Sequels form the cornerstone of a film studio’s long run strategy. Hollywood studios, for example, have scheduled more than a dozen sequels for release in 2008, most of them timed for summer (summer being a time when studios traditionally generate 40 percent of their annual box office). Some of these are first sequels (e.g., Harold & Kumar Escape from Guantanamo Bay and Hellboy II: The Golden Army). Others are more “downstream” sequels (e.g., Indiana Jones and the Kingdom of the Crystal Skull is the fourth installment of the Indiana Jones franchise, The Dark Knight is the sixth installment of the Batman franchise, and Quantum of Solace is a whopping 22nd installment of the James Bond franchise). Bollywood studios, it appears, are also warming to the concept of sequels (Munnabhai MBBS, Koi Mil Gaya, Hera Pheri, Dhoom, and Sarkar launching successful sequels in the last few years).

Compared with original movies, sequels reduce some risks but increase some others, leaving studios to make difficult trade-offs. On the plus side, much as brand managers leverage brand equity by using line and brand extensions to reduce introduction costs and mitigate risk, studio managers can leverage franchise equity by using sequels to reduce introduction costs while amortizing concept risks across multiple films. On the minus side, sequels can bore moviegoers with tired characters and story lines and invite criticism of creative bankruptcy.

Recently, we studied these issues by analyzing how well sequels have performed at the domestic box office. We found that sequels perform better at the box office compared to their contemporaneous non-sequels. This is not surprising given that sequels are like well-recognized brands and therefore pose less risk for moviegoers. However, a week-by-week comparison of the box office numbers shows an interesting trend. The box office revenues of sequels fall faster than the box office revenues of the contemporaneous non-sequels. For example, a sequel (Spider-Man III, production cost $151 million) holds the record box office revenue for the opening weekend. Another sequel (Shrek 2, production cost $72 million) holds the record for the second weekend. However an original film, Spider-Man, holds the record for the third weekend, and Titanic holds the record from the fourth weekend onwards. Although they start with a bang, sequels, it would appear, do not seem quite able to draw repeat audience.

The finding that was more damaging to the hopes of studio managers found was that sequels, on the average, perform worse than the parent film (the film that started the franchise). To intuitively understand this result, imagine that a movie is composed of two parts, a theme constant component (e.g., the characters and the general plot), and a random transitory component (e.g., quality of acting, direction, visuals, etc.). The studio launches a sequel when the first movie does better than expected, but as the studio makes more and more of these sequels, the transitory component averages out over time. All good things, therefore, come to an end and the franchise cannot expect to perform better than average (the franchise’s overall quality) all the time.

Should a studio decide to create a franchise around a successful original film, how quickly should they releasethem? Our research examines if the time interval between sequels matters, when, for example, the sequel is released within six months (such as Matrix Reloaded followed by Matrix Revolution) or six years (such as Mission Impossible 2 followed by Mission Impossible 3). The studio manager faces an interesting dilemma here. Would studios rather have the original film fresh in the consumers’ minds as they release the sequel, or rather wait so that consumers not view the sequel as too much of the same thing. We find that, in sequel-to-sequel comparison, those sequels that quickly follow their parents do better than those with longer time gaps. Indeed, some franchises seem to follow this practice: New Line Studios released the Lord of the Rings trilogy in almost clocklike precision: Fellowship of the Ring in December 2001, The Two Towers in December 2002, and The Return of the King in December 2003. The results point to a simple strategy for studio managers – since the good times will not last forever, strike while the iron is still hot.