The Impact of Early Digital Movie Releases on Box Office Revenue: Evidence from the Korean Market

44 Pages Posted: 15 Jan 2021

See all articles by Yangfan Liang

Yangfan Liang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Gordon Burtch

Boston University - Questrom School of Business

Daegon Cho

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Michael D. Smith

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: December 15, 2020

Abstract

Movie studios’ film distribution practices have undergone radical changes over the past decade with the rise of digital channels including Electronic-Sell-Through (EST) and Video-on-demand (VOD). However, one aspect of the release schedule has been remarkably stable. Most Hollywood movies are still released in theaters 1-3 months before they are made available on digital channels for in-home consumption. Given the rising importance of digital in-home channels, our research analyzes whether earlier digital in-home releases impact theatrical revenue, home entertainment revenue, and the overall revenue received by studios.

We address these questions using data from South Korea where, for a number of years, studios have pursued early digital release of many movies via an offering known as Super Premium (SP) Video on Demand (VOD). SPVOD was introduced in South Korea in 2012 and had been adopted by every major movie studio in Korea by the end of 2018. Traditional (non-SP) digital releases typically occur 90 days after the initial theatrical release, well after the movie has stopped showing in theaters. By contrast, SP releases typically occur just four to five weeks after a theatrical premiere, while the movie is typically still being shown in theaters.

We exploit cross-country differences in movies’ theatrical revenue over the duration of the box office window to investigate the extent to which an early digital release impacts box office revenue. In particular, we employ a difference-in-differences-in-differences (DDD) strategy, contrasting SP versus non-SP movie revenues over time, before versus after the Korean SP release, and in Korea versus the United States (where SP notably does not exist). This identification strategy enables us to empirically isolate the causal effect of the SP release, over and above any confounded, systematic differences in the box office performance of SP-assigned and non-SP-assigned movies.

With respect to theatrical revenue, we find that shortening the digital release window from 3 months to 3-5 weeks after the theatrical release causes a statistically and economically insignificant decline in theatrical revenue, equivalent to an approximate 0.8% drop in total theatrical revenue in Korea during the first eight weeks of the theatrical run. With respect to home entertainment revenue, using digital movie sales data in Korea and industry estimates of studio margins on theatrical and SPVOD revenue, we estimate that SPVOD releases increase the marginal revenue received by studios in the first eight weeks of a movie’s Korean release by approximately 12%. Finally, we find that while the data from torrent piracy suggest that early SPVOD releases lead to earlier global availability of high-quality piracy sources, we see no evidence that these early sources increase piracy demand for movies released in SPVOD windows in either the Korean or US markets.

Keywords: Movies, release windows, piracy, regulation, digital distribution, motion picture industry, natural experiment

Suggested Citation

Liang, Yangfan and Burtch, Gordon and Cho, Daegon and Smith, Michael D., The Impact of Early Digital Movie Releases on Box Office Revenue: Evidence from the Korean Market (December 15, 2020). Boston University Questrom School of Business Research Paper No. 3749476, Available at SSRN: https://ssrn.com/abstract=3749476 or http://dx.doi.org/10.2139/ssrn.3749476

Yangfan Liang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213
United States

Gordon Burtch

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Daegon Cho

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Michael D. Smith (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://www.heinz.cmu.edu/~mds

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