Warner bros presentation

CASE

Warner Brother Simultaneous Global Release for Batman 3

By Sayan Maiti IIM Indore

Situation Analysis

Warner Bros. Studios, a subsidiary of entertainment conglomerate Time Warner is considering a new release strategy for its big budget film.

The two components of strategy are -

Release the movie in theaters on the same day around the world

Globally release the DVD along with the movie on the same day and date

Only one movie has ever been simultaneously released theatrically and through

DVD, and it was by a small, independent film company.

Therefore doing a comparative analysis is difficult.

Being among the first to do something is always risky.

There is no financial data on the first two films released in the series and hence

estimation of financials is difficult and might not be accurate.

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Page 1 Warner Brother Simultaneous Global Release

So what’s the Problem ?

Warner Bros. would like to know if

releasing the DVD’s globally on the

same day along with releasing the

movie globally across the world is a

good strategy. If not what should be

the best release strategy.

Assumption – The best release strategy will be one which helps the company gather maximum gross revenue.


Alternatives

Have a global release of the movie along with the simultaneous release of DVD’s worldwide

Have a global release of the movie but don’t release the DVD’s on the same day but a few days/months later.

Have a staggered release of the movie worldwide and release the DVD’s once the worldwide release is over.

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Evaluation of Alternatives – Alternative 1

Have a global release of the movie along with the simultaneous release of DVD’s worldwide 1

All Values in Millions Blockbuster Success Breakeven Failure

Theatre DVD Theatre DVD Theatre DVD Theatre DVD

Gross Revenue $ 500.00 $ 250.00 $ 100.00 $ 50.00

Breakup Gross Revenue $ 454.55 $ 45.45 $ 227.27 $ 22.73 $ 90.91 $ 9.09 $ 45.45 $ 4.55

Change in sales due to simultaneous release in Theatre as well as DVD $ (90.91) $ 11.36 $ (45.45) $ 5.68 $ (18.18) $ 2.27 $ (9.09) $ 1.14

Savings in Marketing Campaign $ - $ 5.00 $ - $ 5.00 $ - $ 5.00 $ - $ 5.00

Increase in revenue because of decrease in Piracy $ 22.73 $ - $ 11.36 $ - $ 4.55 $ - $ 2.27 $ -

New Segment Wise Gross Revenue $ 386.36 $ 61.82 $ 193.18 $ 33.41 $ 77.27 $ 16.36 $ 38.64 $ 10.68

Change in Segment Wise Gross Revenue $ (68.18) $ 16.36 $ (34.09) $ 10.68 $ (13.64) $ 7.27 $ (6.82) $ 6.14

New Total Gross Revenue $ 448.18 $ 226.59 $ 93.64 $ 49.32

Difference from earlier revenue $ (51.82) $ (23.41) $ (6.36) $ (0.68)

Since no data is given, it was assumed that the marketing spend on theatre and DVD’s is the ratio of gross revenue earned from the movies. Since marketing spend on theatre is 10 times that of DVD’s. The ratio of Theatre Sales : DVD Sales is hence assumed to be 10:1.

Gross Revenue of the blockbuster 3rd sequel movies was assumed to be the total gross revenue.

Taking this assumptions into account it seems that global release strategy along with DVD’s is not favorable as it results in decrease in gross revenues.

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Have a global release of the movie along with the simultaneous release of DVD’s worldwide 1

We find out the breakeven sales due to the change in ratio of theatre to DVD sales and it came out to be 0.65:0.35 for Theatre Sales : DVD Sales. This ratio is exogenous and cannot be determined beforehand. However if this can be approximated accurately a correct decision of whether or not to follow this strategy can be arrived at.

Assuming a sales mix of 10:1 for theatre to DVD, we found that for the strategy to work, the DVD volumes need to show a 139% growth at ceteris paribus. Similarly the piracy needs to reduce by 82% at ceteris paribus. ( Details can be found in the excel )

Clearly at current assumptions, the strategy is not favorable.

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Gross Revenue $ 500.00 $ 250.00 $ 100.00 $ 50.00


Change in sales due to simultaneous release in Theatre as well as DVD $ (65.00) $ 43.75 $ (32.50) $ 21.87 $ (13.00) $ 8.75 $ (6.50) $ 4.37

Savings in Marketing Campaign $ - $ 5.00 $ - $ 5.00 $ - $ 5.00 $ - $ 5.00



Change in Segment Wise Gross Revenue $ (48.75) $ 48.75 $ (24.38) $ 26.87 $ (9.75) $ 13.75 $ (4.88) $ 9.37


Breakeven $ (0.00) $ - $ - $ -



Have a global release of the movie but don’t release the DVD’s on the same day but a few days/months later.

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As clearly seen from the table above, a worldwide release results in increase in gross revenue due to reduced piracy.

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Gross Revenue $ 500.00 $ 250.00 $ 100.00 $ 50.00




Change in Segment Wise Gross Revenue $ 22.73 $ - $ 11.36 $ - $ 4.55 $ - $ 2.27 $ -


Difference from earlier revenue $ 22.73 $ 11.36 $ 4.55 $ 2.27

Taking permission from censor boards and meeting the regulations in different countries requires a lot of planning and might involve extra overheads which can incur extra expenses.

Finding distributors in all countries who are willing to take the risk of releasing a foreign movie. However Warner Bros. being a big brand can be assumed to have loyal distributors around the world.

The actors might be required to go to different countries for promotion which may again involve extra effort and resources.



Have a staggered release of the movie worldwide and release the DVD’s once the worldwide release is over.

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This is clearly the most common followed policy and will not results in any increase in revenue. As the goal of the company is to maximize the gross revenue clearly it doesn’t fit into the criteria.

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Piracy of the movie will result in loss of revenues. As this movie is a big budget movie and is expected to earn big bucks, this will mean potential loss.

Most of the Theatre revenues are earned during the initial days of the release when there is a euphoria surrounding the movie. In case the movie is not popular among the masses, potential release in other countries might not be successful as the company might find it difficult to get buy-in from distributors.

Extra budget as marketing expense needs to be spend on Theatre Release as well as DVD Release.


Final Recommendation

As seen from the alternatives, a worldwide release of the movie will result in increase in gross revenues. However releasing the DVD’s worldwide along with the movie will result in cannibalization of sales and total decrease in gross revenue. This is because the sales mix is highly skewed in favor of theatre sales. Also intuition says that margins are much better in case of theatre releases as compared to DVD releases. Hence the company should not release the DVD’s worldwide at the same time as theatre release. It should only go for worldwide theatre release.

A Better Solution –

Even a big banner like Warner Bros. will not have the same distribution effectiveness in every country. Considering this, it should identify the countries in which it should go for a theatre release and countries in which to go only for DVD release. In countries having weak or no distribution channels, it should release only DVD’s. These are usually third world countries where piracy is mostly seen. Having original DVD’s will reduce piracy and at the same time not cannibalize theatre sales.

So depending on gross revenue estimates and distribution effectiveness, Warner Bros should go for a global worldwide theatre release and release DVD’s in countries where theatre sales are not effective.

Use of hackers to block pirate websites and remove illegal download links as well as lobbying with local governments to reduce piracy are two way which can further improve gross sales.


Thank You

Sayan Maiti Mail : [email protected] Phone : +91-7389464800

END Warner Brother Simultaneous Global Release

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