Working Paper: CEPR ID: DP8279
Authors: Joan Calzada; Tommaso Valletti
Abstract: We study a model of film production, distribution and consumption. The studio can release two goods, a theatrical and a video version, and has to decide on its versioning and sequencing strategy. In contrast with the previous literature, we allow for the possibility that consumers watch both versions. This simple extension leads to novel results. It now becomes optimal to introduce versioning if the goods are not too substitutes for one anoher, even when production costs are zero (pure information goods). We also demonstrate that a 'day-and-date' strategy can be optimal when the studio is integrated with the exhibition and distribution channels. In contrast, a 'video window' is typically the outcome of the negotiation between the studio and independent distributors and exhibitors.
Keywords: distribution channels; information goods; movie industry; product segmentation; sequential release; versioning
JEL Codes: D21; L12; L82; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Degree of substitutability between versions (C59) | Consumer purchasing behavior (D19) |
| Versions are not perfect substitutes (L15) | Versioning becomes optimal (C61) |
| High substitutability (D41) | Cannibalizes market for higher-quality version (L15) |
| Lower consumer discount factor (D15) | Prefer to release both versions simultaneously (C59) |
| Inability to commit to future pricing (D49) | Longer video window (Y60) |
| Delay in introduction of lower-quality version (L15) | Differentiation of products (L15) |