Sunday, 1 July 2012

What is the RS/MTC rule? Does it work?

The RS/MTC rule is:
  • When MTC is significantly greater than RS, the actual weekend figure will be bigger than MTC’s prediction.
  • When MTC is significantly less than RS, the opening weekend will be lower than MTC’s prediction.
  • Significantly means at least 20%.
  • When there is little difference between MTC and RS, MTC will make the better prediction.

It’s not really a rule, but it is something you should consider every weekend.

RS and MTC are two predictors of movie box office.  RS is ReelSource, which is a company that sells box office tracking data to whoever wants to buy it.  MTC stands for “Major Theatre Chain”, and is the internal expectations of a certain theater chain that we can not name here.  (MTC is inside information that shouldn’t really be shared with internet discussion boards, so we have to be quiet.)

Their predictions are based on tracking – surveys of moviegoers about which movies coming out soon they have heard of, and which ones they want to see.  There are other companies that provide tracking like OTX and NRG, but we don’t have access to that data.

Weekend predictions from RS and MTC come out on the Sunday and Monday before opening, so they are traders’ first look at whether a movie is going to live up to HSX’s expectations.  Moviestock prices can react quickly to good or bad news

Of the two, MTC is the better predictor.  No one is perfect at predicting weekend box office, but RS has had some famously bad calls over the years.  For 2012 up to the end of June, MTC’s accuracy is about 72%. RS’s accuracy is a mediocre 58%.

Years ago, people who pay attention to these sort of things noticed that where MTC’s weekend prediction is significantly higher than RS’ prediction, the opening weekend gross will be higher still than MTC, and where MTC was significantly lower than RS, the opening weekend gross would be even lower. They started to use this in guiding their own expectations for the weekend and it worked pretty successfully.

The RS/MTC rule is not perfect.  Out of 57 releases in 2012, the RS/MTC rule has predicted the direction of adjust correctly 31 times.  And sometimes it’s disastrously wrong, as it was for SWHTM and AVNGR  Both RS and MTC come out at the beginning of the week, when the picture of the upcoming weekend is still unclear, and it’s not uncommon for them both to be incorrect by a wide margin.

However, the RS/MTC rule still performs better than RS (18 times) and marginally better than MTC (30 times).That it can compete with suggests that it’s something more than random coincidence.  And for identifying movies that will exceed their expectations (or crushingly under-deliver on them), the RS/MTC rule is pretty good.  Successes in 2012 include HGAME, BTSHP, THVOW and SAFEH. 

The RS/MTC rule is right too often for it to be just a coincidence.  It’s not really a rule, but a consideration that you should look at for every weekend opener.

The RS/MTC rule is especially useful for two things:

Even if you don’t follow the rule, other traders do, and will trade accordingly.  Understanding how the rule works and anticipating how it will affect prices is profitable.  Ignoring the rule is not profitable.

Applying the rule encourages you to think more freely about the weekend.  When RS and MTC come out, it’s tempting to think of them as setting the floor and the ceiling for the weekend box office. If RS is 20 and MTC is 40,you think “Well, the movie won’t make less than $20 million, and it won’t open to more than $40 million”.  The rule makes you ask the question “Could the weekend be even bigger?”.

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