exhibitor chooses the duration of play at the particular theater. We model the distributor’s location selection problem and the exhibitor’s duration selection problem as integerprogramming based optimization models. A critical parameter for these models is the box office revenue forecast for individual theaters. To estimate this parameter, we develop a procedure to calculate the box office revenues at the theater-level as a function of movie attributes and theater characteristics. We tested our methods on realistic box office data and show that it has the potential to improve average distributor profits by 5.5%, or around $2.2 million per movie. We also develop some insights into why our methods outperform existing practice, which are crucial to their successful practical implementation.