Modeling Multichannel Home Video Demand in the U.S. Motion Picture Industry

Abstract

The U.S. motion picture industry has become increasingly reliant on posttheatrical channel profits. Two often-cited drivers of these profits are cross-channel substitution among posttheatrical channels and seasonality in consumer preferences for any movie. The authors use a differentiated products version of the multiplicative competitive interaction model to investigate these two phenomena. They estimate the model using data from 2000 and 2001 on two posttheatrical channels in the U.S. market: purchase and rental home viewing channels. Contrary to expectations based on business press commentary, after controlling for seasonality and movie attributes, the authors find low cross-channel price and availability elasticity for both channels. To measure the extent of cross-channel cannibalization, they simulate a 28-day window of sequential release with either purchase or rental channel going first. They find that windowing reduces the sum of revenues across both channels, because more consumers choose to not purchase or rent when faced with older movies in their favored channel rather than to switch to the alternative channel with newer movies.