Optimal Distribution Strategy for Movie Product

Abstract

Motion picture companies are increasingly providing movies online. We develop a model to examine optimal distribution strategies for the movie studio. The studio can release the movie through the traditional channel (i.e. theatre) or online channel and has to decide the distribution strategy. When the studio is vertically integrated with the exhibitor, our results indicate that in the presence of a relatively low cost of using a traditional channel, the dual-channel strategy exists and generates the highest profit. However, when the cost is relatively high, the online channel strategy becomes the best strategy. When the studio is not vertically integrated with the exhibitor, when the studios commission share is low, the studio will adopt the dual-channel strategy if the traditional channel cost is low and the quality difference is large. If not, the studio will adopt the online channel strategy. When the studios commission share is moderate, the studio will adopt the dual-channel strategy if the traditional channel cost is low and the quality difference is large, the studio will adopt the dual-channel strategy if the traditional channel cost is low and the quality difference is moderate, otherwise, the studio will adopt the online channel strategy. When the studios commission share is large, the studio has more motivation to adopt traditional strategy.