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DVD Versus VHS

DVD Versus VHS. A Quandary for Movie Studios Changes in Movie Pricing VHS Tape: two-tier pricing & revenue sharing DVD: one mass-market pricing ($14.99) Marketing Channel Changes From Blockbuster to Wal-Mart Who has more power over movie studios?

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DVD Versus VHS

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  1. DVD Versus VHS A Quandary for Movie Studios Changes in Movie Pricing VHS Tape: two-tier pricing & revenue sharing DVD: one mass-market pricing ($14.99) Marketing Channel Changes From Blockbuster to Wal-Mart Who has more power over movie studios? 3. Power struggle between W-B and Blockbuster 4. Timing between rental and sale: Different interests

  2. DVD versus VHS 4. Buyer Behavior for Movies 1. When would you “buy” instead of “rent”? 2. How much are you willing pay to buy? 3. When would you “rent” instead of “buy”? 4. Where would you go to “buy” or “rent”? 5. “People can be conditioned to buy just about any movie they want to see if it is priced low enough.” Do you agree?

  3. DVD Versus VHS (Part II) A Problem for Blockbuster Changes in Movie Pricing Past: revenue sharing ($65  $25 + royalty) DVD: one mass-market pricing ($14.99) Marketing Channel changes Power shift from Blockbuster to Wal-Mart Power struggle between W-B and Blockbuster 4. Pros and Cons of selling DVD for BB - Pros: - Cons: Margin

  4. DVD versus VHS (Part II) 5. Can BB compete against Wal-Mart in selling DVDs? 6. New Competition: - Mail Order: Netflix and Wal-Mart*  Hybrid Strategy by BB - TiVo

  5. DVD Versus Cable (Part III) Traditional Way of Movie Distribution Major Change Driving Forces for Simultaneous Release Generic Competition Capitalize on Buzz Efficiency of Cable Detractors for Simultaneous Release Fear of Cannibalization Channel Power issue Piracy Issue What Studios are doing: Test Market*

  6. Blue-ray Versus Online Streaming Latest Development: Multi-purpose machine: Blue-ray Player + Internet Video Streaming Latest Trend: DVD sales down; Blue-ray sales up; Internet streaming surges Trade-off: Instant gratification versus picture quality Potential Winners and Losers Winners: Netflix and Amazon; Samsung and LG Losers: Blockbuster; Movie Studios; SONY

  7. Trust in Markets • Sherman Act (1890): To outlaw anticompetitive trusts and certain predatory tactics  political motives  Being “big” is bad • If high market share  merger proposals were rejected • By 1960’s: “The dangers of a vertical merger were grossly exaggerated” (Robert Bork)

  8. Trust in Markets • Recent changes: • Government: Visible hand  Invisible hand • Focus: Political motives  Microeconomic outcomes (products and prices) • 30,000 Ft view  30 ft view • Enforcement: blocking merger  negotiation between parties

  9. Minimum Retail Pricing (WSJ) Old Rule: Per Se Illegal (since 1911) 2. New Rule: Rule of Reason (5 to 4 decision) “It is not automatically unlawful for manufacturers and distributors to agree on minimum retail prices.” 3. Key consideration: effect of retail price maintenance on (fair) competition

  10. Minimum Retail Pricing (WSJ) 4. Likely Effect of Change on Channel Players Manufacturers: (+) Distributors: (+) to or (-) to Consumers: (+) because of or (-) because of 5. Justice Kennedy “RPM agreements can promote competition”  What type of competition?

  11. Sales Incentives (FT article) Two different types of incentives What is the problem with Chrysler’s incentive scheme? Stretch Goals: Pros and Cons Mike Jensen: Linear Compensation Scheme based on Performance: past sales and profits Current Market Conditions 5. Reeducate CFOs!

  12. Companies Go Vertical (WSJ) The pendulum has shifted: From Disintegration to Integration Before 1980’s: Vertical Integration After 1980’s: Strong push toward vertical disintegration. Why? From mid 2000’s: Back to vertical integration Why? Mittal: More control Pepsi: Authority over distribution Boeing and G.M.: quality and quantity control of suppliers Oracle: total package

  13. Vendor-Retailer Relationships at Reebok • Sales Organization for Reebok • Customer-based • Region-based • Account Management at Reebok • Headquarter-level effort: sell in • Field-level effort: sell through • Key for successful relationship: Trust and confidence • Channel function issue: sales and negotiation (Push)  face to face

  14. Zara: Fast Fashion * Information gathering  decisions • Design • Sourcing/manufacturing • Distribution (* order by PDA) • Retailing (Store: Display, coordination, music, window) • Internationalzation of Zara • Management Roundtable

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