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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 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 1960’s: “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

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