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*

DVD to Digital (Part IV) 1.Established Business Model of Movie Studios 2.Recent Developments 1.DVD market is saturating 2.Movies are not profitable 3.Confusion about HD-DVD  recent development 3.Responses by Movie Studios 1.Lean Operations 2.More targeted production 3.Migration to Digital Distribution of Movies* 1.Promises: Portability and Easiness to play movie  Efficiency 2.Perils: Piracy 4. Legitimizing Online Downloading 1.Increased Portability by New Devices 2.Downloading on Conventional DVD Players

Copyright Ruling Rings with Echo of Betamax (NYT) 1.SONY Betamax (1976): First machine to record TV programs at home 2.Doctrine of first sale: If you bought it, you own it. 3.Recent Supreme Court Ruling: College Textbook from Thailand (Gray market = parallel import) 1.Who is a winner? 2.Who is a loser?

Copyright Ruling Rings with Echo of Betamax (NYT) 4. Key issue: Balancing the interests of copyright holder and consumers 5. What is coming up? Secondhand market for digital contents 6. What would publishers do in the future? - Sale  Licensing - Automatic expiration - Software Locks

Trust in Markets Sherman Act (1890): To outlaw anticompetitive trusts and certain predatory tactics: political motives  Being “ big ” means you are bad! If one had a high market share  merger proposals were (automatically) rejected By 1960 ’ s: “ The dangers of a vertical merger were grossly exaggerated ” (Robert Bork)  Univ. of Chicago economists (Free Market Believers): Focus on individual behavior rather than on market share/structure 7

Trust in Markets (Con’d) Changes in 1980’s-1990’s: – Government Role: Visible hand  Invisible hand – Focus: Political motives  Microeconomic outcomes (actual changes in products and prices) – 30,000 Ft view  30 ft view – Market is static  Market is dynamic – Enforcement: blocking merger  cajole negotiation between parties – Global merger issue (ex: Honeywell) 8

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 the Verdict 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?

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: From Budgetary Targets  To Linear Compensation Scheme based on  Performance: past sales and profits  Current Market Conditions 5. Reeducate CFOs! Conventional Approach: Sales Goal  Budget based on goal attainment  Focus on rewarding outcomes; Rethink (stretch) goal setting and incentives

Vertical Integration (WSJ) 1.Mantra for the last thirty years: Outsource = Vertical disintegration 2.The pendulum has swung back recently 3.Vertical Integration in the past and now 1.Past: Total integration 2.Now: Partial integration or Virtual Integration 4.Why Vertically Integrate? 1.More Control 2.More Adaptability 3.Information and Learning

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