Why should a newly released Hindi film not be available on the streets of New Yor k at $2 against a pirated version

at $4 or an original at $20?1 Harish Dayani, CE O, Moser Baer Entertainment Limited Moser Baer Entertainment Limited (MBEL), a wholly-owned subsidiary of MBIL, offe rs home video titles in various Indian languages at unmatched prices and is also engaged in media content creation. MBEL has acquired rights for 10,000 titles i n 18 Indian languages and has released close to 3,000 titles in the market as of 2008. The company also offers non-film titles, such as devotional, classical, h ealth, tourism and educational series. MBEL offers its products through carrying and forwarding agents, distributors, owned and franchised outlets and online sa les. It acquired copyright licenses for a wide range of movies and sold DVDs/VCD s for rock bottom prices giving the pirates a run for their money. With its low pricing strategy, it gained a considerable market share in the home video market . But with the other major companies like Big Home Video, Sony Entertainment and 1 2 3 Moser Baer India Ltd., corporate profile, http://moserbaer.com/writereaddata/media resources/CorporateProfile.pdf Ibid. This case study was written by Parveen Sultana and Fathima Reshma Taj H. under t he direction of Saradhi Kumar Gonela, IBSCDC. It is intended to be used as the b asis for class discussion rather than to illustrate either effective or ineffect ive handling of a management situation. The case was compiled from published sou rces. 2009, IBSCDC. No part of this publication may be copied, stored, transmitt ed, reproduced or distributed in any form or medium whatsoever without the permi ssion of the copyright owner. Do Dagar S. Shalini, Moser Baer: Hello movies, http://businesstoday.intoday.in/ index .php?option=com_content&task=view&id=8401&issueid=64, October 30th 2008 No tC By the end of 2009, Moser Baer India Limited (MBIL) became the world's second-larg est manufacturer of optical storage media like CDs and DVDs with a 20% global ma rket share.2 It is the first company to market the advanced storage formats like Blu-ray discs and High Density (HD) DVDs. MBIL is a multi-technology organisati on with presence in Solar Energy, Home Entertainment, PC Peripherals and Consume r Electronics.3 It produces 4 billion discs a year and exports them to 82 countr ies through its marketing offices in India, US, Europe and Japan. It also has st rong tie-ups with major global technology players like Slovenia-based Solar valu e Proizvodnja and OM&T B.V a specialised Research and Development (R&D) 100% sub sidiary in Netherlands. op y Moser Baer's Pricing Strategies: Competence-based and Value-driven?

Moser Baer's Pricing Strategies: Competence-based and Value-driven? Phoonk also capturing the market with low pricing strategies, competition in the home entertainment industry is all set to heat-up, benefitting the customers. Indian Home Entertainment Industry An Overview The Indian entertainment industry has witnessed a phenomenal growth in the last three decades of the previous century from content development to delivery mecha nisms. With sweeping changes in technology and innovation during the 20th centur y, the art of music, drama, and street plays that ruled the Indian entertainment industry for centuries lost their grip on the Indian audience paving way for fi lms, radio, television and cable network. Prior to India's independence, the sourc es of home entertainment were negligible as technological developments were in n ascent stages. The only source of home entertainment was radio which entertained the Indian masses for most part of the 20th century. Though Indian radio debute d in 1924, its real operations began only after India's independence when the All India Radio (AIR) was created as a separate department under the Ministry of Inf ormation and Broadcasting (MIB) in 1947. Its primary objectives were `National Int egration' and `National Consciousness' to overcome the political instability and act a s an inlet for the flow of modern ideas, following independence. Broadcasting du ring the period was strongly believed to harness the benefits of political and n ational building. It was due to this particular objective, that the government, during 1950s was averse to investing in the television industry. Further, it was felt that the country needed to build sources of self-reliance rather than inve sting in the medium of entertainment. By September 1959, television broadcast co mmenced in Delhi as a part of AIR's services. Television's first expansion began in 1972 when it started its second broadcasting station at Bombay. By 1975, its rel ay stations expanded to Srinagar, Amritsar, Calcutta, Madras and Lucknow. With t he growing complexity of television broadcasting system, Indian government const ituted `Doordarshan' in 1976 as a separate department and a national television netw ork which was to be under the direct control of MIB. For about 17 years since it s inception, Doordarshan was the only prime channel that entertained people with its black & white transmission programmes. In 1982, India hosted Asian Games an d with that, colour transmission was introduced for the first time for the games' coverage. Radio and television provided music and entertainment to people, by re gularly upgrading their technology and content. Although, various programmes per taining to agriculture, poultry, education etc., were broadcasted on radio and t elevision, people mostly preferred listening to film songs and watching movies b y staying at home. The success factor behind radio and television during the per iod was undoubtedly the Indian film industry which entertained people with its m ovies and songs. While television and film industry were growing at a rapid pace during the late 20th century, the growth of Information Technology (IT) played a major role in integrating the two media by inventing necessary devices to enab le households play movies on the TV sets. The first device in this category was the Video Cassette Player (VCP). The ease in operating the VCP and the choices t hat it provided in the luxury of the living room made the device popular. Howeve r, the real boost for home entertainment market was the invention of Compact Dis k Read-only Memory (CD-ROM) in 1972. 2 Do No tC op y

