Economic Markets for Video Streaming Services: A Case Study of Netflix and Popcorn Time

Abstract

Video streaming services are considered as the new standard method of delivering entertainment to the public. Netflix, one of the leading providers of video streaming, has reported that piracy continues to be their biggest competitor, referring to Popcorn Time specifically. Popcorn Time uses illegal means of providing video streaming. Popcorn Time offers a similar or even better video streaming experience compared to Netflix. In this paper, we study the competition between legal and illegal video streaming services. In particular, this paper elaborates on the analysis of network effects in relation to video streaming services and explains how an individual who uses video streaming can affect the overall value of the network where a particular video is being streamed. We propose the Competitive Video Streaming Model (CVSM), based on the Bass Diffusion model. The CVSM is applied to model the competition between Netflix and Popcorn Time. The main findings show that the timing of the onset of network effects is significant for the temporal evolution of adopters. Our results also suggest that the competitiveness of video streaming services depends on how the service provider is distributing the video streaming contents. It shows that distributing video streaming contents through P2P network subsidizes the growth of adopters to a greater extent compared to a client-server network. As such, the results of this study support the hypothesis that network effects can strengthen the competitiveness of illegal video streaming services.