Overpricing of Streaming Licenses? Evidence from a Natural Experiment
30 Pages Posted: 21 Feb 2020 Last revised: 15 Mar 2021
Date Written: December 1, 2020
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
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