Moser Baer's Pricing Strategies: Competence-based and Value-driven? By early 1990s, television industry harnessed sweeping changes by providing ente rtainment with commercial programmes and reaching millions of viewers with inter national satellite broadcasting. This period also witnessed proliferation of pri vately-owned channels like Star TV, Zee TV, ESPN, MTV Asia, Channel V, etc., whi ch provided huge impetus to home entertainment market in India by extending the reach of television beyond geographical borders. Technological changes brought r evolutionary changes across all industries making traditional products and proce sses obsolete. One such product that became obsolete was the audio and video `cass ette'. During 1993, the first version of Digital Versatile Disc (DVD) was develope d by Toshiba and Sony as Super Density Discs and Multi Compact Discs, respective ly. These discs were superior to CDs in terms of storage space and quality outpu t (a standard CD could hold 700 Megabyte (MB) of data while a DVD had a storage capacity ranging from 4.17 Gigabyte (GB) to as high as 17GB (Exhibit I). In Nove mber 1996, world's first DVD playerSD-3000 DVD was put up for sale in Japan. As the development of DVDs was still in its nascent stage, CD-ROMs were mostly preferr ed for storage and data transportation. Source: The CD is dead; long live the DVD!http://www.thehindu.com/thehindu/seta/20 02/02/07/stories/ 2002020700090500.htm, February 7th 2002 4 First Compact Disc Launched in India, http://www.thecolorsofindia.com/interestingfacts/music/first-compact-disc-launchedin-india.html 3 Do No tC Exhibit I Storage Capacity: CD vs DVD op y Until late 1980s, CDs were mostly used for data transportation for personal and organisational requirements as its usage could not gain significant momentum in the initial period. Music was sold in pre-recorded audio cassette and music reco rd players were used for listening to the music. By late 1980s, audio cassettes were losing ground to CDs, but the low storage capacity and quality of CD hamper ed its growth to a large extent. In 1987, India's first musical album named `Shaguft a' sung by famous Indian ghazal singer Pankaj Udhas was launched in a CD form by M usic India.4

Moser Baer's Pricing Strategies: Competence-based and Value-driven? Exhibit II Sales of Pre-recorded Music in India (19911996) Sales in Units (in million) Year 1991 1992 1994 1995 1996 Cassettes 155 190 270 321 353 CDs 0.5 Records 0.5 Total 156 $ op y 180.3 190.8 272.4 325 194.4 254.4 292.9 298 357.4 Although, the usage of CD-ROMs started growing rapidly, cassettes in audio and v ideo segments ruled the Indian home entertainment industry for most part of the 1990s. While sales of audio cassettes grew from 155 million units in 1991 to 353 million units in 1996, sales of music CDs grew from 50,000 units to 4.4 million units during the same period (Exhibit II). According to a report in 1997 by the London-based, International Federation of the Phonographic Industry (IFPI), Ind ia was the largest market for audio cassettes in the world. By 1999, analysing t he market potential of data storage market, MBIL set up a manufacturing plant of Recordable Compact Disks (CD-Rs) and Recordable Digital Versatile Disks (DVD-R) with a production capacity of 150 million units. Retail Values (in million) INR 4,100 5,300 7,980 9,564 10,560.5 Compiled by the author from http://www.education.nic.in/cr_piracy_study/cpr4.asp With the dawn of digital age in 21st century, the complex and bulky cassettes tu rned into sleek, portable and huge digital data storage devices. DVD players off ered flexibility, clarity and eroded the grip of VCRs that were on the forefront of home entertainment industry until the end of 20th century. During 2002, DVD hardware and software, grew at a rate of 200% globally compared to any other con sumer durables in the world.5 Sushil Kumar Agrawal, managing director of Ultra D istributors remarked, An indication of the segment's growing popularity globally is that it took DVDs merely four years to reach the 20 million mark, while CD play ers took eight years and VCRs took 12 years.6 The year 2004 was marked as the yea r of consolidation, realignment and growth in most segments of the entertainment industry in India. Film and television experienced unprecedented growth, along with the emergence of animation and gaming industry. Further, the popularity of film industry led to the increased production and expansion of CD and DVD market . According to a latest report by KPMG and Federation of Indian Chambers of Comm erce and Industry (FICCI), the sector grew 15% annually in the last five years to a $11.68 billion (INR 584 billion) industry in 2008, the growth rate is expecte d to remain subdued at 7.5% in 2009 and 10% in 2010,7 (Exhibit III). 5 Kaushik Neha, Virtual versatility, 2002032100130100.htm, March 21 st 2002 Ibid. Do 6 7 The Next Five Years are Promising http://www.theindusview.com/vol4Issue4/specialre port.html 4 No tC 0.8 2.4 4 4.4 http://www.thehindubusinessline.com/catalyst/2002/03/21/stories/

