Pricing Strategies - Cornell University

Report
MOVIE INDUSTRY
CAST
Justin Balcom
ZiHan Weng
Isara Patumanon
Hillary Pham
TABLE OF CONTENTS
 Industry
Structure
Background
 Competition
 Organization
• Pricing Strategies
Movie Theaters
DVDs, Blu-ray
Rentals/Television/VoD


Analysis/Recommendations
INDUSTRY STRUCTURE
BACKGROUND


Definition: This industry produces and distributes motion
pictures. It excludes third-party distributers and disc
manufacturers as well as products aimed specifically
towards television. (IbisWorld.com)
Brief History
First full-length feature: The Story of the Kelly Gang, 1906,
Australia
 By 1910, movies were being produced outside of Australia.
 Movie Industry in the U.S.





Nectar Studios, Hollywood, CA, was the first production company in the
U.S. (1911)
Movies were silent B&W until the late 1920’s. Sound was introduced.
1950’s – present: Cameras were now capable of shooting in color
The quality of cinema is constantly evolving from new technology.
 Camera Quality: 16mm  35mm  Digital  HD  3D
 Currently cheaper to invest in Digital/HD
INDUSTRY STRUCTURE
BACKGROUND
Key Statistics:
 Revenue:
$29.7 Billion
 Profit: $1.5 Billion
 Annual Growth ‘05-’10: -0.8%
 Expected Annual Growth ’10-’15: 1.1%
 Exports: $4.3 Billion
 Businesses: 6,507
INDUSTRY STRUCTURE
BACKGROUND
(Ibisworld.com)
Industry Data
Rental +
Sell
Through
Spending
on Home
Domestic Entertain
Revenue
Establish Enterpris Employm Exports ( Imports ( Wages ($ Demand ment ($
($m)
IVA ($m)
ments
es
ent
$m)
$m)
m)
($m)
billion)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
31,310.40
31,860.30
30,804.10
31,576.80
30,859.30
30,674.30
31,445.20
31,546.70
27,827.60
29,726.80
30,826.70
30,641.70
28,671.50
30,641.70
31,465.50
10,687.40
10,560.60
11,184.00
11,899.70
13,318.70
14,386.40
14,531.70
15,947.30
12,641.50
14,513.60
15,122.10
15,218.00
14,869.50
15,917.00
15,324.30
5,422
5,600
5,760
6,014
6,483
6,525
6,780
6,991
5,855
6,507
6,446
6,433
6,621
6,949
6,819
5,233
5,406
5,587
5,837
6,300
6,349
6,356
6,739
5,521
6,009
6,378
6,259
6,507
6,567
6,769
49,585
43,836
47,605
62,544
68,697
74,250
74,763
79,402
67,246
73,990
72,567
73,141
73,777
77,077
75,233
4,320.90
4,046.30
4,097.00
4,705.00
4,474.70
4,693.20
4,307.90
4,138.90
4,082.40
4,250.90
4,685.70
4,228.50
4,157.40
4,259.20
4,625.40
515.8
486.5
527.7
553.9
605.5
569.4
566
625.4
520.7
592.1
598.7
622.8
575
634.2
583.1
4,095.80
3,940.00
4,470.80
4,652.10
5,156.50
5,340.40
5,394.90
5,759.10
4,787.40
5,425.60
5,640.50
5,780.70
5,680.40
6,087.80
5,754.20
27,505.30
28,300.50
27,234.80
27,425.70
26,990.10
26,550.50
27,703.30
28,033.20
24,265.90
26,068.00
26,739.70
27,036.00
25,089.10
27,016.70
27,423.20
16.9
19
20.7
21.8
21.7
21.6
21.4
21
20
22.7
25.7
22.3
19.3
21.9
18.9
INDUSTRY STRUCTURE
COMPETITION
 Concentration

of industry –
HHI = 1053.11
Walt Disney
NBC
20.7%
Universal
Walt Disney
15.7%
Pictures
Touchstone
Pictures
Pixar
Miramax
Lifetime
Marvel
Hollywood
Pictures
Universal
Pictures
Focus
Features
Time Warner Inc.
13.8%
News Corp
13.7%
Sony Corp
12.4%
Viacom Inc.
12.1%
Warner Bros.
Fox Filmed Ent. Sony Pictures Ent.Paramount Pictures
Warner Home Video
Blue Sky
Columbia Tristar
Dreamworks
New Line Cinema
Screen Gems
Nickelodeon
Imprint
Imageworks
MTV Films
Entertainment
Other Players 11.6%
Castle Rock
Lions Gate Ent.
Entertainment
Centropolic
Weinstein Company
INDUSTRY STRUCTURE
COMPETITION

