|Faculty Speaker||Professor Hyoduk Shin [University of California, San Diego]|
|Title||Optimal Timing of Sequential Distribution: The Impact ofCongestion Externalities and Day-and-Date Strategies|
|Date & Time||Friday, May 30, 2014 at 10:30am|
|Place||UCLA Anderson School of Management
The window between a film's theatrical and video releases has been steadily declining with somestudios now testing day-and-date strategies (i.e., when a film is released across multiple channelsat once). We present a model of consumer choice that examines trade-offs between substitutableproducts (theatrical and video forms), the possibility of purchasing both alternatives, and acongestion externality affecting consumption at theaters; this permits a normative study ofthe impact of smaller release windows (0-3 months) for which there is a scarcity of relevantdata. We characterize the market conditions under which a studio should pursue direct-tovideo,day-and-date, and delayed video release strategies. During seasons of peak congestion,we establish that day-and-date strategies are optimal for films with high content durability (i.e.,films whose content tends to lead consumers to purchase both alternatives) whereas prices areset to perfectly segment the consumer market for films with low content durability. We find thatlower congestion effects provide studios with incentives to delay release and price the video toinduce multiple purchasing behavior. However, an increase in congestion effects can actually leadto higher studio profitability. We also illustrate that, at the lower range of quality, an increasein movie quality should be accompanied by a later video release time. Surprisingly, however, weobserve the opposite result at the upper range of movie quality: an increase in quality can justifyan earlier release of the video. Finally, we explore the effect of piracy on studio strategy, findinga day-and-date strategy works better for plain vanilla video offerings such as video-on-demandand reduced-feature DVDs while a delayed release strategy can increase profits for feature-richBlu-ray offerings.