MOVIE INDUSTRYCAST

Justin Balcom

ZiHan Weng

Isara Patumanon

Hillary Pham

TABLE OF CONTENTS

Industry StructureBackgroundCompetitionOrganization

• Pricing StrategiesMovie TheatersDVDs, Blu-rayRentals/Television/VoD

Analysis/Recommendations

INDUSTRY STRUCTUREBACKGROUND

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 STRUCTUREBACKGROUND

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

Key Statistics:

INDUSTRY STRUCTUREBACKGROUND

Revenue ($m) IVA ($m)

Establishments

Enterprises

Employment

Exports ($m)

Imports ($m)

Wages ($m)

Domestic Demand ($m)

Rental + Sell 

Through Spending on Home Entertainment ($ billion)

2001 31,310.40 10,687.40 5,422 5,233 49,585 4,320.90 515.8 4,095.80 27,505.30 16.92002 31,860.30 10,560.60 5,600 5,406 43,836 4,046.30 486.5 3,940.00 28,300.50 192003 30,804.10 11,184.00 5,760 5,587 47,605 4,097.00 527.7 4,470.80 27,234.80 20.72004 31,576.80 11,899.70 6,014 5,837 62,544 4,705.00 553.9 4,652.10 27,425.70 21.82005 30,859.30 13,318.70 6,483 6,300 68,697 4,474.70 605.5 5,156.50 26,990.10 21.72006 30,674.30 14,386.40 6,525 6,349 74,250 4,693.20 569.4 5,340.40 26,550.50 21.62007 31,445.20 14,531.70 6,780 6,356 74,763 4,307.90 566 5,394.90 27,703.30 21.42008 31,546.70 15,947.30 6,991 6,739 79,402 4,138.90 625.4 5,759.10 28,033.20 212009 27,827.60 12,641.50 5,855 5,521 67,246 4,082.40 520.7 4,787.40 24,265.90 202010 29,726.80 14,513.60 6,507 6,009 73,990 4,250.90 592.1 5,425.60 26,068.00 22.72011 30,826.70 15,122.10 6,446 6,378 72,567 4,685.70 598.7 5,640.50 26,739.70 25.72012 30,641.70 15,218.00 6,433 6,259 73,141 4,228.50 622.8 5,780.70 27,036.00 22.32013 28,671.50 14,869.50 6,621 6,507 73,777 4,157.40 575 5,680.40 25,089.10 19.32014 30,641.70 15,917.00 6,949 6,567 77,077 4,259.20 634.2 6,087.80 27,016.70 21.92015 31,465.50 15,324.30 6,819 6,769 75,233 4,625.40 583.1 5,754.20 27,423.20 18.9

(Ibisworld.com)Industry Data

INDUSTRY STRUCTURECOMPETITION Concentration of industry – HHI = 1053.11

Viacom Inc. 12.1%

Paramount Pictures

DreamworksNickelodeonMTV Films

Sony Corp 12.4%

Sony Pictures Ent.

Columbia TristarScreen GemsImageworks

News Corp 13.7%

Fox Filmed Ent.Blue Sky

Time Warner Inc. 13.8%

Warner Bros.Warner Home VideoNew Line Cinema

Imprint Entertainment

Castle Rock Entertainment

NBC Universal 15.7%

Universal PicturesFocus

Features

Walt Disney 20.7%

Walt Disney Pictures

Touchstone Pictures

PixarMiramaxLifetimeMarvel

Hollywood Pictures

Other Players 11.6%Lions Gate Ent.