Moser Baer's Pricing Strategies: Competence-based and Value-driven? Year 2005 2006 2007 2008 2009 2010 Size (in $ billion) 7.72 8.9 10.4 11.68 12.56 13.94 Growth (%) 15.28 16.85 12.31 7.53 10.99 Moser Baer's Excellence in Optical Storage Products Manufacturing The cost competitiveness of our R&D ensures that we don't lag behind our competitor s.9 Ratul Puri, executive director, Moser Baer Corporate History In 1985, Deepak Puri, co-founder of MBIL identified the potential for data stora ge devices in India and ventured into the data storage industry in India. He pur chased all the shares of his Indian unit from the Swiss manufacturer and went pu blic with an Initial Public Offer (IPO) in 1987. Being the first Indian company in this segment, it was facing huge challenges from Japanese and Taiwanese 8 Combating Counterfeiting and Grey Market A Challenge for Indian Corporates, http:/ /www.in.kpmg.com/TL_Files/ Pictures/Counterfeiting%20In%20India(1).pdf, December 22nd 2008, page 7 Chandramouli Balaji, The Innovation Imperative, http://archives .digitaltoday.in/businesstoday/20061022/cover8.html 9 5 Do MBIL was established in the year 1983 in technical collaboration with Maruzen Co rporation, Japan and Moser Baer Sumiswald, Switzerland. The company was wholly e ngaged in assembling and manufacturing of timekeeping machines of Moser Baer Swi tzerland. No tC Though the year 20072008, proved to be profitable for optical storage media manuf acturers like MBIL, demand 2011 15.82 13.49 for CD-R continued to remain flat. B ut DVD-R maintained 2012 18.22 15.17 a positive growth trend with robust demand from developed as well as developing countries. To optimally utilise its core 20 13 21.04 15.48 competencies, MBIL devised a strategic plan by converting Source: The Next Five Years are promising, its capabilities into profitable goals. It sla shed the prices of http://www.theindusview.com/vol4Issue4/ its DVDs to below INR 30 to capture the CD market from specialreport.html cheaper pirated CD sellers. MBIL may not have reached its goal yet, but the first step of reducing prices o f its CDs and DVDs in itself is a laudable fete. op y Exhibit III entertainment industry was crippled with piracy. Piracy has Performa nce and been plaguing the film and music industry due to high Projections of Ind ia's Media purchase price, high DVD rentals and low replication costs. & Entertain ment Industry Despite having huge potential and growth, the home According to a study conducted by US-India Business Council (USIBC), the Indian

economy loses approximately $4 billion in revenues and over 800,000 jobs due to piracy in the Indian entertainment industry. It also estimated that 50% of the m usic and 60% of movies sold are pirated.8 Targeting piracy as the key area of bu siness interest, companies like MBIL developed low-cost manufacturing and distin ctive pricing strategies as its business model and offered products at the lowes t rate compared to the prices of similar legitimate products in the industry.

