Revenue Sharing Contracts for Value Chain Coordination: The Case of Motion Picture Industry in the USA

Abstract

Value chain includes many participants whose main objectives are to maximize their own profit. However, the maximum of the whole value chain is not always achieved. Moreover, members may distort true earnings in order to increase their revenue part. There appears a need in contract revision to diminish the risk of opportunistic behavior. The paper aims to improve and test the incentive income imputation procedure based on specific revenue-sharing contracts which coordinate film value chain. The coordination concept of supply chain has been modified and applied to the motion picture industry. The suggested approach introduces transfer prices to the members of the chain and allows the transformation of counteragents’ participation contracts to sharing contracts. This innovation proves chain members’ motivation to maximize the total gain of the chain since the transfer price is constructed on the basis of the costs of the members and their shares in the final allocation of revenues. The developed approach can support decision-making in efficiency improvement at the stage of film value chain establishment. It gives the mathematically justified solutions which can serve as a starting point during contract negotiations between members of the film value chain. The approach has been tested on the case studies from the USA motion picture industry and the applicability of coordinating contracts is demonstrated.