The impact of social distancing on box-office revenue: Evidence from the COVID-19 pandemic

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The impact of social distancing on box-office revenue: Evidence from the COVID-19 pandemic In Kyung Kim1 Received: 26 April 2020 / Accepted: 29 September 2020 / © Springer Science+Business Media, LLC, part of Springer Nature 2020

Abstract In this paper, I study the short-run effect of social distancing due to the COVID-19 outbreak on movie demand and box-office revenue. Using longitudinal data on the Korean movie theater industry, I first estimate a nested logit model of movie demand, and then quantify the revenue loss in the industry. Estimation results reveal that the revenue loss due to the decrease in underlying movie demand is approximately 52 million dollars nationwide during the first five weeks after the outbreak, implying a 34 percent decrease in sales. The results also suggest an additional 42 million dollars were lost as the delay of some major movies lowered the overall quality of available movies in the market. Keywords COVID-19 · Social distancing · Movie theater industry · Nested logit model JEL Classification L1 · L8 · M2

1 Introduction 2019 novel coronavirus disease (COVID-19) has caused an unprecedented health crisis. It was designated a pandemic by the World Health Organization (WHO) on 11 March 2020, and one month later the worldwide number of confirmed cases reached 1.7 million, with 100,000 deaths. The outbreak of COVID-19 also hit the economy severely, not only causing higher unemployment rates and lower income but also causing people to practice social distancing, that is, avoiding close contact with other people, which may have far-ranging implications for various industries. As the

 In Kyung Kim

[email protected] 1

Department of Economics, Nazarbayev University, Astana, 010000, Kazakhstan

I.K. Kim

COVID-19 pandemic is expected to last at least till next year1 and more pandemics are expected to come in the near future (Frutos et al. 2020), voluntary social distancing has been gradually accepted as the new normal around the world. For instance, recent research has shown that voluntary demobilisation is crucial for reducing virus propagation (Maloney and Taskin 2020; Gupta et al. 2020).2 The goal of this paper is to study the short-run impact of social distancing due to the COVID-19 outbreak on the Korean movie theater industry. The first confirmed case of the novel coronavirus infection in Korea on 20 January 2020 caused widespread fear of going to the cinema among Koreans. Although the Korean government urged people to minimize social contact as much as possible, it did not impose any restriction on commercial or religious activities and public gatherings at least until mid March.3 Consequently, any decrease in a retailer’s revenue during the first few weeks after the COVID-19 outbreak would be attributed to consumers’ voluntary social distancing practices rather than government-imposed restrictions. As the plunge in underlying movie demand resulted in a sharp drop in ticket sales, distributors delayed some of their potentially popular movies, which in turn might have led to a further