Top-Grossing Distributors 1995 to 2011 (thenumbers.com)
Distributer
Movies
Total Gross
Average
Gross
Market
Share
1 Warner Bros.
491 $25,912,522,239
$52,774,994
14.33%
2 Walt Disney Pictures
432 $25,824,648,209
$59,779,278
14.28%
3 Sony Pictures
508 $23,589,240,769
$46,435,513
13.05%
4 Paramount Pictures
329 $21,163,365,975
$64,326,340
11.70%
5 20th Century Fox
343 $20,182,249,012
$58,840,376
11.16%
6 Universal
321 $18,680,450,048
$58,194,548
10.33%
7 New Line
203 $8,786,568,118
$43,283,587
4.86%
77 $5,988,394,230
$77,771,354
3.31%
377 $5,621,533,555
$14,911,230
3.11%
228 $5,059,084,987
$22,188,969
2.80%
8 Dreamworks SKG
9 Miramax
10 MGM
INDUSTRY STRUCTURE
COMPETITION
 Key




Success Factors
Effective cost controls
Access to multi-skilled and flexible
workforce
Ability to manage external (outsourcing)
contracts
Ability to quickly adopt new technology
INDUSTRY STRUCTURE
COMPETITION
BARRIERS TO ENTRY

Major Studios: High
Capital
 Knowledge
 Regulations
 Technology
 Reliability


Independent Studios: Low
Technology (Monsters)
 Industry Assistance
 Other independent film-makers
 Government supports the industry by covering some costs to
encourage the growth of small production companies.

INDUSTRY STRUCTURE
COMPETITION

Product Differentiation


Market Segmentation of Genres
Top-Grossing Genres 1995 to 2011
Genre
(Markets)
1
Comedy
2
Adventure
3
Movies
Total Gross
(thenumbers.com)
Average Gross
Market
Share
1,660
$43,538,067,918
$26,227,752
24.11%
472
$35,095,187,467
$74,354,211
19.44%
Drama
2,906
$32,404,483,892
$11,150,889
17.95%
4
Action
521
$30,561,510,432
$58,659,329
16.93%
5
Thriller/Suspense
504
$13,659,510,110
$27,102,203
7.57%
6
Romantic Comedy
374
$10,705,447,670
$28,624,192
5.93%
7
Horror
302
$8,713,962,144
$28,854,179
4.83%
8
Documentary
932
$1,979,342,216
$2,123,758
1.10%
9
Musical
108
$1,701,736,306
$15,756,818
0.94%
76
$745,408,050
$9,808,001
0.41%
10
Black Comedy
INDUSTRY STRUCTURE
COMPETITION
• Production Differentiation of Genres
Survey Results
Action
Drama
Comedy
Horror
Others
Total
Action
14
18
12
1
2
37
Drama
38%
22%
32%
3%
5%
Comedy
Horror
Others
3% 5%
38%
32%
22%
INDUSTRY STRUCTURE
COMPETITION
 Regulation
and Policies
Level of regulation is relatively medium and
increasing
 Many people employed in the business are in unions





SAG, DGA, WGA
Copyright laws
Insurance – Production company
MPAA
INDUSTRY STRUCTURE
COMPETITION


