Analysis: Commercials at the Royal Theater

1
Analysis Commercials at the Royal Theater

• Ken Chapman, Ph. D.

2
Agenda

• Legal Issues
• Background
• The Case for Fraud
• Measuring Public Opinion
• Survey Goals
• Survey Results
• Strategy
• Public Perceptions
• Strategic Issues
• Conclusions Recommendations

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Background
Presenter K. Chapman

• Dissatisfied Royal Theater Patron
• Theater said movie began at 1pm
• The movie actually started at 120 pm
• 20 minutes of commercials
• Allegation of fraud on Royal Theaters part
• Threatens to file class action lawsuit.

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The Case for Fraud
Presenter K. Chapman

• Misrepresentation vs. Fraud
• Prima Facie Case for Fraud
• 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

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Simple Issues
Presenter K. Chapman

• Assertion of Fact
• The ticket did mention a 100 start time
• Knowledge of Falsity
• The theater knew the movie began at 120
• Intent to deceive
• The theater made money from the ads
• Actual Reliance
• Tommy made sure he was seated by 1 pm

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Reliance
Presenter K. Chapman

• Justifiable (Reasonable) Reliance
• Starting time specified in
• Newspaper ad
• Marquee
• Employee
• Movie ticket
• General public knowledge

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Damage Economic Loss
Presenter K. Chapman

• Damage resulting from reliance
• 20 minutes of lost time
• Nominal
• Punitive Damages unlikely

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The Case for Fraud
Presenter K. Chapman

• Conclusion
• First four elements easy to establish
• Difficulty establishing reasonable reliance and
  damage
• Tommy HAS A WEAK case for fraud.
• Low Probability of Class Action Suit
• Reasonable reliance harder to win for most
• Low payoff for group plaintiffs

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Class Action Law Suit
Presenter K. Chapman

• To participate, patrons must show
• Reasonable Reliance
• Economic Damages
• Conclusion
• Patrons wont sue

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Measuring Public Discontent
Presenter K. Chapman

• Your reputation depends on your patrons opinions
  of this behavior.
• Objective estimate the percentage of all
  theater patrons resenting commercials.
• If less than 10 resent the commercials go to
  trial and defend any lawsuit.
• If 10 or more resent the commercials settle
  with Tommy and discontinue ads.

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Survey 1 Results
Presenter K. Chapman

• 100 responses 6 resent commercials.
• 95 confident that between 1.35 and 10.65 of
  moviegoers resent commercials.
• We cant rule out the possibility that 10 or
  more of the population resents commercials.
• A bigger sample may be desirable

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Survey 2 Results
Presenter K. Chapman

• 300 responses 6 resent commercials
• 95 confident The percentage of moviegoers who
  resent commercials is between 3.31 and 8.69
• Strong evidence that less than 10 resent
  commercials
• Consortiums rule Take Tommy to Court
• Our Recommendation Apologize to Tommy

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Public Perceptions
Presenter K. Chapman

• Will you look sleazy?
• Misrepresenting the movie start time to make more
  money on ad sales looks bad.
• Be careful if you cut back the advertising
• People are getting seated during the ads
• People buy refreshments
• Some people use the advertisers services

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Strategic Issues The Whole Picture
Presenter K. Chapman

• Which customers resent commercials?
• Would they pay more for special shows?
• Can ads be made more entertaining?
• Can upset customers be treated differently?
• A free ticket to a future show might have
  prevented a lawsuit

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Recommendations
Presenter K. Chapman

• Apologize, but dont be afraid of going to court
• Improve the accuracy of advertisements
• Premium shows with fewer ads
• Dont let customers leave angry
• Training
• Refund money if customers leave early

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Questions?
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Appendix Slides

• 16-21 Sampling Error
• 22-26 Confidence Interval Calculations

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Hypothesis Testing Errors

• Testing the population proportion
• H0 Settle p gt 0.1
• H1 Go to trial p lt 0.1

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Risks of Taking Samples

• Type I Error Going to trial when the consortium
  should try to settle the case.
• Type II Error Avoiding going to trial by
  negotiating a settlement when the consortium
  should actually fight the case in court.
• Larger survey sample sizes reduce the probability
  of both types of error.

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Estimating Confidence Interval for Population
Proportion

• point estimate margin of error

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Factors Effecting Sampling Error

• the sample size
• the level of confidence
• the estimated percentage of patrons who resent
  the ads.

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Sample Size and Confidence Level

• The larger the sampling size, the smaller the
  error.
• The greater the level of confidence, the larger
  the sampling error that must be tolerated.
• With a fixed sample size, an increase in the
  level of confidence will increase the width of
  the interval. The wider the interval, the less
  precise is our estimate.

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Sample Proportion

• The further away the estimated percentage is from
  50, the smaller the sampling error.
• The sampling error is maximized when the
  estimated percentage who resent the ads is 50.

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The 95 Confidence Interval
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Sample Proportion and 95 z
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Confidence Interval Calculation
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Confidence Interval Calculation

• Interval is 1.35 - 10.65.
• With 95 confidence, the proportion of all movie
  patrons who resent commercials is between 1.35
  and 10.65.