Each article in this this issue provides new insight into demand for media goods. The first revisits network effects in two-sided markets by focusing on the quality and exclusivity of video games. The study finds gamers tend to play just a few widely popular games. Popular games therefore have an outsize influence on the success of video game consoles. The second article examines effects from the introduction of a cloud-based service that give consumers continuous access to movies. The study found sales of movies with cloud-based access increased, and that rentals of movies decreased among some consumers. The third study compares managers’ sales forecasts for movies, books and music with forecasts based on models. The study finds that managers’ forecasts are only superior for a few best-selling media products. Model-based forecasts are better for products with medium and low sales
The first article is “Platform Competition in the Video Game Console Industry: Impacts of Software Quality and Exclusivity on Market Share” by Haeyop Song, Jaemin Jung, and Daegon Cho. This study extends the literature on network effects in two-sided markets by focusing on the characteristics of six video game consoles and their associated software. The study examines complimentary products by focusing on how quality and exclusivity influence software and hardware competition in video game markets.
The study uses reviews of video game software to measure quality. A panel data set with information about 10 years of sales was assembled for the study. The sample included 2,392 software and console combinations, and 1,396 unique video games.
The findings did not support the conventional wisdom that most video game software plays “a critical role in hardware sales, and vice versa”. Instead, a few high-quality games dominate sales because gamers buy an average of just eight games during the life of a game console. A high-quality game that is exclusive to one console can significantly influence the early success of a gaming platform. However, software that works on multiple-platforms is valuable to mature gaming consoles because consumers are interested in “relatively small numbers of attractive products”. The authors discuss the implications of their findings for software and hardware developers.
“The Introduction of Infinite Durability to an Information Good and the Decision to Buy or Rent: Evidence from the Film Industry” by Gabriel Pablo Axarlian is based on a natural experiment in the film industry. The experiment occurred when five major film studios introduced a cloud-based system to give consumers continuous access to digital copies of films. A sixth studio, Disney, did not offer customers access to the cloud-based system from 2011 to 2014. Disney’s lack of participation “provided the perfect conditions for a natural experiment to analyze exactly how infinite durability affects consumption patterns of information goods, using films as a proxy”.
Consumers purchased access to the cloud-based system when they bought a DVD or Blu-ray copy of a film. The panel-data set examined the sales of 286 films over 73 weeks. Consumer who purchased DVDs were considered low-value consumers, and those who purchased Blu-ray were high-value consumers.
The introduction of the cloud-based system increased movie sales to all consumers. However, high-value consumers were more sensitive to infinitely durable movie access. The likelihood of renting films on Blu-ray decreased, which was not the case for films on DVDs.
The study concludes “the inclusion of infinite durability to a film creates enough value for consumers to make goods without this characteristic less appealing by comparison”. There is strong evidence that infinite durability makes consumers more likely to buy than rent an information good.
“Sales Forecasting of New Entertainment Media Products: Comparing Diffusion Based and Simple Success Factor Based Sales Forecasting Models to Management Predictions” is by Christina Hofmann-Stölting, Michel Clement, Steven Wu, and Sönke Albers. This study compares sales forecasts by media managers with model-based forecasts to develop better methods for predicting demand for media products. Managers must make investment decisions about how to market media products when they are still uncertain about demand for the product. “The ability to forecast demand (sales) for upcoming new releases is therefore of high importance for financial planning and portfolio management”.
This study uses data from German book, music and movie sales. Managers were interviewed about their sales forecasts for various products. The study compared management forecasts with predictions from diffusion models and from OLS. Data in the study included sales for 697 movies, 833 music albums, and 490 hardcover books.
The study found both diffusion and OLS models “outperform management forecasts in most success categories”. Management forecasts were more accurate only for the small number of movies, books and music that are best sellers. The models provided the best forecasts for the majority of products with medium or low sales. The complex diffusion models added only a small amount of value compared to simple OLS forecasts. The authors discuss the implications of their findings for understanding marketing, differentiation, and demand for media products.
We hope you enjoy these articles as much as we have.