Netflix is really bad for DVD sales, according to new research

Reed Hastings at DealBookYouTube ScreengrabNetflix CEO Reed Hastings

Having movies available on Netflix is really bad for DVD sales, according to new academic research.

In 2016, subscription streaming video from the likes of Netflix overtook disc sales for the first time, at $6.2 billion to $5.4 billion. Netflix pays billions to licence TV shows and movies, so the rise of subscription video isn’t inherently a bad thing for the movie industry.

But a new academic study, pointed to by TorrentFreak, suggests that having a movie on Netflix can depress DVD sales in a major way.

To try and figure out the effect Netflix has on DVD sales, the researchers looked at a “natural experiment” that took place when Epix, a movie and TV distributor, moved its streaming catalogue from Netflix to Hulu, which has a much smaller subscriber base, in 2015.

So what happened?

“Our difference-in-difference analyses show that the decline in the streaming availability of Epix’s content leads to a 24.7% increase in their DVD sales in the three months after the event,” the paper said.

As soon as its movies got yanked off Netflix, Epix saw a big boost in DVD sales.

The researchers found that the cannibalization effect was “stronger for DVDs released more recently and for movies with better box office performances.” The takeaway here is that licensing a large back catalogue of movies to Netflix might not have the same negative effect on sales as giving your marquee new releases up.

These findings might help explain why Netflix’s roster of movies has languished in the past few years.

Research in 2016 showed that Netflix’s selection of IMDb’s 200 highest-rated movies had gone down in the previous two years by a substantial amount, as had its total catalogue of movies. Netflix might be finding that the fees demanded by savvy movie execs, to offset any dip in DVD sales, aren’t worth it, especially when Netflix’s content boss Ted Sarandos says people spend about 1/3 of their time watching movies no matter how good the catalogue is.

Another point to note for the DVD market is that the growth of “electronic-sell-through,” which is the digital equivalent to buying a DVD, seems to have stalled. ITunes, and other EST platforms, grew 5.4% in 2016, down from 18% in 2015, and 30% in 2014, according to Digital Entertainment Group (via Variety).

This suggests that the industry shouldn’t look to that revenue to step into any breach in the DVD market, and that the idea of “owning” a movie might be facing its own natural pressure as people get more comfortable with the subscription model.

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