Regulation: MPAA (World War Z)
Top-Grossing MPAA Ratings 1995 to 2011 (thenumbers.com)
MPAA
Rating
Movies
Total Gross
Average
Gross
Market
Share
1
PG-13
1,891
$80,647,232,294
$42,647,928
44.69%
2
R
3,374
$52,436,097,111
$15,541,226
29.05%
3
PG
918
$35,045,071,236
$38,175,459
19.42%
4
G
256
$10,020,528,179
$39,142,688
5.55%
5
Not Rated
2,278
$1,758,396,566
$771,904
0.97%
6
NC-17
19
$68,935,806
$3,628,200
0.04%
7
Open
5
$7,678,311
$1,535,662
0.00%
INDUSTRY STRUCTURE
COMPETITION
Total Gross
$90,000,000,000
PG-13
$80,000,000,000
$70,000,000,000
$60,000,000,000
R
$50,000,000,000
$40,000,000,000
Total Gross
PG
$30,000,000,000
$20,000,000,000
G
$10,000,000,000
Not Rated
NC-17
$0
0
1,000
2,000
Movies
3,000
4,000
INDUSTRY STRUCTURE
COMPETITION

Seasonality
#
Answer
Response
%
1
Winter
14
38%
2
Spring
6
16%
3
Summer
30
81%
4
Fall
10
27%
INDUSTRY STRUCTURE
ORGANIZATION

How does a movie get made?
Pre-production
Production
Post-production
Methods of
Consumption
Consumer
INDUSTRY STRUCTURE
ORGANIZATION

What happens after production?
Movie Theaters
ToD/Television
DVD
Pay Cable Networks
Basic Cable Networks
Retailer
s
Regular Cable Networks
Purchase
Rental
INDUSTRY STRUCTURE
Movie Theater
Industry
MAJOR PLAYERS IN THE U.S. MOVIE
THEATER INDUSTRY
Regal Entertainment Group
-Brand Names: Regal Cinemas, United Artists,
Edwards Theaters, Regal CineMedia, Hoyts
Cinemas

AMC Entertainment Inc.
-Brand Names: Loews, General Cinema, Kerasotes


Carmike Cinemas Inc.
HHI
Regal Entertainment Group
-Market Share: 23.5%
 AMC Entertainment Inc.
-Market Share: 20.0%
 Carmike Cinemas Inc.
-Market Share: 4.1%

MEASURE OF CONCENTRATION
Firm Rank
Market Share (%)
Squared Market
Share
1. Regal
23.5
Entertainment Group
552.25
2. AMC
Entertainment Inc.
20.0
400
3. Carmike Cinemas
Inc.
4.3
18.49
Concentration Index
CR3
H=970.74
Median concentration
Source: www.ibisworld.com
REVENUES OF REGAL ENTERTAINMENT
GROUP V.S. AMC ENTERTAINMENT INC.
Year
Regal
AMC
Entertainment Entertainment
Group Revenue Inc. Revenue ($
($ million)
million)
2006
2,598
1,597
2007
2,661
2,211
2008
2,771
2,240
2009
2,893
2,175
2010
2,919
2,321
2011
2,969
2,533
Source: ibisworld.com
REVENUES OF REGAL ENTERTAINMENT
GROUP V.S. AMC ENTERTAINMENT INC.
Price
In 3,500
million
3,000
2,500
Regal Entertainment Group
Revenue ($ million)
2,000
AMC Entertainment Inc.
Revenue ($ million)
1,500
1,000
500
0
2005
2006
2007
2008
2009
2010
2011
2012
Year
Source: ibisworld.com
PRICING STRATEGIES
Uniform Pricing: The majority of moviegoers pay
one price for all movie tickets, regardless of the
popularity of the movie, the day of the week, and
the time of the year (Since 1970s)
 Two puzzling dimensions of the uniform pricing
strategy
 1) The movie puzzle: every moviegoer pays for the
same price, no matter what time the movie
shows, how long the movie is, and how popular
the movie is.
 2) The show time puzzle: lack of price
differentiation between weekdays and weekends
or seasons or holidays.

WHY UNIFORM PRICING?




Prevent unfairness
Moviegoers would perceive the price as a quality
signal which could cause demand unstable
Demand uncertainty: Producers may be unable to
predict the demand for specific movies
Variable pricing and menu costs are complicated
PRICE VARIATION



