Modeling of Cooperative Revenue Imputation in Film Industry: A Game-Theoretical Approach

Abstract

Movie business is an extremely complex business, which involves a lot of people, interactions among various legal entities, is characterized by the high level of uncertainty about the outcomes of each project, and thus leaves a lot of loopholes for unfair behavior and possibilities for costs and revenues manipulations. By analyzing the process of film production, distribution and exhibition, we can trace a very important problem existent in the industry — the issue of optimal incentives for the participants of movie value chain. This issue can actually be broken down into two problems, which constitute two parts of the incentives alignment problem in the movie industry. The purpose of the research is to investigate the motives of cooperation in the film production and to improve the methodology of income imputation on the basis of appropriate game-theoretical model construction. The problem of cooperation in the movie value chain has been studied, and the methodology of box-office revenue allocation has been improved with the adaptation to the film industry environment. Known to the literature methods of optimal revenue imputation have been investigated, which are Nash bargaining solution, the core (set of nondominant imputations), Shapley value and Shapley index. Due to drawbacks of these methods in application to film industry, because of high specificity of the relationship among the parties involved, new approaches to the shares of movie revenue allocation computation have been introduced. As a result a systematized methodology of the revenue imputations generated by the product of cooperation (movie) has been elaborated and can be used as a decision-making support tool in negotiations about shares of the revenue imputation among the participants of the cooperation of the film creation. The applicability of the methodology has been tested on the cases from Hollywood practice.