30 Pages Posted: 13 Jan 2017 Last revised: 21 Jan 2017
Date Written: January 11, 2017
Video streaming services recently become a revenue driver of the home entertainment industry. By contrast, revenue from physical media continuously declines. Content owners, such as movie studios, face the important question of whether streaming media cannibalize the sales of physical media and to what extent. We answer these questions by exploiting a natural experiment that occurred on October 1, 2015 when Epix switched its streaming partner from Netflix to Hulu. This event created an exogenous shock that reduced the streaming availability of Epix’s content because of the significant difference in the market shares of the two video streaming sites. This occurrence allowed us to investigate the causal effect of streaming services on physical DVD sales. Our difference-in-difference analyses show that the decline in the streaming availability of Epix’s content causes a 24.7% increase in their DVD sales in the three months after the event. Our results validate the industry’s concern that video streaming services displace physical DVD sales. In addition, we find that cannibalization between the two media is stronger for DVDs released more recently and for movies with better box office performances. This study contributes to the understanding of the competition between streaming media and physical media and provides important managerial implications for content owners in selecting appropriate movies for streaming.
Keywords: Video Streaming, Streaming Media, Physical Media, DVD Sales, Cannibalization, Natural Experiment, Difference-In-Differences, Motion Picture Industry
Suggested Citation: Suggested Citation
Yu, Yinan and Chen, Hailiang and Peng, Chih Hung and Chau, Patrick Y. K., The Causal Effect of Video Streaming on DVD Sales: Evidence from a Natural Experiment (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2897950 or http://dx.doi.org/10.2139/ssrn.2897950