Price variation across theaters: admission prices
in certain cities are three time higher than in
other cities
The range of a movie ticket price is between $6.5$13.5 (estimate)
Price variation exists across theaters within the
same geographic area, according to their location,
design, physical conditions, and other factors
MOVIE TICKET PRICE OF MOST
AFFORDABLE U.S. CITIES
Most Affordable
U.S. Cities
Adult/low
Child/low
New London,
$10.00
Conn
$9.00
Baltimore, OH
$6.00
Huntsville, Ala.
$8.50
Tulsa, Okla
$7.50
Rock Island, Ill.
$10.00
Troy, N.Y.
Corpus Christi,
$7.50
Texas
Schenectedy,
$10.75
N.Y.
$10.00
Las Vegas, Nev
Senior/low
$7.50
$7.00
$6.00
$6.00
$7.00
$7.00
$7.00
$6.50
$6.00
$7.50
$7.00
$7.00
$6.00
$6.00
$7.50
$6.75
$7.50
$6.75
Source: www.movie.com
MOVIE TICKET PRICE OF MOST
EXPENSIVE U.S. CITIES
Most Expensive
U.S. Cities
Adult/high
New York City
San Francisco
Stamford, conn.
San Jose
San Diego
Santa Barbara
Bakersfield,
Calif.
Fresno, Calif.
Los Angeles
Boston
Child/high
Senior/high
$13
$10.75
$11.00
$10.25
$11.50
$10.50
$9.5
$8.00
$8.00
$7.50
$8.00
$8.00
$9.5
$8.25
$6.00
$7.50
$8.00
$8.00
$8.50
$11.00
$12.50
$11.50
$7.00
$7.50
$9.25
$8.55
$7.00
$7.50
$9.25
$6.00
Source: www.movie.com
Movie Ticket Price between different cities
Child
Adult
Price
10
9
8
14
12
10
8
Adult/low
6
Adult/high
4
2
7
6
5
4
3
2
1
0
Child/low
Child/high
Year
0
1
2
3
4
5
6
7
8
9
1
10
Cities
3
4
5
6
Cities
Senior
P
r
i
c
e
Source:
www.movie.com
2
10
9
8
7
6
5
4
3
2
1
0
Senior/low
Senior/high
1
2
3
4
5
6
7
8
Cities
9
10
7
8
9
10
Price variation
exists across
theaters within
the same
geographic area,
according to
their location,
design, physical
conditions, and
other factors
THIRD- DEGREE PRICE DISCRIMINATION
Based on Time
 Day & Night
 Matinee Rate
 Weekday
 Weekend
 Monday : Featured Candy $2
 Tuesday: Small Popcorn $2 or $3 per ticket (in
some areas)

THIRD- DEGREE PRICE DISCRIMINATION
Based on income and time (Typical movies)
 Evening: After 6 P.M.

Day
Evening
Adult
$8.00
$10.50
Child
$7.50
$7.50
Senior
$7.00
$7.00
Student
$8.00
$9.00
Veteran
$7.50
$7.50
Source: Ithaca Regal Cinema
$12.00
$10.00
$8.00
Day
$6.00
Evening
$4.00
$2.00
$0.00
Adult
Child
Senior
Student Veteran
THIRD- DEGREE PRICE DISCRIMINATION

Based on Quality : 3D movies
Day
Evening
Adult
$12.00
$14.50
Child
$11.50
$11.50
Senior
$11.00
$11.00
Student
$12.00
$13.00
veteran
$11.50
$11.50
Source: Ithaca Regal Cinema
WEEKDAY PASSES
Less common
 Offer moviegoers packages of several tickets that
they can use on weekdays but not during the first
week in which a movie plays
 Target specific audiences with peculiar
characteristics and sensitivities

CREATE CUSTOMER LOYALTY
Membership card
 Reward Card
 Gift card
 For example: Regal Crown Club
 1. Earn 1 credit for every dollar spent on movie
admissions. Maximum of 20 box office credits per
card, per day.

REGAL CROWN CLUB

Earn 4 credits for any concession purchase or 8
credit for promotional purchases
50 Credits
1 Free Small
Popcorn
100 Credits
1 Free Small Soft
Drink
150 Credits
1 Free Movie Ticket
Source: Ithaca Regal Cinema
MOVIE THEATER TICKET COMMISSION
Most of the money that a theater takes in from
ticket sales goes back to the movie studio
 In the first couple of weeks the film shows in the
theater, the theater itself only gets to keep about
20%-25% of the ticket sales
 Say if you buy a movie ticket for $12, the movie
theater keeps between $2.4 and $3.00
 The movie theater keeps from 45%-55% into the
second and third weeks of release
 After the fourth week, the movie theater could
keep more than 80% or better of the ticket sales

