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Darlene C. Chisholm and Yu-Hsi Liu

We present an analysis of the economics of the motion-picture industry, beginning with a discussion of traditional film production, theatrical distribution and exhibition, and describing each in the context of recent developments in the academic economics literature. We then analyse the significant impact that digitization and technological innovation have had on the industry, including a fundamental change in the cost of producing and distributing films, the facilitation of movie piracy, the creation of new media distribution channels including video on demand, and the role of critical reviews and social networks in a film’s financial success. We conclude by discussing the promise of ‘big data’ analytics in predicting demand and financial performance of films. A frontier research area in this field is in ‘big data’ analytics and machine learning. These tools hold significant potential for improving revenue forecasting, and modelling consumer-specific film-purchasing habits and preferences, with potentially significant welfare gains.