Craig Palsson and Dr. Joseph Price, Department of Economics
For a long time, there has been a significant gap between the standards of movie goers and the standards of Hollywood. Walsh and Gentile (2001) show that though parents usually agree with Hollywood when it says something is inappropriate for children, they often disagree with Hollywood over what is deemed appropriate. In some of our previous research, we find that R- rated movies make about 20% less than PG-13 movies of similar content (Palsson, Price, & Shores, 2011). Also, 69% of parents say they always check the rating before allowing their children to see a movie (Walsh & Gentile, 2002). With this understanding of how families make movie viewing decisions, we explore how religious preferences can affect movie inventory decisions and test if rental companies accurately account for these preferences.
Inventory decisions center around two important considerations: customers want the product to be available when they go to the store, but too many products on the shelf means the supplier wasted money on unsold inventory. Therefore, suppliers must stock inventory in a way that makes each product equally likely to go out of stock, targeting some optimal probability p∗. If product A’s probability of going out of stock exceeds p∗, the supplier should increase inventory; conversely, the supplier should decrease inventory if the probability falls below p∗.
To investigate religious preferences’ effect on movie inventory, we exploit movie preferences among Latter-day Saints (Mormons). For a long time, leaders of the Church of Jesus Christ of Latter-day Saints have counseled against watching R-rated movies (Benson, 1986), though more recently the counsel warns against any media containing vulgar content (The Church of Jesus Christ of Latter-day Saints, 2001). Indeed, in a recent report by the Pew Forum, 79% of Mormons surveyed said that not watching R-rated movies was important or essential to being a good Mormon (Lugo et al, 2012). The R rating, therefore, provides a sharp discontinuity that we can exploit in examining the demand for movies.
The data for this project come from Redbox movie rental kiosks. Redbox has more than 30,000 kiosks, holding about 500 DVDs each, located around the country. Using the Redbox website, we collect data on over 1.3 million kiosk-movies from 3,000 kiosks around the country, including where the kiosk is located and the characteristics of DVDs in each kiosk such as the MPAA rating, if the DVD is new, and if the DVD is out of stock. We then merge this data with data from the Religious Congregations and Membership Study, which provides statistics on religious participation by county. Therefore, for each county we know the LDS participation rates and can observe the relationship between this rate and the demand for R movies.
Our primary estimation strategy is as follows. The unit of analysis is a movie-kiosk observation: i.e., a specific movie at a particular Redbox location. To measure the demand for the movie, we look at an indicator for whether the movie is out of stock. If the movie is out of stock at a Redbox location, then demand for the movie is greater than or equal to the supply. Conversely, if a DVD is not out of stock, then demand is less than supply, and the distributor could potentially make more money (at least not lose money) by removing that DVD and replacing it with one that goes out of stock. Our main variables of interest are an indicator for whether the movie is R-rated, the LDS participation rate in the county, and the interaction between these two variables.
In Figure 1, we present the regression results in a graph, plugging the 1st and 99th percentiles for LDS participation into the regression equation. The bars on the left show that when we look at all DVDs, R movies in counties in the 99th percentile of LDS participation are 27% less likely than the counties in the 1st percentile to be out of stock. One might object and say that there is some other factor about the DVDs besides the R rating that makes them less desirable to LDS counties. Therefore, to control for the omitted factors of the DVDs, we take DVDs that Redbox listed as Top 20 rentals in the nation for that day, since the Top 20 indicator inherently shows that the DVD was desirable that day. The bars on the right of Figure 2 show that when we look at the Top 20 the effect becomes even more pronounced: Top 20 R-rated movies are nearly 40% less likely to be out of stock.
If we assume that Redbox on average chooses inventory to properly target the optimal probability of going out of stock, then we can conclude that it does not accurately account for religious preferences in inventory decisions when we examine LDS counties. By decreasing the number of R-rated DVDs in its kiosks, Redbox could potentially improve revenues.
References
- Benson, Ezra Taft. (1986, May). To the “youth of the noble birthright.” Ensign p 43.
- The Church of Jesus Christ of Latter-day Saints. (2001) Entertainment and the Media, For the Strength of Youth: Fulfilling Our Duty to God
- Lugo, Luis, Alan Cooperman, Gregory Smith, Erin O’Connell, and Sandra Stencel (2012). Mormons in America: Certain in Their Beliefs, Uncertain of Their Place in Society. Washington: The Pew Forum on Religion and Public Life
- Palsson, Craig, Joe Price, and Jared Shore. (2011) Ratings and Revenues: Evidence from Movie Ratings, revise and resubmit Contemporary Economic Policy
- Walsh, D. A. & Gentile, D. A. (2001). A validity test of movie, television, and video game ratings. Pediatrics, 107, 1302-1308
- Gentile, D. A., & Walsh, D. A. (2002). A normative study of family media habits. Journal of Applied Developmental Psychology, 23, 157-178.