AVERAGE U.S. TICKET PRICES
Source: NATO
Source: NATO (The National Association of Theatre Owners)
GRAPH: AVERAGE U.S. TICKET PRICES
$10.00
$9.00
P
r
i
c
e
$
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
Average U.S. Ticket Prices
$2.00
$1.00
Adjusted Inflation(2007Base)
$-
1940
1950
1960
1970
1980
Year
1990
2000
2010
Source: NATO
2020
AVERAGE OF A MOVIE TICKET PRICE

On average, movie tickets have increased more
slowly than the rate of inflation.

The average ticket price in 1971 was $ 1.22

That same ticket would cost $7.84 in 2007 dollars

In 2009, the average ticket price was $7.50.
MOVIE THEATER INDUSTRY REVENUE
 Profitability
is forecast to rise, but it will
depend on the industry attaining high
growth in attendance, ticket prices and
high margin concession sales.
CONCESSION
CONCESSION
Small
Median
Large
Soda
$4.75
$5.25
$5.75
Popcorn
$5.25
$7.00
$8.00
Combo
#1
A Median Soda
& A Median
Popcorn
#2
Two Large Sodas $18.5
& A Large
Popcorn
A movie ticket price = Price of
Concession
$12.25
Source: Ithaca Regal Cinema
SURVEY
How often do you buy food (e.g. popcorn) and beverage
when you go to a movie theater?
#
1
2
3
Answer
Response
%
4
11%
18
49%
15
41%
Every time
Occasionally
Never (Please skip the
next question)
Total
37
100
%
IF YOU BUY, DO YOU BUY FOOD AND
BEVERAGE IN BUNDLE OR SEPERATELY?
#
1
2
3
Answer
Response
%
6
24
%
8
32
%
11
44
%
Bundle
Separately
Depends on
circumstances
Total
25
100
%
ARE YOU WILLING TO PAY MORE FOR BETTER
QUALITY SEATS (E.G. LUXURIOUS SEATS) AND
SERVICES IN MOVIE THEATERS?
#
1
2
3
Answer
Response
%
0
0%
27
73%
10
27%
Yes
No
Maybe
Total
37
100
%
PRICING STRATEGIES
For Physical Formats
WHO IS INVOLVED?

