Analysis of Royal Theater’s
Practice of Showing
Commercials
Presenters: Dr. Chapman and Dr. Rogoff
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Agenda
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Background: Chapman
The Case for Fraud: Chapman
Survey Goals: Chapman
Survey Results: Chapman
Ethical Issues: Chapman
Strategic Issues: Chapman
Conclusions: Chapman
Recommendations: Chapman
Speaker: Dr. Chapman
Background
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A Patron is dissatisfied
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Sat through 20 minutes of commercials before the
movie started
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Allegation of fraud on Royal Theater’s part
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Threatens to file class action lawsuit.
Speaker: Dr. Chapman
Misrepresentation vs. Fraud
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Fraud distinguished from misrepresentation
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Prima facie case for fraud
Speaker: Dr. Chapman
Prima Facie Case for Fraud
A plaintiff alleging fraud must prove:
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A representation was made
The representation was false
When made, the representation was known to be false
The plaintiff relied on the representation
The plaintiff REASONABLY relied on the representation
The plaintiff suffered damage (economic loss) as a result
Speaker: Dr. Chapman
Justifiable (Reasonable) Reliance
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Reliance must be reasonable
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Starting time specified in:
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Newspaper ad
Marquee
Employee
Movie ticket
General public knowledge
Speaker: Dr. Chapman
Damage – Economic Loss
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Damage resulting from reliance
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Opportunity cost - 20 minutes of lost time
• Nominal
• Punitive Damages
Speaker: Dr. Chapman
The Case for Fraud
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Conclusion:
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First four elements easy to establish
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Difficulty establishing reasonable reliance and
damage
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Tommy HAS A WEAK case for fraud.
Speaker: Dr. Chapman
How Widespread is Discontent with
Commercials?
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Your theater’s reputation and financial viability
depend on your patron’s opinions of this behavior.
Objective – estimate the percentage of all theater
patrons resenting commercials.
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If less than 5% resent the commercials, Royal Theater
should consider going to trial and defending any lawsuit.
If between 5% and 20% resent them, cut showing time of
ads by 50% provided Tommy files lawsuit.
If more than 20% resent the commercials, Royal Theater
should consider settling with Tommy and discontinue ads.
Speaker: Dr. Chapman
Interpretation of Survey Results
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A survey is a sampling of the population.
Out of 100 responses: 12 patrons or 12%
resent the commercials.
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We can be 95% confident percentage of
moviegoers who resent commercials is between
5.6% and 18.4%
Results indicate that Royal Theater should cut
showing time of ads by 50% if Tommy files lawsuit.
Speaker: Dr. Chapman
Ethical Issues
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Decision to state movie starting time as 1 p.m.
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Traditional View - Costs vs. Benefits
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Impact of decision on STAKEHOLDERS: patrons, owners
of theaters, employees
Speaker: Dr. Chapman
Costs
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Potentially agitated customers
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Potential legal liabilities
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Perception of “tricking” a captive audience to
increase revenues
Speaker: Dr. Chapman
Benefits
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Increased revenues
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Public service announcements
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Buffer grace period
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Entertainment
Speaker: Dr. Chapman
Ethics Summary
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Tommy’s case for fraud is weak, but Royal Theater
should be prepared to respond.
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Royal Theater is behaving in an ethical manner, but
opinions of patrons must be considered for longer term
viability.
Speaker: Dr. Chapman
Strategic Thinking
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The Whole Picture: Long term changes in business
environment that could affect Royal’s profitability:
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Consumer attitudes about commercials prior to films
Competing forms of entertainment
Competing theatres
Changing demographics
Changes in government regulations
A Sense of Direction: All of these could impact future
decisions to show commercials.
Speaker: Dr. Chapman
Long Term Recommendations
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Consider changing theater operations to
avoid future lawsuits and attract more
patrons
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Advertise movie starting times more clearly.
Reconsider the number of commercials shown
before each movie.
Treat consumer complaints courteously
Consider innovations to bring in more
customers
Addendum: Confidence Interval
Proportion of patrons resenting ads = 12/100 = .12
95% confidence interval calculation:
.12(1-.12)
lower bound = .12 -1.96
 0.056
100
.12(1-.12)
upper bound = .12 +1.96
 0.1837
100
Addendum: Confidence Interval
Proportion of patrons resenting ads = 60/300 = .2
95% confidence interval calculation:
.2(1-.2)
lower bound = .2 -1.96
 0.1547
100
.2(1-.2)
upper bound = .2 +1.96
 0.2453
100
Speaker: Dr. Chapman
Interpretation of 2nd Survey Results
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Out of 300 responses: 60 patrons or 20%
resent the commercials.
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We can be 95% confident percentage of
moviegoers who resent commercials is between
15.5% and 24.5%
This answer extends across two of the decision
rules: either cut the ads by 50% or discontinue ads
entirely and settle with Tommy.