How do theatrical box office revenues affect DVD retail sales? Australian empirical evidence

This study considers the Australian DVD industry using a data set of retail sales for over 44,800 titles 1997-2007. A sub-sample of 760 titles which also received an initial theatrical release reveals that the DVD revenue distribution has thicker tails than the theatrical revenue distribution implying the top-ranked DVDs earning a greater share of revenues than their theatrical contemporaries. A comparison of revenues finds not only a high degree of correlation between the two markets, but a relationship that is nonlinear and increasing at higher theatrical revenue levels. This finding is consistent with a word-of-mouth momentum effect and more institutional flexibility in the DVD market. The high levels of correlation are present across all genres/ratings and are observed to be stronger for large release titles. Finally, a seemingly unrelated regression structure is proposed to jointly consider the two markets, which is shown to be empirically valid.