DVD Versus VHS
1. A Quandary for Movie Studios
2. Changes in Movie Pricing
1. VHS Tape: two-tier pricing & revenue sharing
2. DVD: one mass-market pricing ($14.99)
3. Marketing Channel Changes
1. 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 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?
DVD Versus VHS (Part II)
1. A Problem for Blockbuster
2. Changes in Movie Pricing
1. Past: revenue sharing ($65  $25 + royalty)
2. DVD: one mass-market pricing ($14.99)
3. Marketing Channel changes
1. Power shift from Blockbuster to Wal-Mart
2. Power struggle between W-B and Blockbuster
4. 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 Distribution
2. Major Change
3. Driving Forces for Simultaneous Release
1. Generic Competition
2. Capitalize on Buzz
3. Efficiency of Cable
4. Detractors for Simultaneous Release
1. Fear of Cannibalization
2. 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 Streaming
2. Latest Trend: DVD sales down; Blue-ray sales up;
Internet streaming surges
3. Trade-off: Instant gratification versus picture
quality
4. Potential Winners and Losers
1. Winners: Netflix and Amazon; Samsung and LG
2. 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 incentives
2. What is the problem with Chrysler’s incentive
scheme?
3. Stretch Goals: Pros and Cons
4. 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