Overpricing of Streaming Licenses? Evidence from a Natural Experiment

30 Pages Posted: 21 Feb 2020 Last revised: 15 Mar 2021

See all articles by Yinan Yu

Yinan Yu

Desautels Faculty of Management, McGill University

Hailiang Chen

HKU Business School, The University of Hong Kong

Chih-Hung Peng

National Chengchi University (NCCU) - College of Commerce

Patrick Y. K. Chau

The University of Hong Kong

Date Written: December 1, 2020

Abstract

Subscription-based video streaming has become increasingly popular in recent years. An important question for content owners is how to set the price of streaming licenses for their video content. We provide a perspective on this question by examining the opportunity cost involved in streaming, such that streaming license fees should at least make up for the loss of physical sales due to channel cannibalization. In October 2015, the content owner Epix switched its streaming partner from Netflix to Hulu. The large difference between the market shares of Netflix and Hulu led to a significant decrease in the streaming of Epix’s content and an estimated loss in the annual streaming license fees of $110,000–$120,000 per movie title. Our analysis of this natural experiment shows that Epix’s partner change resulted in additional annual physical sales of only $48,155 per movie title. Our findings imply that content owners may overprice their streaming licenses in practice.

Keywords: subscription streaming, DVD sales, natural experiment, difference-in-differences, motion picture industry

Suggested Citation

Yu, Yinan and Chen, Hailiang and Peng, Chih-Hung and Chau, Patrick Y. K., Overpricing of Streaming Licenses? Evidence from a Natural Experiment (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=2897950 or http://dx.doi.org/10.2139/ssrn.2897950

Yinan Yu

Desautels Faculty of Management, McGill University ( email )

526 Bronfman Building
1001 Sherbroke West
Montreal, Quebec
Canada

Hailiang Chen (Contact Author)

HKU Business School, The University of Hong Kong ( email )

K. K. Leung Building
University of Hong Kong
Hong Kong

HOME PAGE: http://www.fbe.hku.hk/people/academic/hailiang-chen

Chih-Hung Peng

National Chengchi University (NCCU) - College of Commerce ( email )

Taiwan

Patrick Y. K. Chau

The University of Hong Kong ( email )

Hong Kong

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