DVD Versus VHS1. A Quandary for Movie Studios2. Changes in Movie Pricing

1. VHS Tape: two-tier pricing & revenue sharing2. DVD: one mass-market pricing ($14.99)

3. Marketing Channel Changes1. From Blockbuster to Wal-Mart

2. Who has more power over movie studios?3. Power struggle between W-B and Blockbuster

4. Timing between rental and sale: Different interests

DVD versus VHS

4. Buyer Behavior for Movies1. 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?

DVD Versus VHS (Part II)1. A Problem for Blockbuster2. Changes in Movie Pricing

1. Past: revenue sharing ($65 $25 + royalty) 2. DVD: one mass-market pricing ($14.99)

3. Marketing Channel changes1. Power shift from Blockbuster to Wal-Mart

2. Power struggle between W-B and Blockbuster4. Pros and Cons of selling DVD for BB

- Pros:- Cons: Margin

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

DVD Versus Cable (Part III)1. Traditional Way of Movie Distribution2. Major Change3. Driving Forces for Simultaneous Release

1. Generic Competition2. Capitalize on Buzz3. Efficiency of Cable

4. Detractors for Simultaneous Release1. Fear of Cannibalization2. Channel Power issue

3. Piracy Issue

5. What Studios are doing: Test Market*

Blue-ray Versus Online Streaming 1. Latest Development: Multi-purpose machine:

Blue-ray Player + Internet Video Streaming2. Latest Trend: DVD sales down; Blue-ray sales up;

Internet streaming surges3. Trade-off: Instant gratification versus picture

quality4. Potential Winners and Losers

1. Winners: Netflix and Amazon; Samsung and LG2. Losers: Blockbuster; Movie Studios; SONY

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)

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

Sales Incentives (FT article)1. Two different types of incentives2. What is the problem with Chrysler’s incentive

scheme?3. Stretch Goals: Pros and Cons4. Mike Jensen: Linear Compensation Scheme

based on Performance: past sales and profits

Current Market Conditions

5. Reeducate CFOs!

Minimum Retail Pricing (WSJ)1. 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

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?

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