Moser Baer's Pricing Strategies: Competence-based and Value-driven? manufacturers in the global market. It diversified its product range of manufact uring magnetic media i.e., floppy diskettes (discs), compact discs and DVDs. Ini tially MBIL manufactured magnetic media i.e., 5.25-inch floppy diskettes with a limited manufacturing capacity of 60,000 discs per month due to license restrict ions given by the Government of India.10 Thereby, the insufficient capacity to h andle large orders from international customers hampered its growth. In 1987, it started producing 3.5-inch Micro Floppy Diskettes (MFD). The 1990s also proved to be a challenging time for MBIL because of issues such as technological change s, increased cost of raw materials, limited in-house R&D and engineering capacit y. MBIL improved its capabilities by concentrating on R&D. Due to technological changes, magnetic media became obsolete by the end of 1990s. In 1999, MBIL, in o rder to sustain its business, made a transition into optical storage manufacturi ng. (in INR million) Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 of the company Gross Revenue 1,567 3,513.5 6,785.99 10,855.2 15,792.2 13,528.6 17,319 20,740.3 19,582 22,045 During 2000s, MBIL had a 10% share in the global optical storage market and was able to notch-up an impressive customer profile, including eight top Original 13 Equipment Manufacturers (OEMs). The strategy adopted for optical media project was similar Compiled by the authors from the Annual Reports 10 11 12 Moser Baer India Limited, http://ibef.org/download/Moser_Baer_India.pdf, page 1 Mos er Baer (India), http://www.financialexpress.com/news/moser-baer-india/48815/0, J une 9th 2002 Dye coating is the most important process in CD-R replication techn ique. The coating results in the final disc quality. The dye layer is applied us ing spin coating which gives additional durability to the CD. Moser Baer (India), op.cit. 13 6 Do No tC Net Profit 441.1 1,385 2,213 2,372.7 3,238.5 607.2 46.66 1,097.9 -789.1 -1,508.7 Exhibit IV Moser Baer's Gross Revenue and Net Profit (20002009) MBIL made a smooth transition to the optical media in 1999 when floppies were gr adually becoming obsolete. During the same period, the company had set up a 150 million unit capacity plant to manufacture CD-Rs and DVD-Rs. Although the compan y was a late entrant in the field of optical storage media, it was successful in competing in the world markets through quality CDs conforming to stringent inte rnational quality standards and cost-effectiveness. In 20002001, the company's expo rts accounted for more than 80% of its sales and the company's floppy discs and CD -R production capacity increased to 130 million and 650 million discs per annum respectively.11 Due to its robust performance and increased sales in key Europea n markets in addition to new business acquisitions, the company's revenue increase d by 124% (Exhibit IV). It became the fourth largest, low cost producer of CD-Rs in the world due to its low manpower costs, usage of property dye coating12 pro cess, capital cost advantages and strong R&D capabilities.

op y

Moser Baer's Pricing Strategies: Competence-based and Value-driven? to diskette business on the global platform in terms of size, technology, qualit y, product flexibility and process integration.14 In 2003, after the success of CD-Rs, MBIL entered into the production of CD-Rewriters (RW) and DVD-RW. The com pany sold its products with a brand name `Moser Baer Pro' in India (Exhibit V). This range uses the `Protection Plus' technology developed by MBIL to ensure extra prote ction and long shelf life.15 It came up with new range of Gold and Platinum CD-R s with enhanced durability and resistance to both environmental and human hazard s like temperature changes and scratches. It evolved as the market leader with m ore than 40% market share in India. It concentrated on manufacturing and distrib ution of its products to wholesalers, thereby ignoring retail selling. Exhibit V Moser Baer's Products Product Moserbaer Pro CD-R Description Moserbaer Pro CD-RW Moserbaer Pro DVD Moserbaer Pro Mini CD-R Magnetic Data Storage Media Source: Moser Baer India Ltd, http://www.ibef.org/download/Moser_Baer_India.pdf 14 15 16 17 Moser Baer India, http://www.moserbaer.com/overview_history.asp Moser Baer India Re writing the Future, http://www.ibef.org/download/Moser_Baer_India.pdf, page 2 Mose r Baer India Ltd, op.cit., page 4 Ibid. 7 Do During the same year, MBIL entered into a strategic long-term sourcing deal wort h $100 million per annum with Imation Corp., one of the largest players in the o ptical media storage industry in the world.16 In addition to sourcing media, it also entered into a strategic joint venture to carry R&D as well as market optic al storage media products in emerging markets like Africa, the Middle East and S outh America and also in new markets.17 MBIL capitalised on its mass manufacturi ng, engineering and development capabilities to emerge as one of the world's most profitable players in the removable optical storage media industry. No tC First and only 52x CD-Rs to be launched in India with high thermal sensitivity a nd capability to maintain data integrity without degradation in any way These CDs can be written over and over while maintaining high durability and are designed for writing at speed of 4x-10x These DVDs can hold up to 4.7 gigabytes of data and can be written at speeds up to 8x for DVD-Recordables and 2.4x for DVD Rewritables These provide better port ability, while maintaining superior recording and playback characteristics and c ompatibility These include compact cassettes, micro-floppy disks and digital aud io tapes op y

