Uncovering the Effects of Digital Movie Format Availability on Physical Movie Sales

Abstract

The impact of multi-channel technology-enabled digital goods on the sales of the physical counterpart faces uncertainty in the electronic commerce domain. We address the issue empirically by identifying the effect of the availability of digitally-delivered movies on physical DVD movie sales. Unique to our study is our interest in not only purchased digital goods but rented digital goods as well. We construct a robust panel dataset consisting of movie data collected from Amazon and Barnes and Noble on the same day for every movie observed. A key feature of our dataset is the multi-channel availability of digital purchase and digital rental movie formats at Amazon. Our results show that the availability of the digital purchase format does not have a significant effect on DVD sales. Surprisingly, the availability of the digital rental format is associated with a significant reduction in DVD sales. The results imply that a product substitution effect may be occurring between the digital rental and the physical DVD purchase of the same movie. We also conduct robustness tests to show under which conditions the effect is greatest. Our results also provide practical implications to inform strategies regarding movie format release windows.

Keywords: digital goods, cannibalization, multi-channel, DVD movies