The Causal Effect of Subscription Video Streaming on DVD Sales: Evidence from a Natural Experiment
Decision Support Systems. Forthcoming.
34 Pages Posted: 21 Feb 2020 Last revised: 21 Mar 2022
Date Written: March 1, 2022
Subscription-based video streaming has recently become the main revenue driver in the home entertainment industry. Whether and how it affects the sales of physical media, which was previously the industry’s largest revenue source for decades, is still not well understood. We answer this question using a natural experiment that occurred on October 1, 2015, when the content owner Epix switched its streaming partner from Netflix to Hulu. This event created an exogenous shock that significantly reduced the streaming availability of Epix’s content because of the difference in the market shares of the two streaming service providers at the time. This occurrence allows us to investigate the causal effect of subscription streaming on physical DVD sales. Our difference-in-differences analysis shows that the decline in the streaming availability of Epix’s content caused an increase of 36.07% in its monthly DVD sales during the 15 months after the event. We also find that the cannibalization between these two channels is much stronger for movies with higher level of content stickiness (e.g., more recent titles, and titles with a general audience (G) or parental guidance (PG) rating or belonging to the children/family genre). Our findings provide important implications for content owners on how to balance physical sales with revenues from streaming licenses.
Keywords: subscription streaming, DVD sales, natural experiment, difference-in-differences, motion picture industry
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