By Michael Smith, Peter Boatwright and Patrick Choi
Everyone knows that movies that are popular in theaters are also popular at home. But no one knows whether increased theater viewing actually causes increased home viewing. Scientifically speaking, this is the difference between correlation and causation. In this instance, it’s difficult to test causation because a movie’s intrinsic appeal affects both measures. To do so accurately, we need an event that changes the number of people who see the movie in theaters, but does so in a way that is completely unrelated to specific movie characteristics.
In our recent paper, we show how snowstorms can provide just such a “perfect” measurement event. When a snowstorm occurs on a movie’s opening weekend in a particular city, fewer people go to see that movie in that city for reasons completely unrelated to the movie itself. In other words, for the purposes of this experiment, snowstorms are essentially random events: Whether it snows in Buffalo versus Minneapolis on the second weekend of November has nothing to do with the characteristics of the movies opening that weekend.
Using this information and examining box office and home video sales data, our results allow us to ask “when fewer people attend a movie’s opening weekend in a particular city, does that change the number of DVD and Blu-ray sales for that movie in that city when DVDs and Blu-ray Disks are released a few months later?”
Our results show that theatrical demand actually causes increases in DVD/Blu-ray demand. Specifically, a 10 percent increase (decline) in theatrical attendance causes an 8 percent increase (decline) in DVD/Blu-ray demand. This result suggests that there is significant differentiation between these two products, meaning that theatrical sales complement DVD/Blu-ray demand, which is an important thing to consider in this rapidly evolving media marketplace.