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How Netflix eats the movie studios' lunch

January 2, 2017

Ebook sales don’t affect the hardcover sales of most books and, further, delaying ebook release reduces ebook sales as much as 40%, Michael D. Smith and Rahul Telang show us in their new book Streaming, Sharing, and Stealing.  Ebooks aren’t substitutes for physical books.  Those who want to buy one won’t accept the other instead.  Their conclusions come from investigating the impact of Amazon removing the “buy” button on Hachette’s ebooks for Kindle during a dispute with the publisher. 

 

The Indian movie industry went into revenue shock inflicted by the tidal wave of pirated DVDs in the 1980’s.  Both the quantity and quality (according to IMDb reviews) dropped by half from 1985 -2000, found Telang and Joel Waldfogel.  So, after Smith and Telang’s review of the literature, we now know that piracy does hurt both revenues and creative innovation.

 

In other words, the old tricks that creative industries used to maximize profits have evaporated. Charging differently for movie theaters, DVDs, and then streaming, doesn’t make the most money any more.  Just fighting piracy is a losing battle, unless you also make it easy for buyers to get a legal digital copy.

 

To survive, say Smith and Telang, entertainment businesses from music to books to publishing need to replace their old price discrimination strategies - showing movies in theaters first, and releasing DVD’s later - with new one – tailoring series to viewers personal tastes like Netflix with House of Cards.  Netflix knew which of their customers had rented the old British version of House of Cards and how to market it.  They made a separate trailer for Kevin Spacey fans, a second for customers who like strong women characters, and a third for those who were fans of the director David Fincher.

 

Streaming, sharing and stealing is a great overview of the latest research on the impact of digitalization on the entertainment industry, based on analysis of real industry data, presented in a readable, clear prose. 

 

See the original research at

Streaming, sharing stealing: big data and the future of entertainment.  Michael D. Smith and Rahul Telang.  MIT: Cambridge, 2016.

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