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 Versus Cable (Part III)

• Traditional Way of Movie Distribution
• Major Change
• Driving Forces for Simultaneous Release
• Generic Competition
• Capitalize on Buzz
• Efficiency
• Detractors for Simultaneous Release
• Channel Power issue
• Piracy Issue
• What Studios are doing Test Market

6
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)

7
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

8
Minimum Retail Pricing (WSJ)

• Old Rule Per Se Illegal
• 2. New Rule Rule of Reason
• It is not automatically unlawful for
  manufacturers and distributors to agree on
  minimum retail prices.
• 3. Key consideration effect on (fair)
  competition

9
Minimum Retail Pricing (WSJ)

• 4. Likely Effect on Channel Players
• Manufacturers ()
• Distributors () or (-)
• Consumers () or (-)

10
Wine Distribution In Turmoil

• Key Issue Fostering Competition versus
• Regulating Alcohol Consumption
• 2. Source of the Problem Misalignment between
• Federal Law (Interstate Commerce) and State
• Law (Alcohol Regulation)
• 3. Case for Transshipping More Competition ?
• More Choices and Lower Price ? High
• Consumer Welfare (www.freethegrapes.org)

11
Small Wineries at the Bar (WSJ)

• 4. Case for Wholesalers Ability to control
  alcohol consumption and underage drinking
• (www.pointclickdrink.com) collection of liquor
  taxes ? Distributor Welfare State Welfare
• 5. Which side do you support?
• 6. The Supreme Court Verdict
• 7. Response by big wineries