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DVD Pricing Strategies: Maximizing Profit in a Changing Consumer Landscape

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This document discusses the dynamic pricing strategies for VHS and DVD markets, highlighting methods to maximize profits for movie studios. It emphasizes a two-part pricing strategy tailored for DVD releases, considering consumer preferences for purchasing versus renting. With insights into profit maximization, it addresses the changing landscape of DVD ownership and market penetration, suggesting that studios adapt their pricing strategies accordingly to capitalize on shifting consumer behaviors.

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DVD Pricing Strategies: Maximizing Profit in a Changing Consumer Landscape

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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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