THE PERFECT STORM : Using Snowstorms to Analyze the Effect of Theatrical Attendance on the Demand for Subsequently Released DVDs

Movies are distributed through multiple, carefully segmented, channels. This paper investigates how consumption in a movie’s theatrical channel affects demand in the subsequent DVD retail channel. We exploit exogenous variation in events that affect theatrical attendance in a geographic market to estimate the causal impact of theater attendance on home entertainment demand. Specifically, we use the occurrence of major snowstorms surrounding a movie’s theatrical opening weekend as an exogenous shock to theatrical demand in a local market. Using this instrumental variable in a control function framework, we find evidence that theatrical attendance causally impacts home entertainment demand: lower theatrical attendance in a geographical market that experiences an opening weekend snowstorm leads to lower DVD/Blu-ray sales in the movie’s subsequent home entertainment release window in that geographical market. Specifically, we estimate a 10 percent drop in theatrical attendance causes an approximate 2.7 percent decrease in the volume of DVDs/Blu-ray discs sold in the first eight weeks of the DVD release window. This result provides important managerial guidance in an industry undergoing significant changes in the how movies are marketed across theatrical and home entertainment channels.