DP8279 Intertemporal movie distribution: Versioning when customers can buy both versions

Author(s): Joan Calzada, Tommaso Valletti
Publication Date: February 2011
Keyword(s): Distribution channels, Information goods, Movie industry, Product segmentation, Sequential release, Versioning
JEL(s): D21, L12, L82, M31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8279

We study a model of film production, distribution and consumption. The studio can release two goods, a theatrical and a video version, and has to decide on its versioning and sequencing strategy. In contrast with the previous literature, we allow for the possibility that consumers watch both versions. This simple extension leads to novel results. It now becomes optimal to introduce versioning if the goods are not too substitutes for one anoher, even when production costs are zero (pure information goods). We also demonstrate that a 'day-and-date' strategy can be optimal when the studio is integrated with the exhibition and distribution channels. In contrast, a 'video window' is typically the outcome of the negotiation between the studio and independent distributors and exhibitors.