Gabriela Valedon

Econ 203
December 4,2016

The effect of ratings on Domestic Box

Office
1.Introduction
Being a movie enthusiast I wanted to know what makes a movie great.
Some movies find great success while others see no such luck. Something to
be considered was what would be considered successful. I decided that the
revenue a movie creates in the box office would be a good indicated of
success.
I want to explore the main determinants of what makes a movie
successful in the United States of America in this study. I decided to put my
focus specifically on the relationship between ratings of the movie and the
domestic box office. My prediction regarding the relationship between these
two variables would show higher ratings (audience and critics) associated to
films that have higher domestic box office success.
To define the factors that determine a movies domestic box office
success From the American Films Institute I gathered what they consider to
be 100 of the greatest American films. Then I looked at the data of these
individual films on IMDb and Rotten Tomatoes. With a multiple regression
model, I can see the effect of multiple independent variables on the
dependent variable, box office success, and can determine which of these
independent variables is the most significant of box office success.
By using the eight-step process, I can show evidence that the final model
created satisfies all the assumptions of using an effective multiple regression
analysis. After reviewing the histograms and correlation test, I determined
that the data had no serious outliers nor were they highly correlated to each
other. However, Figure 1 shows the scatter plot did show some data sets
against box office rates shows signs of heteroscedasticity. Because of this, I
had to transform the dependent variable by using the logarithm of the
dependent variable. After transforming the dependent variable, I was able to
continue the regression analysis.
The results of the regression analysis were to my surprise different from
what I expected. I believed that both the critics and audiences ratings

would have a significant positive impact on domestic box office success.

However, it was the opposite. Both critic and audience ratings have a
negative correlation with box office success. While audience ratings did hold
significance critic ratings did not. These were not the only variables I looked
at, I found that the determinants of the box office success are the year these
movies were created, the audience ratings, and the amount of awards the
movie had received.

2. Data
In this study, I used data from American Film Institutes 100 greatest
films. The AFI is a nonprofit educational arts organization that promises to
preserve the heritage of the motions picture while honoring the work and
educating the next generation. They have curated a list of what they
consider to be the top 100 American films. I believe that their list was a
good way to begin the search for data.
After finding the list of the 100 greatest American films I looked at data of
these movies on IMDb and Rotten Tomatoes. These two resources are often
used to help movie viewers decide which movies to watch through rating
systems. Through the data provided on these two websites I decided what I
believed would have an effect on a movies box office success. I defined the
independent variables as the top critics ratings (critic), the audience ratings
(aud), the year it was created (year), the budget of the film (bdgt), and the
amount of awards the film has received (award).
Dummy variables I included were to consider the genre, the rating, and
when the movie was released. The genres considered and given value were
drama, romance (rom), science fiction (scifi), comedy (com), adventure
(adv), and horror (hor). The variables were given the value of 1. All the
ratings were considered. These included parental guidance (PG), parental
guidance until the age of thirteen (PG-13), and restricted (R). If applicable
these values were given the value 1. In my MACS 100 class I learned that
high grossing movies tend to come out in the winter. Taking this into
consideration I included the dummy variable for winter (win) which included
the months of November to January and given the value of 1.
The scatter plots of each independent variable show that there are no outlier
values which can be seen in Figure 2. Finally, Table 1 shows a correlation
table created to show that no two correlation coefficients are equal to 0.8 or
higher. Meaning, there was no sign of serious multicollinearity.

3. Regression Analysis
To see which independent variables help determine the success of
an American film my initial regression model is as follows:

