The Varying Returns to Diversification Along the Value Chain.

This study investigates how the benefits of diversification differ across value chain activities, specifically product development and distribution, within the motion picture industry. Using data from 779 movies linked to 57 production studios and 30 distributors, the research finds that greater focus (less diversification) in film production positively impacts profitability, while diversification levels in distribution show no significant effect on profitability. These results align with the resource-based view (RBV) theory, which suggests that product development relies on less fungible, unique resources (e.g., talent and technical expertise), making focus more valuable, whereas distribution involves more fungible resources, allowing for greater diversification without profitability loss. The study also reveals significant heterogeneity among production studios in how focus affects performance, emphasizing the need to consider value chain activities individually when making diversification decisions. These findings hold for both vertically integrated firms and independent organizations, offering implications for strategic management and vertical integration in industries with decomposable value chains.