CentropolicWeinstein Company

INDUSTRY STRUCTURECOMPETITION

Top-Grossing Distributors 1995 to 2011 (thenumbers.com)

  Distributer Movies Total GrossAverage

GrossMarket Share

1Warner Bros. 491 $25,912,522,239 $52,774,994 14.33%

2Walt Disney Pictures 432 $25,824,648,209 $59,779,278 14.28%

3Sony Pictures 508 $23,589,240,769 $46,435,513 13.05%

4Paramount Pictures 329 $21,163,365,975 $64,326,340 11.70%

520th Century Fox 343 $20,182,249,012 $58,840,376 11.16%

6Universal 321 $18,680,450,048 $58,194,548 10.33%

7New Line 203 $8,786,568,118 $43,283,587 4.86%

8Dreamworks SKG 77 $5,988,394,230 $77,771,354 3.31%

9Miramax 377 $5,621,533,555 $14,911,230 3.11%

10MGM 228 $5,059,084,987 $22,188,969 2.80%

INDUSTRY STRUCTURECOMPETITION

Key Success FactorsEffective cost controlsAccess to multi-skilled and flexible

workforceAbility to manage external (outsourcing)

contractsAbility to quickly adopt new technology

INDUSTRY STRUCTURECOMPETITION 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 STRUCTURECOMPETITION Product Differentiation

Market Segmentation of Genres Top-Grossing Genres 1995 to 2011

  Genre

(Markets)Movies Total Gross Average Gross

Market Share

1 Comedy 1,660 $43,538,067,918 $26,227,752 24.11%

2 Adventure 472 $35,095,187,467 $74,354,211 19.44%

3 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%

10 Black Comedy 76 $745,408,050 $9,808,001 0.41%

(thenumbers.com)

INDUSTRY STRUCTURECOMPETITION

Survey Results• Production Differentiation of Genres

Action 14 38%Drama 18 22%Comedy 12 32%Horror 1 3%Others 2 5%Total 37

38%

22%

32%

3%5%

Action DramaComedy HorrorOthers

INDUSTRY STRUCTURECOMPETITION

Regulation and PoliciesLevel of regulation is relatively medium and

increasingMany people employed in the business are in

unions SAG, DGA, WGA

Copyright laws Insurance – Production companyMPAA

INDUSTRY STRUCTURECOMPETITION

Regulation: MPAA (World War Z) Top-Grossing MPAA Ratings 1995 to 2011 (thenumbers.com)

  MPAA Rating

Movies Total GrossAverage

GrossMarket 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 STRUCTURECOMPETITION

0 1,000 2,000 3,000 4,000$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

$80,000,000,000

$90,000,000,000

PG-13

R

PG

GNot RatedNC-17

Total Gross

Total Gross

Movies

INDUSTRY STRUCTURECOMPETITION

Seasonality

# Answer Response %

1 Winter 14 38%

2 Spring 6 16%

3 Summer 30 81%

4 Fall 10 27%

INDUSTRY STRUCTUREORGANIZATION

How does a movie get made?

Pre-production

Production Post-production

Methods of Consumptio

nConsumer

INDUSTRY STRUCTUREORGANIZATION What happens after production?

Movie Theaters

DVD

Rental

Retailers

Purchase

ToD/Television

Pay Cable Networks

Basic Cable Networks

Regular Cable Networks

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 Entertainment Group

23.5 552.25

2. AMC Entertainment Inc.

20.0 400

3. Carmike Cinemas Inc.

4.3 18.49

Concentration Index CR3 H=970.74

Median concentrationSource: www.ibisworld.com

REVENUES OF REGAL ENTERTAINMENT GROUP V.S. AMC ENTERTAINMENT INC.

Year

Regal Entertainment Group Revenue ($ million)

AMC Entertainment Inc. Revenue ($ million)

2006 2,598 1,5972007 2,661 2,2112008 2,771 2,2402009 2,893 2,1752010 2,919 2,3212011 2,969 2,533

Source: ibisworld.com

REVENUES OF REGAL ENTERTAINMENT GROUP V.S. AMC ENTERTAINMENT INC.

