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DVD Pricing

DVD Pricing. January 24, 2002 Amy Dix Jay Gorman Hap Phillips Scott Tower. Video Pricing – Level Set. Goals for discussion Understand pricing dynamic for both VHS and DVD Maximize profit for movie studios Implement two part pricing strategy for DVD’s. Windows of Exhibition. Theaters.

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DVD Pricing

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  1. DVD Pricing January 24, 2002 Amy Dix Jay Gorman Hap Phillips Scott Tower

  2. Video Pricing – Level Set Goals for discussion • Understand pricing dynamic for both VHS and DVD • Maximize profit for movie studios • Implement two part pricing strategy for DVD’s

  3. Windows of Exhibition Theaters Video/ DVD Pay-per- View Premium Cable TV Network Cable TV Syndicated TV

  4. Revenue Generate from Hollywood Films Video/DVD Rentals vs. Sales • $4 Rental - $1.60 revenue • $10-$15 retail sale revenue TV 28% Video/DVD 46% Box Office 26% Source: "Filmspace: Behind the Scenes," ABN Amro, Sept. 12, 2000

  5. Video Pricing – VHS • Discriminate between individual consumers and rental retailers • Goal of profit maximization • Creates artificial window of opportunity for rental

  6. Video Pricing – DVD • Charge one price • New technology • Limited title selection • Goal was for DVD to gain acceptance • Attain critical mass • Estimated 25% of VHS households now own DVD players • Projected to reach 50% within 2 years

  7. Consumer Landscape – DVD Owners Then, DVD consumers were… • Movie enthusiasts • Apt to buy movies for repeat viewing • Tech savvy • Wealthy – could afford $500 DVD player Today, DVD consumers are… • Varied – not a “typical” DVD viewer Pricing strategy must be modified to meet the changing consumer preferences

  8. Buy v. Rent Consumers will buy a DVD when… • High ticket sales • Receives critical acclaim (Oscar winners) • Children’s movie (Disney) • Collectibles (Godfather, Star Wars, etc.)

  9. Buy v. Rent Consumers will rent a DVD when… • “Not a blockbuster” • Weekend an Bernie’s II • Kazaam • Gleaming the Cube • Breakin’ 2

  10. New DVD Pricing Strategy – Part 1 For DVD’s that consumers will rent… • Mirror current pricing strategy for VHS • Price discrimination window should last four weeks • Maximize profits from rental retailers

  11. New DVD Pricing Strategy – Part 2 For DVD’s that consumers will buy… • Implement single price strategy immediately upon release • Charge $10-15 per DVD • Capitalize on strength of one marketing campaign alerting public and rental stores that movie is available

  12. Conclusion High penetration of DVD players means that market can support a change in pricing • Adopt a two part pricing strategy • Low price for movies with high potential for ownership • High price for movies with low potential for ownership • Maximize profits for studios

  13. Questions?

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