Timing Movie Release on the Internet in the Context of Piracy

Abstract

Offering movies on the Internet is one way of combating the issue of online movie piracy, although the tradeoff is the cannibalization of the more revenue-generating channels. Given this tradeoff and the rather unique “staggered window distribution” mechanism followed by the movie industry, this article addresses the problem of when the studio owner should release the movie online to maximize the entire revenue stream of that movie. A general modeling approach that assumes an exponential demand function and fixed release times in the remaining channels is provided. Detailed illustration using three different movie types demonstrates that a high revenue-generating movie should be released online just prior to its home video release, while the online release of an average or below-average movie should coincide with their withdrawal from the theaters. Sensitivity analyses of the results are also displayed and give the circumstances under which a different online release time is warranted. The analysis suggests, among other things, that if a movie has an excellent opening strength and is able to sustain its revenues quite well, it would be more profitable to release the movie online a few weeks before it is withdrawn from the theaters. Additionally, the standard outcomes generated by the model are found to be sensitive to any online per-unit price change.

Keywords:

• DVD
• intellectual property
• Internet
• mathematical models
• motion picture industry
• movies
• movie releases
• online entertainment
• piracy
• sensitivity analysis

Notes

¹Note that the decay rate is assumed to be the same across the channels of distribution but would be different for different movies.

²While an Erlang distribution would probably best represent pirated consumption with an initial increase in consumption as the pirated copies permeate through the Internet and then decay with age, an exponential distribution is used here to maintain tractability of model.

³The closed form solutions can be provided to the readers upon request.