Movie Distributors

Retails

Rental Stores(Both physical and online)
MOVIE DISTRIBUTORS
FORMATTING
The average cost of Blu-ray players were
2006
TODAY
$500
$133
Source: Mintel Group
REVENUE FROM BLU-RAY PLAYERS
2006
TODAY
$65M
$1.6B
Revenue from DVD players
$2.2B
$1.2B
Source: Mintel Group
DO DISTRIBUTORS AND RETAILERS
SET PRICE
BASED ON MOVIE BUDGET OR POPULARITY?
The Effect of movie budget, and Netflix Viewer
Ratings
on DVD Pricing
Bestbuy
Amazon
Average
Movie Name
Cloudy with a achance of meatballs
The final destination
The hurt locker
The invention of lying
Surrogates
Saw 6
Zombieland
law abiding citizen
2012
Where the wild things are
Planet 51
hachi: a dog's tale
The princess and the frog
ninja assassin
astro boy
Alvin and the chipmunks the squeakquel
Sherlock Holmes
alice in wonderland
Avatar
It is complicated
Leap year
Valentine's day
Invictus
Hot Tub Time machine
Netflix rating
Budget in
million
$
3.8 100.00
$
3 40.00
$
3.9 15.00
$
3.1 18.50
$
3.4 80.00
$
3.5 11.00
$
4.1 23.60
$
4.1 53.00
$
3.4 200.00
$
2.9 100.00
$
3.6 70.00
$
4.1 16.00
$
3.9 105.00
$
3.6 40.00
$
3.8 65.00
$
3.6 75.00
$
3.8 90.00
$
3.7 175.00
$
4.2 237.00
$
3.7 85.00
$
3.4 19.00
$
3.4 52.00
$
3.8 50.00
$
3.5 36.00
$
Original
price
$
19.94
$
14.98
$
26.99
$
12.98
$
14.99
$
14.98
$
19.94
$
29.98
$
19.94
$
19.98
$
19.94
$
19.94
$
29.99
$
19.98
$
19.99
$
19.98
$
19.98
$
19.99
$
29.98
$
19.98
$
14.98
$
19.94
$
14.99
$
19.99
$
Current
Price
$
14.99
$
9.99
$
9.99
$
9.99
$
9.99
$
14.99
$
14.99
$
19.99
$
14.99
$
14.99
$
14.99
$
14.99
$
19.99
$
14.99
$
14.99
$
14.99
$
14.99
$
14.99
$
19.99
$
14.99
$
9.99
$
14.99
$
19.94
$
19.99
$
Original
price
$
19.94
$
14.98
$
26.99
$
12.98
$
14.99
$
14.98
$
19.94
$
29.98
$
19.94
$
19.98
$
19.94
$
19.94
$
29.99
$
19.98
$
19.99
$
19.98
$
19.98
$
19.99
$
29.98
$
19.98
$
14.98
$
19.94
$
19.94
$
29.98
$
Current
Price
$
11.49
$
9.99
$
19.49
$
8.49
$
12.49
$
13.49
$
13.49
$
10.69
$
11.99
$
7.69
$
10.33
$
10.99
$
15.49
$
14.19
$
13.99
$
11.49
$
8.99
$
10.49
$
20.99
$
13.49
$
11.49
$
9.99
$
9.49
$
18.99
$
Original
price
$
19.94
$
14.98
$
26.99
$
12.98
$
14.99
$
14.98
$
19.94
$
29.98
$
19.94
$
19.98
$
19.94
$
19.94
$
29.99
$
19.98
$
19.99
$
19.98
$
19.98
$
19.99
$
29.98
$
19.98
$
14.98
$
19.94
$
17.47
$
24.99
$
Source: BestBuy, Amazon, Netflix, IMDB
Current
Price
$
13.24
$
9.99
$
14.74
$
9.24
$
11.24
$
14.24
$
14.24
$
15.34
$
13.49
$
11.34
$
12.66
$
12.99
$
17.74
$
14.59
$
14.49
$
13.24
$
11.99
$
12.74
$
20.49
$
14.24
$
10.74
$
12.49
$
14.72
$
19.49
$
DVD PriceBUDGET/Original
Price
Budget/Current price
DVD Price
$35.00
$30.00
$25.00
$25.00
$20.00
$20.00
$15.00
$15.00
$10.00
$10.00
$5.00
$5.00
Budget(in m)
$$-
$50.00
$100.00
$150.00
$200.00
$-
$250.00
Netflix Viewer
Ratings/Original price
$-
$50.00
$100.00
$150.00
$200.00
$250.00
Netflix Viewer
Ratings/Current Price
DVD Price
DVD Price
$40.00
$25.00
$30.00
$20.00
$20.00
$15.00
$10.00
$10.00
$0
1
2
3
4
5
Rating
$5.00
$0
1
2
3
4
5
TAKE A CLOSER LOOK
Budget/Original
Intercept
X Variable
1
Coefficient Standard
s
Error
-27.6359 125.8572
27.24955
34.56108
t Stat
P-value Lower 95%
-0.21958 0.828054 -287.392
Upper
95%
232.1206
Lower
95.0%
-287.392
Upper
95.0%
232.1206
0.788446 0.438155
98.58011
-44.081
98.58011
-44.081
Budget/Current Price
Coefficient Standard
Lower
Upper
Lower
Upper
s
Error
t Stat
P-value
95%
95%
95.0%
95.0%
Intercept
12.6522 0.786531 16.08607 2.35E-14 11.02888 14.27552 11.02888 14.27552
X Variable
1
0.014701 0.008684 1.692876 0.103422 -0.00322 0.032624 -0.00322 0.032624
Netflix Viewer Ratings /Original Price
Coefficient Standard
Lower
Upper
Lower
Upper
s
Error
t Stat
P-value
95%
95%
95.0%
95.0%
Intercept
-10.632 7.991688 -1.33039 0.195895 -27.1261 5.862011 -27.1261 5.862011
X Variable
1
8.570229 2.194562 3.905211 0.000669 4.040875 13.09958 4.040875 13.09958
Netflix Viewer Ratings /Current Price
Coefficient Standard
Lower
Upper
Lower
Upper
s
Error
t Stat
P-value
95%
95%
95.0%
95.0%
Intercept
-3.60865 4.510037 -0.80014
0.43148 -12.9169 5.699608 -12.9169 5.699608
X Variable
1
4.77195 1.238481 3.853066 0.000763 2.215851
7.32805 2.215851
7.32805
DISTRIBUTORS
R
SET PRICE: OPTIMAL PROFIT
Price of DVD and Blu-ray at Bestbuy Online Store
50.00%
43.36%
45.00%
40.00%
34.93%
35.00%
30.00%
25.11%
25.00%
26.88%
DVD
20.99%
20.00%
Blu-ray
16.87%
15.00%
10.25%
9.41%
10.00%
5.00%
5.57%
3.02%
0.86%
0.00%
0.19%
$0-$3.99
$4-$6.99
2.57%
0.00%
$7-$9.99
$10-$14.99 $15-$24.77 $25-$49.99 $50 and up
Source: BestBuy.com
SURVEY
How much are you willing to pay for your mustwatched Blu-ray movies?
Average: $20.32
Given DVD price at $19.99
Average: $23.88
Given DVD price at $9.99
Average: $15.73
DVD LIFE-CYCLE
Revenue from DVD sales by weeks
$70,000,000.00
$60,000,000.00
$50,000,000.00
Megamind
$40,000,000.00
Due Date
Red
$30,000,000.00
Bevery Hills Chihuahua 2
Avarta
$20,000,000.00
$10,000,000.00
$1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Source: Nash Information Service, LLC
VERSIONING
BUNDLING
Source: Walmart.com
PRICING STRATEGIES IN RETAILS
Versioning
Bundling
RENTAL STORES
Physical(Ummmm..is there any?)
 Online(Netflix)
 Hybrid(Blockbuster)

