Internet-based Distribution of Digital Videos: The Economic Impacts of Digitization on the Motion Picture Industry

Digital technologies and, especially, the Internet are profoundly reshaping the motion picture industry. Video-on-demand heightens the trend toward digitization and disintermediation. In the short term, the increasing use of digital technologies may result in significant cost reductions throughout the value chain. In the long term, the digitization of film production and distribution may induce a significant restructuring of the motion picture industry. Digital film delivery may displace physical films, videos and DVDs, thus threatening the long-term survival of video rental stores and other middle layers in the value chain. Taking an economic and strategic perspective, this paper examines the impacts of digitization on the motion picture industry with a focus on disruption and disintermediation of the value chain.