2005 2006 2007 2008 2009 2010 2011 20120

500

1,000

1,500

2,000

2,500

3,000

3,500

Regal Entertainment Group Revenue ($ million)AMC Entertainment Inc. Revenue ($ million)

Source: ibisworld.comYear

PriceIn million

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. CITIESMost Affordable U.S. Cities Adult/low Child/low Senior/lowNew London, Conn $10.00 $7.50 $7.00Baltimore, OH $9.00 $7.00 $6.50Huntsville, Ala. $6.00 $6.00 $6.00Tulsa, Okla $8.50 $6.00 $7.50Rock Island, Ill. $7.50 $7.00 $7.00Troy, N.Y. $10.00 $7.00 $7.00Corpus Christi, Texas $7.50 $6.00 $6.00Schenectedy, N.Y. $10.75 $7.50 $7.50Las Vegas, Nev $10.00 $6.75 $6.75

Source: www.movie.com

MOVIE TICKET PRICE OF MOST EXPENSIVE U.S. CITIESMost Expensive U.S. Cities Adult/high Child/high Senior/highNew York City $13 $9.5 $9.5San Francisco $10.75 $8.00 $8.25Stamford, conn. $11.00 $8.00 $6.00San Jose $10.25 $7.50 $7.50San Diego $11.50 $8.00 $8.00Santa Barbara $10.50 $8.00 $8.00Bakersfield, Calif. $8.50 $7.00 $7.00Fresno, Calif. $11.00 $7.50 $7.50Los Angeles $12.50 $9.25 $9.25Boston $11.50 $8.55 $6.00

Source: www.movie.com

1 2 3 4 5 6 7 8 90

2

4

6

8

10

12

14

Adult

Adult/lowAdult/high

1 2 3 4 5 6 7 8 90123456789

10

Child

Child/lowChild/high

1 2 3 4 5 6 7 8 90123456789

10

Senior

Senior/lowSenior/high

Movie Ticket Price between different cities

Price variation exists across

theaters within the same

geographic area, according

to their location,

design, physical conditions, and other factors

Source: www.movie.com

Cities

Cities

Year

Cities

Price

Price

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

Adult Child Senior Student Veteran$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

DayEvening

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

1940 1950 1960 1970 1980 1990 2000 2010 2020 $-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

Average U.S. Ticket Prices

Adjusted Inflation(2007Base)

Year

Price$

Source: NATO

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

$12.25

#2 Two Large Sodas & A Large Popcorn

$18.5

Source: Ithaca Regal CinemaA movie ticket price = Price of

Concession

SURVEY

# Answer

    Response %

1 Every time    4 11%

2 Occasionally    18 49%

3Never (Please skip the next question)

    15 41%

  Total   37100%

How often do you buy food (e.g. popcorn) and beverage when you go to a movie theater?

IF YOU BUY, DO YOU BUY FOOD AND BEVERAGE IN BUNDLE OR SEPERATELY?

# Answer    Response %

1 Bundle   

624%

2 Separately   

832%

3Depends on circumstances

   11

44%

  Total   25100%

ARE YOU WILLING TO PAY MORE FOR BETTER QUALITY SEATS (E.G. LUXURIOUS SEATS) AND SERVICES IN MOVIE THEATERS?

# Answer

    Response %

1 Yes   

0 0%

2 No   

2773%

3 Maybe   

1027%

  Total   37100%

PRICING STRATEGIESFor 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

TODAY$500 $1332006

Source: Mintel Group

REVENUE FROM BLU-RAY PLAYERS

TODAY2006$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?

