Browsing the blog archivesfor the day Wednesday, April 1st, 2009.

Rent or Buy?

Economics, Movies

Last year I presented a paper co-authored with my colleague David Lang at CSU-Sacramento entitled “Does Sex Sell?” It looks at the determinants of box office revenues, using a pretty large sample of movies released between 1993 and 2004. In it, we also look at foreign box office and discuss the importance of DVD sales, but at the time we did not have the data on the DVDs. Now we have it, thanks to the-numbers.com, and we are writing another paper to include this. In the process, I came across what I think is some interesting information, and I thought I’d share.

The table below shows the top 20 DVDs purchased for 2008 as well as the top 20 DVDs rented in 2008. Movies in bold on the rental list also appear on the purchases list. The value in the “Rent vs. Buy” column for those movies shows the difference in rank between the rental list and the purchase list.

rentvsbuy

I think it’s interesting to note that only 7 of the movies are on both lists. For every movie but Iron Man, the movie ranks higher on the rental list than on the sales list. Apparently most people who wanted to watch Iron Man bought the DVD, but the rental market was still strong. For the rest of those movies, they weren’t good enough to buy, but people still wanted to see them.

Here’s what I see when I look at these two lists. I see that there are two kinds of movies that people rent: Academy Award Nominees and crap. People wanted to watch Michael Clayton (good movie, btw) and No Country For Old Men (boring, IMO) so they could have some idea of which should win the Oscar. And people wanted to watch Good Luck Chuck (for some unknown reason) but knew based on its horrible box office performance and reviews that they would probably only want to watch it once — and even then probably only for $1 at Redbox. Baby Mama and Fool’s Gold are in this same league too.

I think it’s noteworthy that The Dark Knight was the best-selling movie of the year at the box office, as well as the best-selling DVD, but it is nowhere on the rental list. I guess when everybody has already seen the movie and everybody knows someone who owns the DVD, there’s no reason to rent it.

Of the top 20 movies sold, 9 of them can legitimately be called kid’s movies. (And yes, it can be a kid’s movie if it has The Rock in it. He’s the new Ice Cube — Ice Cube after he sold out, that is, and did Are We There Yet? and Are We Done Yet? Now The Rock does Race to Witch Mountain and Game Plan. I smell what the Rock is cookin’ and it doesn’t smell so good.) Only one of these 9 movies, Game Plan, is also on the rental list. Parents buy their kids the DVD, plain and simple.

Part of what we’re looking at in the DVD paper is how different aspects of movies affect DVD sales and how that differs from box office revenues. We have already found, for example, that a movie’s sexual content does not have a positive impact on box office revenues for R-rated movies. However, it does have a positive impact on DVD sales for R-rated movies. Conclusion: people want to watch those movies in the privacy of their own homes.

Some facts on the DVD/VHS market in case you’re interested: The DVD sales market is by far the most profitable distribution vehicle for movie studios. The revenues from DVD sales are more than the worldwide box office of movies, and the studios get a larger chunk of the revenues on DVDs (about half of box office revenue goes to your theater, the other half goes to the studios who made the movie; with DVDs, studios get more like 80% of the revenue). The DVD rental market shrunk last year, and only makes up about 1/5 of the revenue of the DVD sales market. That market shrunk last year too, as the economy took a turn for the worse. Blu-ray sales picked up, but not enough to offset the DVD sales decrease. VHS is practically dead: VHS rentals make up less than 4% of all rentals.

Netflix sent me an e-mail this week saying that if I wanted to stay on my same plan (3 discs at a time, including Blu-ray), I would have to pay an extra $3 per month. Until now, they were charging me an extra $1 for Blu-ray, and they are increasing that charge to $4. I promptly changed my plan to 2 discs at a time and am saving $4/month. One might think that people who can afford a Blu-ray player wouldn’t have a problem with an extra $3 a month, and I think that’s what Netflix is counting on. But I’m cheaper than most people, so my demand for everything is more elastic. And rumor has it that Redbox is carrying Blu-ray in other places around the country for the same price of $1/day, and as long as that hits St. Cloud soon, I should be just fine.

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