Moser Baer's Pricing Strategies: Competence-based and Value-driven? Moser Baer was able to attain its leading position with the help of reliable sup pliers of raw materials such as polycarbonate plastics, aluminium and acrylic. W ith its core competency in manufacturing, the company expanded its sales from ab out $22 million in 1998 to more than $355 million in 2003.20 In May 2006, MBIL s igned a Memorandum of Understanding with Institute of TechnologyDelhi and Banaras Hindu University (BHU) to jointly work in the area of fundamental and applied R &D for optical storage media and photovoltaic technology. By 2008, it had a prod uction capacity of 3 billion units in the optical storage media.21 In November 2 006, to complement its existing business of optical media, MBIL introduced a ran ge of Universal Serial Bus (USB) Flash drives. Bhaskar Sharma, executive vice pr esident, MBIL opined that the launch complements our existing optical media busin ess and we will leverage our strong branding and marketing network to emerge as the top player with a significant market share in this segment also.22 During the same month, the Ministry of Science and Technology (MST) approved MBIL's in-house R&D centre. The efforts of R&D centre helped the company to become the first co mpany in the world to ship out the HD DVD-R format and extend the technology lea dership in the Blu-ray media. This format provided MBIL a significant competitiv e advantage over industry peers. 18 Blu-ray disc is the advanced optical disc format for storing high definition fil ms, games, photographs and other digital content. Bakshi Moumita and Thiagarajan Krishnan, Drives will thrive, http://www.thehindubusinessline.com/ew/2005/05/30/s tories/ 2005053000070100.htm, May 30 th 2005 Luthra Shashank, et al., When to mak e India a manufacturing base, The McKinsey Quarterly, September 2005 Storage Media Overview, http://www.moserbaer.in/ Moser Baer Launches USB Flash drives, http://ww w.moserbaer.com/mediaroom.asp?id=33&mth=&year=2006&sec= , November 2006 19 20 21 22 8 Do No tC The year 2005 witnessed migration of data storage from CD-RWs to DVD-RWs. Consid ering the growth potential in this segment, MBIL started scouting for opportunit ies in Blu-ray18/HD-DVDs segment in order to develop advanced high capacity stor age format. The company faced severe competition from Taiwanese manufacturers su ch as Ritek Corp., CMC Magnetics Corp. and Prodisc Systems in the optical media business. It was also facing challenges in terms of alternate secondary storage devices such as pen drives. To retain its position and to counter the global slo wdown in the optical storage media business, MBIL diversified and transformed it self into a multi-technology firm. In 2005, it forayed into Solar Energy Photovo ltaic optics business. In 2006, it entered the home entertainment segment and in 2007 into IT peripherals & consumer electronics segment. During this period, MB IL had increased its global market share from 10% to 17.5%.19 op y On the marketing front, the company further expanded its market reach and moved into high growth Indian market for branded storage products. In 2004, to stay re levant and to adapt itself to the changing technologies, MBIL tied up with Hewle tt-Packard (HP) to manufacture optical media, using the latter's `Light Scribe' techno logy which enables labels to be written on the disc surface with the same drive

that reads and burns information on it. In addition, it also worked with Nationa l Aeronautics and Space Administration (NASA) for developing discs for use in sp ace shuttle thus extending its reach from mass market consumer to corporate data storage applications.