NETFLIX: DO WE ALWAYS GET WHAT WE WANT?
Terms of Use
“In determining priority for shipping and inventory
allocation, we may utilize many different factors…For
example, if all other factors are the same, we give priority
to those members who receive the fewest DVDs
through our service…Also…[the service you
experience] may be different from the service we
provide to other members on the same membership plan.”
Source: Economics. 2nd Edition. P. 518

Online stores price war
Blockbuster
Netflix
High
Low
High
High, High
Low, High
Low
High, Low
Low, Low
COLLUSION?

Netflix and Wal-Mart “Corporation.”
BUNDLING
PRICING
TWO-PART
TARIFF
Exception
Lower
Expectation
ANALYSIS AND RECOMMENDATIONS

Investment – how would you evaluate the industry
from the perspective of a venture capitalist or stockmarket analyst?
ANALYSIS AND RECOMMENDATIONS

Pricing Strategies

Would this industry be a suitable industry to invest in from
the perspective of a:
 Venture Capitalist?
 Stock-market analyst?
REFERENCES




http://www.the-numbers.com/market/
http://books.google.com/books?id=BfyFFCyRvX0C&lpg=PR19&ots=M1pag
ip27K&dq=film%20industry%20entry%20barriers&lr&pg=PA15#v=onepa
ge&q=entry%20barriers&f=false
http://motherjones.com/files/legacy/news/feature/2007/03/and_then_there_
were_eight.pdf
http://www.ibisworld.com/industryus/default.aspx?indid=1245
OTHER INTERESTING INFORMATION
SUGGESTED RETAIL PRICE

Set high sell low “Hey, that is a good deal.”
PIRACY
CLOSING GAP BETWEEN THEATRICAL
RELEASE AND DVD/BLU-RAY RELEASE
1988
2005
58.14 days
27.93 days
Source: “The Impact of Early DVD release on Box Office Revenue”
MARKET EXPERIMENT: DETERMINING THE
PRICE ELASTICITY OF DEMAND FOR DVDS
Film
DVD PRICE
VHS PRICE
Rugrat in Paris
$22.46
$22.99
The Mummy Returns
$26.98
$22.98
Miss Congeniality
$16.69
$22.98
The Perfect Storm
$24.98
$22.99
Blu-ray $34.99 or $35.99
Economics 2nd Edition. P186

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