Optimal Timing of Sequential Distribution: The Impact of Congestion Externalities and Day-and-Date Strategies

44 Pages Posted: 14 Nov 2010 Last revised: 7 Sep 2014

Terrence August

University of California, San Diego (UCSD) - Rady School of Management

Duy Dao

University of California, San Diego (UCSD) - Rady School of Management

Hyoduk Shin

University of California, San Diego (UCSD) - Rady School of Management

Date Written: March 7, 2013

Abstract

The window between a film's theatrical and video releases has been steadily declining with some studios now testing day-and-date strategies (i.e., when a film is released across multiple channels at once). We present a model of consumer choice that examines trade-offs between substitutable products (theatrical and video forms), the possibility of purchasing both alternatives, and a congestion externality affecting consumption at theaters; this permits a normative study of the impact of smaller release windows (0-3 months) for which there is a scarcity of relevant data. We characterize the market conditions under which a studio should pursue direct-to-video, day-and-date, and delayed video release strategies. During seasons of peak congestion, we establish that day-and-date strategies are optimal for films with high content durability (i.e., films whose content tends to lead consumers to purchase both alternatives) whereas prices are set to perfectly segment the consumer market for films with low content durability. We find that lower congestion effects provide studios with incentives to delay release and price the video to induce multiple purchasing behavior. However, an increase in congestion effects can actually lead to higher studio profitability. We also illustrate that, at the lower range of quality, an increase in movie quality should be accompanied by a later video release time. Surprisingly, however, we observe the opposite result at the upper range of movie quality: an increase in quality can justify an earlier release of the video. Finally, we explore the effect of piracy on studio strategy, finding a day-and-date strategy works better for plain vanilla video offerings such as video-on-demand and reduced-feature DVDs while a delayed release strategy can increase profits for feature-rich Blu-ray offerings.

Suggested Citation

August, Terrence and Dao, Duy and Shin, Hyoduk, Optimal Timing of Sequential Distribution: The Impact of Congestion Externalities and Day-and-Date Strategies (March 7, 2013). Available at SSRN: https://ssrn.com/abstract=1708226 or http://dx.doi.org/10.2139/ssrn.1708226

Terrence August

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

HOME PAGE: http://management.ucsd.edu/faculty/directory/august/

Duy Dao

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Hyoduk Shin (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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