1. Philadelphia, May 2–4, 2005 www.locationintelligence.net 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 Philadelphia, May 2–4, 2005 www.locationintelligence.net

2. Philadelphia, May 2–4, 2005 www.locationintelligence.net Outline  The Hypotheses  The Data  The Model  Results  Conclusions

3. Philadelphia, May 2–4, 2005 www.locationintelligence.net 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

4. Philadelphia, May 2–4, 2005 www.locationintelligence.net 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

5. Philadelphia, May 2–4, 2005 www.locationintelligence.net CENTRIS http://www.centris.com

6. Philadelphia, May 2–4, 2005 www.locationintelligence.net Predicted VOD Penetration 2.5%

7. Philadelphia, May 2–4, 2005 www.locationintelligence.net DVD Rentals by Age

8. Philadelphia, May 2–4, 2005 www.locationintelligence.net DVD Rentals by Income

9. Philadelphia, May 2–4, 2005 www.locationintelligence.net Spatial Regression Model Variables  Household Usage  VOD availability  Store locations  Distance to store  Demographics Poisson Regression DVD usage = f(Income, Age, Distance, VOD usage, VOD availability, Children) (+) (-) (-) (-) (-) (+) Model of DVD Rentals (counts)

10. Philadelphia, May 2–4, 2005 www.locationintelligence.net  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 Results

11. Philadelphia, May 2–4, 2005 www.locationintelligence.net

12. Philadelphia, May 2–4, 2005 www.locationintelligence.net

13. Philadelphia, May 2–4, 2005 www.locationintelligence.net

14. Philadelphia, May 2–4, 2005 www.locationintelligence.net

15. Philadelphia, May 2–4, 2005 www.locationintelligence.net

16. Philadelphia, May 2–4, 2005 www.locationintelligence.net  1Cable VOD roll-out strategies will have a large impact on the traditional DVD rental market.  2The push towards digital cable will accelerate this cannibalization  3VOD availability is limited – real impact of cannibalization is still a few years off  4The VOD – DVD battleground will be in areas of high income, younger households Conclusions

17. Philadelphia, May 2–4, 2005 www.locationintelligence.net Contact Information 1.Amy Liu – Marketing Systems Group, aliu@m-s-g.com, 215-653-7100 x143aliu@m-s-g.com 2. Kevin Babyak – Marketing Systems Group, kbabyak@m-s-g.com, 215-653-7100, x118 kbabyak@m-s-g.com 3.Paul Rappoport – Department of Economics, Temple University, paul.rappoport@temple.edu,paul.rappoport@temple.edu 215-913-1775