Master of Arts – Informatics
Capstone Presentation
DVD: Complementary Product and Technology Diffusion
Barbara Mulvenna ~ June 26, 2002
Topics to Be Covered
 My Background & Qualifications
 Origin of this Study
 Hypothesis
 Key Definitions
 Highlights of Literature Review
 Supporting Primary Data Highlights
 Implications
 Conclusion
Background & Qualifications
 Retail Management
 I started my career with a company called Footlocker
 Opened four of the first 10 Lady Footlocker stores
 Advertising & Marketing
 12 years in Yellow Pages sales
 Brand management for local Harley-Davidson OEM
 Advertising Coordinator, Buffalo BBB
 Education
 BS. Communication & Information Technology
 Certificate in Public Relations/ Advertising
Origin of the Study
 Media Economics- Dr. Gary Ozanich
 During the past two decades, new technologies,
deregulation, and access to capital markets have resulted
in massive changes to the industries that provide
communication products and services
 In the US the structure and performance of the mass
media are driven by economics, primarily geared to
maximizing operating cash flow*
*Communication 622 Syllabus; Dr. Gary Ozanich
Hypothesis
 The dramatic marketing shift on the part of
Blockbuster Video and other retail outlets of
DVD movie titles fueled the acceleration of mass
acceptance, adoption, and consumption of DVD
hardware.
Key Definitions
 Complementary Products
 Many products consist of a system of complementary
components that consumers assemble to meet their needs
 Indirect Network Externalities
 The greater the availability of complementary products,
the more attractive the capital good for consumers
 Network Effects
 Firms rarely act alone to create new products, and
products rarely function in isolation
 Installed Base
 The number of users or current installations of the
technology
Literature Review Highlights
 Van den Bulte (2000)
 If the complementary product structure is in place, the
indication is that technology adoption will proceed rapidly
 Nambisan (2002)
 Hardware manufacturers must consider the availability of
complementary products during new product development
 Schilling (2002)
 Technologies can rise rapidly to dominate the market when
there is a heavy dependence on network externalities
 If an event gives a technology an initial advantage in adoptions,
it may benefit from the development of complementary
technologies, and its installed base may increase until the
technology achieves an advantage that is nearly insurmountable
Primary Data Highlights
 VHS profit vs. DVD profit
 Blockbuster increased DVD floor space
 From 20% to 40%
 Blockbuster’s 2001 Marketing Campaigns
 DVD’s share of rental market has grown to 29.2%
 Up from 12.4% year-to-date 2001
 VHS rentals decreased 16.8%
 Blockbuster Video’s 4th quarter 2001 charge
 $450 million
Primary Data ~ Sales Numbers
Year
1997
1998
1999
2000
2001
Disc
Unit Sales
(m)
5.5
25.1
98
182.4
364.4
Player
Unit Sales
(m)
.32
1.08
4.07
9.7
16.7
Primary Data ~ Diffusion Curve
DVD Movies
DVD Players
Sales (m)
10.32
Sales (m)
16.7
15.32
9.7
5.32
0.32
405
355
4.07
0.32
1997
1998
1999
305
255
205
155
105
55
5
1.08
2000
2001
364.4
182.4
98
5.5
1997
25.1
1998
Year
Year
Year
1999
1998
1999
2000
2001
Discs
21.9%
25.6%
53.7%
50.1%
Players
29.6%
26.5%
42.0%
58.1%
Figures compiled by Ernst & Young on behalf of the DVD Entertainment Group (DVD Report, Jan 2002)
2000
2001
Implications
 This study is relevant to all components of the
home video software chain
 Studios / Content Providers

2001 (est.) 44% of studios domestic revenue from rental
channel; more than 15% from Blockbuster*
 This study is relevant to the manufacturing sector
 Unexpectedly strong demand for DVD players has
pushed demand for DVD chips above expectations

Robert Blair, ESS Technology, Fremont CA.**
 This study implies that DVD format has reshaped
the theatrical aftermarket
*Daily Variety (2001) **Purchasing (April 2002)
Conclusion
 The DVD business model is favorable to the retailers,
particularly the market leader in video rental, Blockbuster
 The impetus for adoption by consumers was spurred by the
apparent abundance of DVD content and a seemingly
shrinking selection of VHS content
 The initiative of Blockbuster Video to increase availability of
DVD content and the adoption of DVD technology coincide
 This relationship has been clearly established in the literature
on complementary product strategy and network externalities
 This study shows a push from the product complement side
toward wider acceptance of the primary technology, DVD
players
Questions?
A special thank you to Drs. Ozanich and Halavais for their guidance on this project.
Thank you to all the Informatics faculty for their inspiration, enthusiasm, and support.