Modeling the Competition Between Legal and Illegal Video Streaming Services

Abstract

Video streaming services are considered as the new standard method of delivering entertainment to the public, giving rise to a noteworthy competition between legal and illegal streaming services. Netflix, one of the leading providers of legal video streaming, has reported that piracy has continued to be their biggest competitor, referring to Popcorn Time specifically. Popcorn Time uses illegal means of providing video streaming and offers a similar video streaming experience compared to Netflix. The aim of this thesis is to study the competition between legal and illegal video streaming services to better understand the nature of this problem.

In particular, this study 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. This thesis suggest that the number of existing adopters of a video streaming service can have a positive or negative effect on a user's experienced value. Whether this effect is positive or negative may be related to how the service provider is delivering their video streaming contents.

This study propose a model, called the Competitive Video Streaming Model (CVSM), to model the competition between Netflix and Popcorn Time. The CVSM model is based on the Bass Diffusion model, including positive and negative network effects, Word-of-Mouth effect and adopters' churning from one service provider to another. The CVSM model was implemented in AnyLogic with system dynamics and tested with three different scenarios.

The main findings show that the timing of the onset of network effects is significant for the temporal evolution of adopters. The results also suggest that the competitiveness of video streaming services depend on how the service provider is distributing the video streaming contents. It shows that distributing video streaming contents through Peer-to-Peer (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 may strengthen the competitiveness of illegal video streaming services.