The Effect Of Moser Baer's DVD Pricing On Various Stakeholders
Just to take off from what Sahad has posted about Moser Baer entering the Home Video Entertainment space, I think there are some points that need to be considered:
One way of looking at Moser Baer offering Hindi Movie DVDs at Rs.38 is that they have the movie pirates running for cover. The pricing is much lower than the expected Rs.50 per DVD. The reduction in cost is largely attributed to synergies between Moser Baer’s CD/DVD production business and the Home Video business.
On the flip side, lets just look at the various stakeholders: do these prices justify distribution and retailing costs? What kind of margins are they getting? At the point of purchase, will a mom-and-pop retailer (if they are indeed in Moser Baers scheme of things) get better margins from a pirate, or Moser Baer?
Also, when a consumer buys a DVD off the shelf, there are certain expectations of the packaging and the quality of the disk. When rented or bought off a pirate – those expectations are lowered drastically.
I’m also not sure if pirates will be affected much by this move – people buy or rent pirated disks, mostly, of the latest films, a day or two before or after the theatrical release. Unless the Home Video and theatrical release are simultaneous, the pirates will remain in business.
The online DVD rental companies, however, will have to rethink their business plans now. They average at around Rs.50 a rental, and delivery often a day after the order is placed.
I think the growth of organized retail will drive Moser Baer’s DVD sales, and they will largely be impulse purchases. The popular titles could also stocked close to the checkout lane next to chewing gum and razors.
This is what schumpeter described as "Creative Destruction".. just that in this era of web 2.0 business models, this tends to happen on a month on month basis unlike when he had spoken about it.
Incase the guys from Matrix and Draper are readers of this fora, I am sure everyone would love to hear what they have to say about their 'recent' investments into seventymm.com and all the investment rationale that went behind them.
As for the question the writer has raised regarding margins etc, one needs to think through. At the price points being talked about, the 'value propositions' is going to be so strong that it would be difficult to stop it from reaching the customer. This is a high volume and very thin margin game. And doing it the way Moser Baer intends to do is the perfect way to approach this from the game theory point of view. No one will be able to match them when it comes to the cost aspects given their existing backward linkages. They have deep pockets, which means high sustaining power. And the market size is gargantuan.
This could not only be the start of a completly new home video business model, but could also be the start of a world-wide trend.
Hi RS
Great post. I have been expressing my scepticism of the online DVD rental business in India, and now this. Don't know whether to thank Moser Baer or feel sorry for Draper and Matrix.
I think the move also has the distinct possibility of growing the film-making industry, with the onset of direct-to-DVD films and digital movies. It would help Moser Baer open up a new stream of revenue. Maybe I am thinking too far ahead.
Nikhil: This is a very compelling proposition, I think. DVD as 'media' is on the decline worldwide on account of growth of digital ( maybe not in India y et) and in that environment Moser Baer has created an interesting opportunity and value-add to their raw product
I don't think the content owners will agree on pricing the DVD's at such low prices for new releases. And since bulk of the volumes of piracy industry is driven by these new releases, I don't see a competition there.
As for older movies, its difficult to get a pirated copy of those from a gray market. So again there ain't any competition there.
Personally, Rs. 38 IMO is too low for everyone to get a fair margin for their work.
This seems like deja vu. A decade back T-Series came in to audio cassette industry and claimed we will bring down audio cassette prices.
……
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MoserBaer’s entry will have a significant impact on the home video industry, but not the one as predicted by press and many others.
Analysis Conintued on my blog…
http://sameerg.wordpress.com/2006/12/23/deja-vu-moserbaer-t-series/
From what i understand, the cost of a DVD has these compnents:
1] Production
2] Content Rights
3] Distribution
Of these, production cost is no more than Rs. 30 (5-10% of DVD cost). Even if Moser can leverage on new technology and backward integration and bring it down to Rs5, it doesent affect the overall price much.
Content and Distribution are the most expensive component and i fail to understand how they can cover that cost in Rs.38!!
If home video rights of a movie are bought for 5crore, one would need to sell some 10 million DVDs to just break even! That when we assume a realistic profit margin of Rs5 (of Rs38) per DVD.
India has (according to Moser) 26million DVD/VCD users. Even if we assume a family size of 2.5 (and no sharing!!!!!), we have 10 million potential buyers!
So just to break even, one will have to ensure that each of the 1crore buyers buy every movie DVD that you release.
Please help me with the logic!!
Hi Abhishek,
To appreciate the significance of this development, I would urge you to think beyond what is the obvious.
Let us for a moment accept that at the current price points of Rs 350-Rs 400 for a DVD and Rs 100-200 for a VCD, there are an existing 26 mn users. Now think how many people in this country would be prospective customers of an audio tape? How many people in this country have a TV? At Rs 24 for a brand new VCD, it changes the ball game altogether! That is almost as much as a bottle of Diet Coke! Today you can buy an international brand DVD player for Rs 3000. I don’t even want to guess how cheap a local VCD player would be available in the markets. All of a sudden the home movie market would become relevant and affordable even for the lower income groups. At these prices, the existing figures will loose relevance as far as I can see. So for one, if this is to work, the market shall have to grow exponentially. It will have to be a high volume and thin margin game for them.
Two, if these guys can really deliver what they claim to, then I think this is the best new years gift the entertainment industry could have ever asked for. It would kill piracy! At this value proposition, the economic incentive behind piracy would become redundant to a very large extent. Add the money the Movie industry lost every year to these pirates and you might find the figures starting to make some sense. The price points I presume would have/ or eventually will be fixed at a point where the entertainment industry overall earns the same money by getting all the market that went to the pirates while leaving the company with a healthy rate of return.
I, as a consumer, would be much happy to cough up Rs.38, or even upto Rs.60, for an original VCD/DVD, rather than spend Rs.30 for a pirated one. But not the tremendous amounts that are charged today for a single VCD.
Also, the point of getting the prints for the newest films are concerned, there will be a market (a pirated and illegal one ofcourse). But then this move will at least ensure, that older movies (whose DVDs have been released), are not pirated. This will narrow-down the level of piracy. And later a new proposition may ome which will address particularly this area of concern. In fact, online media may be have some answers to this.
The biggest gains to us as consumers will also be the indirect effect that other big players will also lower their prices, whether they have the technology or not. And also, we may see more Optical Media manufacturers getting into this play.
Its all upto them to sustain the cost of geting the DVDs out regularly, at high volumes. The market is there.
Thanks to Moser Baer's initiative, a "Dangerously exciting game is about to begin"….
In the existing scheme of things, a cassette that retails at 50/- has about 45% as Distribution costs. Of the balance 55%, there is the production costs etc etc. So at the end the content owner (ie music artist or production house) gets 10 – 15% of the Distributor price. Which is between 5 – 15 Rupees.
Assuming that the cost of DVD manufacture is 12 Rs. and retail is 38 Rs. Cost of distribution will be lower as its is easier to transport, stock and retail. The investment expected of the retailer will be lower and so a lower margin (in absolute terms could be negotiated) so say the distributor gets 10 bucks. Moser Baer gets 12 and the content owner gets 10 bucks that leaves 6 bucks for over heads etc. Now multiply this with volumes and you have the great indian volume trick. See whats happened with mobiles. Drop prices, build for volumes and you rock!
Im lovin' it :)
What i believe is there are two types of user one is always looks for quality and other is to get anything at low price. If the consumer who looks for quality would never bye pirated , but there are second type of consumer who thinks that if price is low and ready to compromise with salary would purchase pirated one.