Optimal Timing of Sequential Distribution: The Impact of Congestion Externalities and Day-and-Date Strategies

The window between a film’s theatrical and video releases has been steadily declining with some studios now testing day-and-date strategies (i.e., when a film is released across multiple channels at once). We present a model of consumer choice that examines trade-offs between substitutable products (theatrical and video forms), the possibility of purchasing both alternatives, a congestion externality affecting consumption at theaters with heterogeneous consumer groups, and a decay in the quality of the content over time. Our model permits a normative study of the impact of shorter release windows (zero–three months) for which there is a scarcity of relevant data. We characterize the market conditions under which a studio makes video release time and price selections indicative of direct-to-video, day-and-date, and delayed video release tactics. During seasons of peak congestion, we establish that day-and-date strategies are optimal for high-quality films with high content durability (i.e., films whose content tends to lead consumers to purchase both alternatives) whereas prices are set to perfectly segment the consumer market for films with low content durability. We find that lower congestion effects provide studios with incentives to delay release and price the video to induce multiple purchasing behavior for films with higher content durability. However, an increase in congestion effects can, in certain cases, actually lead to higher studio profitability. We also show that, at the lower range of quality, an increase in movie quality should often be accompanied by a later video release time. Surprisingly, however, we observe the opposite result at the upper range of movie quality: an increase in quality can justify an earlier release of the video.