THE NETFLIX EFFECT: A Feature Presentation on the Relationship Between the Streaming Giant and the U.S. Cinema Box Office

Abstract

The primary purpose of this paper is to analyze the role of Netflix, Inc. on cinema demand in the U.S. box office, between the years 2002-2017. To do this, the paper uses a linear OLS regression of weekly box office returns on Netflix’s stock price, as a proxy measurement of Netflix’s success, controlling for various contributing factors to cinema demand, including wealth, income, internet/broadband accessibility, rival firms and social media. The paper is split into three sections, 2002-2017, 2002-2007 and 2007-2017. The key finding is that Netflix plays a complementary role to film demand; as Netflix’s closing stock price increases, so too do weekly box office returns. Another important finding is that Netflix’s role as a complement was a bigger factor under its initial rental model than it is now after the implementation of its streaming model. Additionally, the paper corroborates research in media economics, which cite that both disposable income and seasonality play roles in box office performance, as do wealth and internet accessibility.