Digitization and Flexibility: Evidence from the South Korean Movie Market

Abstract

We examine how the introduction of digital cinema technologies in the South Korean movie industry created flexibility for theaters in movie showings. Using detailed data on theaters' digital adoption and daily assortment decisions between 2006-16, we show that on average digitization is associated with both increased variety of movies and increased showings of the most popular movies. But, delivering these benefits to consumers took at least four years to materialize and varied with the number of screens in a theater. During the early years of theater digitization, product variety declined in larger theaters. Yet when digital movies became widely available, product variety increased. Once digital movies were broadly available, we show that theaters created increased product variety during less popular time slots and offered more showings of consumers' favorite movies during peak demand on weekend evenings. Overall, we show that digitization of movies creates flexibility in scheduling, which allows theaters to better respond to consumer demand.

Keywords: Digitization, Flexibility, Intermediation, Product Variety, Concentration, Movies

JEL Classification: D22, L11, L82, O33