# Is There Evidence that VOD Cannibalizes DVD Rentals A

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```					Is There Evidence that VOD
Cannibalizes DVD Rentals?
A Spatial Regression Analysis

Dr. Amy Liu, Marketing Systems Group
Kevin Babyak, Marketing Systems Group
Dr. Paul Rappoport, Temple University

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Outline

The Hypotheses
The Data
The Model
Results
Conclusions

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Hypotheses
The availability of video-on-demand (VOD)
leads to a reduction of DVD rentals.
The use of VOD leads to an increased
reduction of DVD rentals.
Households demand for DVD rentals
depends on the distance a household is
from a DVD rental store

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Databases
CENTRIS Omnibus Survey
Household RDD survey
50,000+ observations
Track DVD rentals, VOD availability and use
Projected activity down to Census Block
Group
Location of Video/DVD rental stores

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CENTRIS

http://www.centris.com

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Predicted VOD Penetration

Q4 2004

2.5%

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DVD Rentals by Age
160
Index of Usage (100 = Average)

140
120
100
80
60
40
20
0
18-34   35-44   45-65      65+

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DVD Rentals by Income
160
Index of Usage (100 = Average)

140
120
100
80
60
40
20
0
<25k   25k - 50k   50k - 100k      >100k

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Spatial Regression Model

Variables                           Poisson Regression
Household Usage
VOD availability
Model of DVD Rentals (counts)
Store locations
Distance to store
Demographics

DVD usage = f(Income, Age, Distance, VOD usage, VOD availability, Children)
(+)    (-)    (-)     (-)            (-)             (+)

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Results
VOD availability by itself is marginally important
VOD usage triggers substitution
VOD usage expected to grow – will lead to an
increasing impact on DVD rentals
DVD rental cannibalization less pronounced
when store is close
Substitution is most pronounced for younger
households, households with higher incomes
and households with children
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Conclusions
1   Cable VOD roll-out strategies will have a
large impact on the traditional DVD
rental market.
2   The push towards digital cable will
accelerate this cannibalization
3   VOD availability is limited – real impact of
cannibalization is still a few years off
4   The VOD – DVD battleground will be in
areas of high income, younger households
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Contact Information

1. Amy Liu – Marketing Systems Group, aliu@m-s-g.com,
215-653-7100 x143

2. Kevin Babyak – Marketing Systems Group,
kbabyak@m-s-g.com, 215-653-7100, x118

3. Paul Rappoport – Department of Economics,
Temple University, paul.rappoport@temple.edu,
215-913-1775