DVD Versus VHS

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 to Digital (Part IV)

• Established Business Model of Movie Studios
• Recent Developments
• DVD market is saturating
• Movies are not profitable
• Confusion about HD-DVD
• Responses by Movie Studios
• Lean Operations
• More targeting
• Migration to Digital Distribution

6
Sales Incentives (FT article)

• Two different types of incentives
• What is the problem with Chryslers 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!

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 1960s 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