Case 1: Warner Bros. to do simultaneous global release for Batman 3

Case Interview Question #00651

Warner Bros. should have the following key questions answered to test its release strategy

Is simultaneous global release on theatre and DVD the best release strategy?

Is simultaneous theatre and DVD releases feasible

at a global scale?

Will DVD release not cannibalise theatre

release?

Is simultaneous release financially attractive?

• Has simultaneous theatre and DVD release been done by a production house before?

• To what extent will DVD sales cannibalise theatre turnover?

• Will this strategy bring > USD 250Mn from theatrical sales?

• To what extent will it curb piracy?

Simultaneous theatre and DVD release have been done by a production house before

• One movie has ever been simultaneously released theatrically and through DVD, and it was by a small, independent film company

• Warner Bros being a larger production house can build the wherewithal to do such a release

• Such a model is hence feasible

Is simultaneous global release on theatre and DVD the best release strategy?

Is simultaneous theatre and DVD releases feasible

at a global scale?

Will DVD release not cannibalise theatre

release?

Is simultaneous release financially attractive?

To what extent will DVD sales cannibalise theatre turnover?

Is simultaneous global release on theatre and DVD the best release strategy?

Is simultaneous theatre and DVD releases feasible

at a global scale?

Will DVD release not cannibalise theatre

release?

Is simultaneous release financially attractive?

• Theatrical revenues only account for about 25% of the total revenues, video (including DVD) takes about 40%, television accounts for 28% and ancillary revenues the final 7%.

• Within video revenue, DVDs account for 72%, i.e. 28.8% of total

Source: http://www.creativeskillset.org/film/knowledge/article_5103_1.asphttp://muse.jhu.edu/journals/vlt/summary/v056/56.1kendrick.html

Assumptions to test this hypothesis

• The simultaneous theatrical and DVD release is expected to cause a 20% decrease in revenue from theatre ticket sales and a 25% increase in DVD sales.

• Pirating movies accounts for a 20% loss in total theatre revenue. A simultaneous global theatre release will cut this down by 25%

Sales (USD Mn) Blockbuster Success Breakeven Failure

Theatre 500 250 100 50

DVD 576 288 115.2 57.6

DVD sales will not cannibalise theatre turnover, and the net sum of revenues through simultaneous release will be greater than without simultaneous release

Is simultaneous global release on theatre and DVD the best release strategy?

Is simultaneous theatre and DVD releases feasible

at a global scale?

Will DVD release not cannibalise theatre

release?

Is simultaneous release financially attractive?

Blockbuster Case (USD Mn) Success Case (USD Mn) Breakeven Case (USD Mn) Failure Case (USD Mn)

Theatre sales 500 250 100 50

DVD Sales 576 288 115.2 57.6

Total 1076 538 215.2 107.6

Expected revenue from theatre and DVD sales without simultaneous release

Expected revenue from theatre and DVD sales with simultaneous release

Blockbuster Case (USD Mn) Success Case (USD Mn) Breakeven Case (USD Mn) Failure Case (USD Mn)

Theatre sales 400 200 80 40

DVD sales 720 360 144 72

Total 1120 560 224 112

The margin from simultaneous release will be greater than without simultaneous release

Is simultaneous global release on theatre and DVD the best release strategy?

Is simultaneous theatre and DVD releases feasible

at a global scale?

Will DVD release not cannibalise theatre

release?

Is simultaneous release financially attractive?

Blockbuster Case (USD

Mn)

Success Case (USD Mn)

Breakeven Case (USD

Mn)

Failure Case (USD Mn)

Theatre sales 400 200 80 40

DVD sales 720 360 144 72

Total 1120 560 224 112

Loss due to piracy

-60 -30 -12 -6

Marketing campaign

-50 -50 -50 -50

Margin 1010 480 162 56

Margin (%) 90% 86% 72% 50%

Blockbuster Case (USD

Mn)

Success Case (USD Mn)

Breakeven Case (USD

Mn)

Failure Case (USD Mn)

Theatre sales 500 250 100 50

DVD Sales 576 288 115.2 57.6

Total 1076 538 215.2 107.6

Loss due to piracy

-100 -50 -20 -10

Marketing -55 -55 -55 -55

Margin 921 433 140.2 42.6

Margin (%) 86% 80% 65% 40%

Expected margin from theatre and DVD sales without simultaneous release

Expected margin from theatre and DVD sales with simultaneous release

Is simultaneous global release on theatre and DVD the best release strategy?

Is simultaneous theatre and DVD releases feasible

at a global scale?

Will DVD release not cannibalise theatre

release?

Is simultaneous release financially attractive?

Simultaneous global release on theatre and DVD is the best release strategy