Movie Name

    Bestbuy Amazon Average

Netflix ratingBudget in

millionOriginal

priceCurrent

PriceOriginal

priceCurrent

PriceOriginal

priceCurrent

Price

Cloudy with a achance of meatballs 3.8 $ 100.00

$ 19.94

$ 14.99

$ 19.94

$ 11.49

$ 19.94

$ 13.24

The final destination 3 $ 40.00

$ 14.98

$ 9.99

$ 14.98

$ 9.99

$ 14.98

$ 9.99

The hurt locker 3.9 $ 15.00

$ 26.99

$ 9.99

$ 26.99

$ 19.49

$ 26.99

$ 14.74

The invention of lying 3.1 $ 18.50

$ 12.98

$ 9.99

$ 12.98

$ 8.49

$ 12.98

$ 9.24

Surrogates 3.4 $ 80.00

$ 14.99

$ 9.99

$ 14.99

$ 12.49

$ 14.99

$ 11.24

Saw 6 3.5 $ 11.00

$ 14.98

$ 14.99

$ 14.98

$ 13.49

$ 14.98

$ 14.24

Zombieland 4.1 $ 23.60

$ 19.94

$ 14.99

$ 19.94

$ 13.49

$ 19.94

$ 14.24

law abiding citizen 4.1 $ 53.00

$ 29.98

$ 19.99

$ 29.98

$ 10.69

$ 29.98

$ 15.34

2012 3.4 $ 200.00

$ 19.94

$ 14.99

$ 19.94

$ 11.99

$ 19.94

$ 13.49

Where the wild things are 2.9 $ 100.00

$ 19.98

$ 14.99

$ 19.98

$ 7.69

$ 19.98

$ 11.34

Planet 51 3.6 $ 70.00

$ 19.94

$ 14.99

$ 19.94

$ 10.33

$ 19.94

$ 12.66

hachi: a dog's tale 4.1 $ 16.00

$ 19.94

$ 14.99

$ 19.94

$ 10.99

$ 19.94

$ 12.99

The princess and the frog 3.9 $ 105.00

$ 29.99

$ 19.99

$ 29.99

$ 15.49

$ 29.99

$ 17.74

ninja assassin 3.6 $ 40.00

$ 19.98

$ 14.99

$ 19.98

$ 14.19

$ 19.98

$ 14.59

astro boy 3.8 $ 65.00

$ 19.99

$ 14.99

$ 19.99

$ 13.99

$ 19.99

$ 14.49

Alvin and the chipmunks the squeakquel 3.6 $ 75.00

$ 19.98

$ 14.99

$ 19.98

$ 11.49

$ 19.98

$ 13.24

Sherlock Holmes 3.8 $ 90.00

$ 19.98

$ 14.99

$ 19.98

$ 8.99

$ 19.98

$ 11.99

alice in wonderland 3.7 $ 175.00

$ 19.99

$ 14.99

$ 19.99

$ 10.49

$ 19.99

$ 12.74

Avatar 4.2 $ 237.00

$ 29.98

$ 19.99

$ 29.98

$ 20.99

$ 29.98

$ 20.49

It is complicated 3.7 $ 85.00

$ 19.98

$ 14.99

$ 19.98

$ 13.49

$ 19.98

$ 14.24

Leap year 3.4 $ 19.00

$ 14.98

$ 9.99

$ 14.98

$ 11.49

$ 14.98

$ 10.74

Valentine's day 3.4 $ 52.00

$ 19.94

$ 14.99

$ 19.94

$ 9.99

$ 19.94

$ 12.49

Invictus 3.8 $ 50.00

$ 14.99

$ 19.94

$ 19.94

$ 9.49

$ 17.47

$ 14.72

Hot Tub Time machine 3.5 $ 36.00

$ 19.99

$ 19.99

$ 29.98

$ 18.99

$ 24.99

$ 19.49

The bounty hunter 3.4 $ 40.00

$ 19.94

$ 14.99

$ 19.94

$ 10.79

$ 19.94

$ 12.89

Date night 3.6 $ 55.00

$ 19.98

$ 14.99

$ 19.98

$ 12.16

$ 19.98

$ 13.58

Source: BestBuy, Amazon, Netflix, IMDB

The Effect of movie budget, and Netflix Viewer Ratings on DVD Pricing

2.8 3 3.2 3.4 3.6 3.8 4 4.2 4.4 $-

$10.00

$20.00

$30.00

$40.00

Netflix Viewer Ratings/Original price

2.8 3 3.2 3.4 3.6 3.8 4 4.2 4.4 $-

$5.00

$10.00

$15.00

$20.00

$25.00

Netflix Viewer Rat-ings/Current Price

$- $50.00 $100.00 $150.00 $200.00 $250.00 $-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

