Intertemporal Movie Distribution: Versioning When Customers Can Buy Both Versions

Abstract

We study a model of film distribution and consumption. The studio can release two goods, a theatrical version 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 some consumers may watch both versions. This simple extension leads to novel results. It now becomes optimal to introduce versioning if the goods are not too substitute for one another, even when production costs are zero (pure information goods). We also demonstrate that the simultaneous release of the versions (“day-and-date” strategy) can be optimal when the studio is integrated with the exhibition and distribution channels. In contrast, a sequential release (“video window” strategy) is typically the outcome when the studio negotiates with independent distributors and exhibitors.

Strategic attractiveness and release decisions for cultural goods

“…However, the focus is often on the so‐called “release window,” that is, the sequence of release dates of a given movie through different distribution channels (movie theater, on‐demand, DVD, cable TV, and terrestrial TV). These papers argue that decisions about the release window are mainly driven by three effects: piracy (Danaher & Waldfogel, ), word‐of‐mouth (Moul, ), and substitution across versions (Calzada & Valetti, ). The analyses of the optimal release window are either purely empirical or, if theoretical, they adopt a monopoly framework.…”

The Perfect Storm: Using Snowstorms to Analyze the Effect of Theatrical Attendance on the Demand for Subsequently Released DVDs

“…An uninformed-cascading effect means the success of the theatrical channel affects the performance of subsequent channels through aggregate facts, such as released box office numbers. Calzada and Valletti (2012) constructed a game-theoretic model of movie distribution and consumption. An important implication of their model is that the optimal distribution strategy of movie studios depends on the substitutability among channels.…”

Versioning Goods and Joint Purchases with Network Externality

“…Depending on the utility attached to the joint purchase relative to separate purchases, there can be no equilibrium, a unique equilibrium or multiple equilibria. Calzada and Valletti (2012) analyse the introduction of two versions of the same film. They obtain the result that it is optimal to introduce both versions if products are not too close substitutes.…”

“…Furthermore, the existence of joint purchase options increases the monopolist's incentive to release another low-end quality product. Compared with Calzada and Valletti (2012) and Martínez-Sánchez (2016) without network externality, the existence of network externality also increases the monopolist's incentive to version the product. Offering only the higher-quality version is the optimal strategy if the network congestion effect exists and the utility from joint purchase is not large.…”