Rafi Mohammed

Hollywood Studios Revamp Their Pricing Strategy

Posted on May 27th, 2010 (1 Comments)

I am pleased to say that The 1% Windfall continues to receive strong reviews, Consulting Magazine says, “The book offers practical guidelines that any sized company can follow to create a comprehensive pricing plan and increase profits without sacrificing customer loyalty. It’s a tricky equation, but Mohammed offers a strategic solution.”

Now on to the blog…

Saturday’s Wall Street Journal had a fascinating article on Hollywood studios revamping their pricing strategy (“Hollywood Eyes Shortcut to Television” by Lauren Schuker and Ethan Smith). Studios are apparently ready to disrupt their longtime “release windowing” strategy of: theaters then paid cable television then DVD then commercial television. Instead, studios are contemplating offering new films on home pay-per-view, thirty days after release, for $20 to $30.

This is a shrewd strategy to better capitalize on new release marketing and earn higher profit from the significant demand of consumers who want to watch movies at-home. I think we all can agree that consumers are willing to pay more than $1 to watch a blockbuster Hollywood movie at home. However with the current windowing strategy, rental companies such as Netflix and Redbox purchase DVDs (that are target priced to consumers) and earn profits by renting them. Studios can, and should, do better in profiting from “watch at home” viewers.

$20 to $30 per view seems like a value-justified price. Watching at home results in hard dollar ($10 per ticket, refreshments, babysitter, and transportation costs) as well as soft dollars savings (convenience of watching at home, can watch any time, and no one talking or blocking your view). There is enhanced value for home viewers in seeing a new release when it is “in vogue” to watch (can join in water cooler discussions) as well as be a part of the hype (better relate to the marketing promotions such as the film stars appearing on talk shows). The only question I have is whether a 30 day delay is too long to wait. $20 - $30 seems like a reasonable value capturing price on the theatrical release date, but value to the consumer generally deteriorates the farther away from the release date.

The big question is will movie theaters lose? This is uncertain – many customers highly value the social and big screen experience of going to the cinema. Even with an at-home option, these customers will continue visiting movie theaters. After all, bookstores peacefully co-exist with libraries. That said, if cannibalization occurs (instead of going to the cinema, moviegoers watch at home): (1) Studios may be able to increase the revenue split that cinemas keep, (2) Increased potential profits may motivate studios to spend more on marketing – which will increase movie theater and at home demand.

Bottom line: This new release strategy seems like a brilliant strategy for studios to better profit from a segment that enjoys and is willing to pay higher prices to watch a new release when it is released theatrically. If managed properly, this new strategy can be win-win for studios, movie theaters, and consumers.

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Readers' Comments on This Blog Entry

From Steve Smith on May 28th, 2010
They already do this on On Demand with their "Same Day As Theater" releases, although it's more art house fare. There are certain movies that this is better for. If movies require more of a theater experience like "Avatar" I think it's a tougher sell, but movies like say "Sex and the City" would do well this way (it's bad in theaters or on TV). I think 30 days is too long for that kind of money. Finally, if people record this, doesn't it mess with the DVD sales?