Profitably Bundling Information Goods: Evidence from the Evolving Video Library of Netflix

Abstract

Using a unique dataset of the Netflix video on demand library, this article measures the characteristics of information goods important when employing a strategic bundling strategy. By matching the titles entering and exiting the library to their relevant properties, I use a characteristic approach to determine when the value to Netflix of adding a title exceeds the licensing fee and when the displacement effect associated with presence in the library dictates that the title will not be offered. Results show that ]that titles of median commercial success are bundled more frequently than the most and least successful, and the number of similar films exiting the library is important to how likely a film is to enter, indicating strategic bundling. These results are generalizable to the streaming video industry and any information goods with rapidly diminishing marginal utility.

Keywords: Information goods, strategic bundling, digital distribution, Netflix

JEL Classification: L11, L82, O3