BUDGET/Original Price

$- $50.00 $100.00 $150.00 $200.00 $250.00 $-

$5.00

$10.00

$15.00

$20.00

$25.00

Budget/Current price

Budget(in m)

DVD PriceDVD Price

DVD Price DVD Price

Rating

TAKE A CLOSER LOOK

 Coefficien

tsStandard

Error t Stat P-valueLower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept -27.6359 125.8572 -0.21958 0.828054 -287.392 232.1206 -287.392 232.1206X Variable 1 27.24955 34.56108 0.788446 0.438155 -44.081 98.58011 -44.081 98.58011

Budget/Original

Budget/Current Price

Netflix Viewer Ratings /Original Price

Netflix Viewer Ratings /Current Price

 Coefficien

tsStandard

Error t Stat P-valueLower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 12.6522 0.786531 16.08607 2.35E-14 11.02888 14.27552 11.02888 14.27552X Variable 1 0.014701 0.008684 1.692876 0.103422 -0.00322 0.032624 -0.00322 0.032624

 Coefficie

ntsStandard

Error t Stat P-valueLower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept -10.632 7.991688 -1.33039 0.195895 -27.1261 5.862011 -27.1261 5.862011X Variable 1 8.570229 2.194562 3.905211 0.000669 4.040875 13.09958 4.040875 13.09958

 Coefficien

tsStandard

Error t Stat P-valueLower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept -3.60865 4.510037 -0.80014 0.43148 -12.9169 5.699608 -12.9169 5.699608X Variable 1 4.77195 1.238481 3.853066 0.000763 2.215851 7.32805 2.215851 7.32805

Popularity

DISTRIBUTORS Retail Stores

SET PRICE: OPTIMAL PROFIT

Source: BestBuy.com

$0-$3.99 $4-$6.99 $7-$9.99 $10-$14.99 $15-$24.77 $25-$49.99 $50 and up0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

0.86%

10.25%

16.87%

34.93%

25.11%

9.41%

2.57%0.00% 0.19%

3.02%

20.99%

43.36%

26.88%

5.57%

Price of DVD and Blu-ray at Bestbuy Online Store

DVDBlu-ray

SURVEY

How much are you willing to pay for your must-watched Blu-ray movies?

Average: $20.32Given DVD price at $19.99

Average: $23.88Given DVD price at $9.99

Average: $15.73

DVD LIFE-CYCLE

1 2 3 4 $-

$10,000,000.00

$20,000,000.00

$30,000,000.00

$40,000,000.00

$50,000,000.00

$60,000,000.00

$70,000,000.00

Revenue from DVD sales by weeks

MegamindDue DateRedBevery Hills Chihuahua 2Avarta

Source: Nash Information Service, LLC

VERSIONING

BUNDLING

Source: Walmart.com

PRICING STRATEGIES IN RETAILS

VersioningBundling

RENTAL STORES

Physical(Ummmm..is there any?) Online(Netflix) Hybrid(Blockbuster)

NETFLIX VS. BLOCKBUSTER OVERVIEW COMPARISON

FREE TRIAL

NETFLIX: DO WE ALWAYS GET WHAT WE WANT?

“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

Terms of Use

PRISONER DILEMMA

Online stores price war

Blockbuster

Netflix High Low

High High, High Low, High

Low High, Low Low, Low

TWO-PART TARIFF

COLLUSION?

Netflix and Wal-Mart “Corporation.”

Video on Demand

Netflix vs. Blockbuster

Cable network

BUNDLING

PRICING

TWO-PART TARIFF

Television Broadcasting

TV Syndication

Exception

Lower Expectation

100-episode rule

Syndicated Reality Shows

ANALYSIS AND RECOMMENDATIONS

Investment – how would you evaluate the industry from the perspective of a venture capitalist or stock-market 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=

M1pagip27K&dq=film%20industry%20entry%20barriers&lr&pg=PA15#v=onepage&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

58.14 days

2005

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