Dombox= + 1critic+ 2aud+ 3year+ 4bdgt+ 5award+ 6dra

ma+ 7rom+ 8scifi+ 9com+ 10adv+ 11hor+ 12PG+ 13PG13+ 1
4

R+ 15win+

I think that that the top critic rating (critic) and the audience rating
(aud) will indicate a movies box office domestic box success. I believe this
to be the case because when choosing to see a movie in theatres people
often turn to sites like Rotten Tomatoes to see if it is worth the trip and
money. I also believed this would be an indicator of box office success was
because often times movie with better reviewed and highly praised will be
advertised more often as well.
Another indicator of how successful a movie will be in the box office
would be the year it was made and the budget it was give (bdgt). I believed
these two factors would have an impact a positive impact on the films
domestic box office results as well. I think it is important to consider the
year a movie was made because of the advancement of technology. Also,
the magnitude of how the industry has grown is huge so that could impact
the production of a movie in a positive way. I think the budget (bdgt) will
have a similar impact to a films domestic box office as the year. I believe
this to be the case because it comes down to resources. The higher the
budget the better the production will be. This thought process led me to
believe that that awards should be considered. Awards are considered
because a film that has found success is recognized for that work. Films that
have been awarded should also find success within the box office.
The genre was considered because depending on the what genre it will
be It could have positive or negative impact. Films like action, sci-fi, comedy
and adventure are seen more often than dramas or horror. Rating is also an
indicator of how successful a movie can be in the box office. This is because
the rating of a movie can restrict certain viewers from being able to see it
because the content was deemed as inappropriate for certain ages. So,
rated r movies will have a negative impact on the domestic box office.
Finally, the time of the year a movie is released will have an impact on box
office success as well. As stated earlier, movies that are released in the
winter often times do better. Winter is a big holiday season where people
often are off from school and work. The availability of people to see films will
help make a positive impact on a films box office success.
The results of the initial multiple regression model can be seen in Table
3. The quality for the model in interpreting the success of films in the box
office can be seen by referring to the R-squared value. This model explains
64.6% of the variations of domestic box office success. Next, the model is

significant because it can be rejected at the 5% level of significance.

However, individually many variables are not significant even at the 10%
level of significance. The variables that are significant are the year the film
premiered, the awards the film received, and the audience ratings.
I examined the residual plots against the predicted values again for
signs of heteroscedasticity to explain why these variables are insignificant.
The residuals against the predicted values show no signs of a fan shape so I
concluded that there was no heteroscedasticity in the model.
I finally ran a reduced regression model having eliminated the
variables that were considered insignificant. As stated previously, these
variables were the year the film premiered, the awards the film received, and
the audience ratings. The result of dropping the insignificant variables lead
to a small decrease in both the R-squared and the Adjusted R-squared. The
minor decrease shows that the extra variables did not help explain the
variation of the dependent variable. The remaining independent variables
are statistically different at the 10% level. The new model is defined as:

Dombox= + 1aud+ 2year+ 3award+

4. Empirical Results
The coefficients in Table 4 show that if an audience rating were to
increase by 10. The film will then lose profit. Although, this is not what I
expected, it does make sense. Opinions vary too much to know to what
degree people will like or dislike the film. Even though the average audience
rating did not result in the way I expected its impact is much larger than the
other two variables. The coefficient of the variable year resulted as I
expected it would. For every year that passes films gain more box office
success. The same goes for awards. Although to a smaller degree, the more
recognition a film receives the more success they will find in the box office as
well. Although small in size, these two variables influence positively impacts
the results of a films success.

5. Summary and Discussion

The study presented explored the determinants of success of films in
the United States of America. I was interested in focusing on the impact of
ratings and review while testing if my predictions were satisfied. I found that
audience ratings or reviews is the most important factor in explaining the
differences of the successes within the film industry. Other factors that
impacted the success of a film where the year in which it was made and the
amount of awards the film has received. As stated before, although the
effects were positive they were small in amount. I think a shortfall of mine
would be the choice of movies selected. I think it would be interesting to see

the impact of the independent variables on films that were most recently
released rather than films that have already found successes. I think this will
provide insight on the other side of the spectrum of how these variables will
deter the films prospects.

Figure 1.
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Figure 2
Residuals
2
1
0
-1

6.5

7.5

8.5

-2

Table 1
Year
Year
Average
Audience Rating

1
0.099215
293

Awards

0.656417
017

Log Domestic
Gross

0.677145
807

Table 2
Regression Statistics

Average
Audience
Rating

1
0.067606
778
0.392216
085

Log
Domesti
c Gross

Awards

1
0.527796
749

9.5

Multiple R
R Square
Adjusted R
Square
Standard
Error
Observation
s

0.755605
564
0.570939
768
0.482927
413
1002503
15.4
95

ANOVA
df
Regressi
on

16

Residual

78

Total

94

SS
1.04313E
+18
7.8391E+
17
1.82704E
+18

Table 2

Table 3
Regression Statistics
Multiple R
0.759723

MS
6.51956E
+16
1.00501E
+16

Significa
F
nce F
6.487041 5.65718E
132
-09

R Square
Adjusted R
Square
Standard
Error
Observation
s

892
0.577180
393
0.563241
285
0.448377
854
95

ANOVA
df
Regress
ion
Residua
l

91

Total

94

Table 3

SS
24.97388
755
18.29488
572
43.26877
327

MS
8.324629
185
0.201042
7

Significa
F
nce F
41.40726 5.74262
908
E-17