Moser Baer's Pricing Strategies: Competence-based and Value-driven? In home video market, MBIL carefully evaluated and acquired the content at the r ight price levels. The home video market doubled to INR 8.63 billion in 2008 and is expected to increase to INR 16.06 billion in 2013, thereby showing a growth of 13.2% CAGR.30 With considerable growth opportunities in the Indian entertainm ent industry, there are new revenue generation streams like animation, gaming, m erchandise, etc., creating new business opportunities. However, this segment has been facing a stiff competition with existing players and pirates. With the ent ry of high capacity DVDs in the entertainment segment, the pirates have stepped up their activities and MBIL is the leading company which is intensely trying to curb piracy. 23 24 Moser Baer India Limited, op.cit., page 1 25 Moser Baer Entertainment & SONY BMG Music join hands, http://www.cinefundas.com/20 08/07/20/moser-baerentertainment-sony-bmg-music-join-hands, December 28th 2009 G upta Sovid, Moser Baer, http://www.valuenotes.com/fairwealth/fairwealth_MoserBaer_ 01Jun09.pdf, May 25th 2009 Das Sibabrata and Pinto Ashwin, Indiantelevision.com's i nterview with Moser Baer (entertainment business) CEO Harish Dayani, http://www.i ndiantelevision.com/interviews/y2k7/executive/harish_dayani_interview.php, June 11th 2007 Gupta Shubhra, Movies in my grocery list, http://www.thehindubusinesslin e.com/life/2009/08/21/stories/ 2009082150120400.htm, April 21st 2009 Mitra Ashis h, Popularising Home Video, http://www.screenindia.com/news/popularising-home-vide o/312644/,May 23rd 2008 Overview, http://moserbaer.com/writereaddata/pdfs/MB_Annua l_Report_2009.pdf, page 38 26 27 28 29 30 9 Do Pan indicates `presence across nation'. Pan-India presence means the company is oper ating in all the regions of the market and that the company has operations in al l the major languages of India. No tC MBIL is the first pan-India24 company to offer home videos in 18 popular regiona l languages.25 The use of existing technology and brand name of optical media be nefited the entertainment unit. Home entertainment business of the company ensur es 75% capacity utilisation of its storage device manufacturing segment.26 The c ompany makes 10 million discs a day enjoying the economies of scale.27 The core competency of the company rests in manufacturing larger quantities of DVDs than any other company in the country.28 In addition to this, it also uses best label printing technology and customised packaging solutions. While the Indian home v ideo market grew at a staggering rate of 15% per annum in 20072008, MBIL pegged i ts market share between 50%60% indicating its commanding presence in India. 29

op y Moser Baer's business model was predominantly OEM-centric. As a result, 80% of its revenues were from sales to OEMs in the global markets.23 Being OEM-centric, it concentrated on majorly two functions innovation and quality manufacturing with its strong R&D base. In an effort to diversify into related businesses, MBIL fo rayed into entertainment industry via home video market through the launch of co ntent distribution in December 2006. The company's entry into entertainment busine ss, proved advantageous for the production and distribution network of already e stablished business of the company.

Moser Baer's Pricing Strategies: Competence-based and Value-driven? Moser Baer's Foray into the Home Video Market India is considered as the world's largest producer and consumer of films with the production of 1132 feature films in comparison to 520 Hollywood films in 2007.3 1 The Indian film industry and home video market are highly fragmented and are r ampant with piracy. According to a research study, India has over 26 million DVD /VCD users and had witnessed a growth rate of over 25% during 2008.32 Despite th is huge potential, the home video market accounted for only 7% of the INR 79 bil lion film industry, which is a poor share when compared to other developed count ries like US, which derives 40% revenues from home video sales.33 According to P ricewaterhouse Coopers (PwC) the domestic home video market will grow at a CAGR of 31% to INR 2,500 crore by 2011.34 Being the largest producer and consumer, th e Indian home video market has failed to capture its potential on a wider scale. To grab this opportunity in this segment, MBIL set up a separate entertainment business division in December 2006 with the launch of a new initiative in conten t distribution MBEL. It released video content on DVD and CD formats using its pr oprietary and patented technology with enhanced quality and reduced cost. With t his, the company planned to take comparative advantage with regard to quality an d price parity and offer unprecedented value to its customers. MBEL adopted an a ggressive pricing strategy thereby taking piracy head-on by forward integration, ensuring better margin protection. MBEL launched its VCDs and DVDs at INR 28 an d INR 34 respectively at an early stage in order to penetrate into Indian home v ideo markets. During this period, the cost of a regular VCD was in the price ran ge of INR 160INR 200, the cost of a regular DVD was in the range of INR 300INR 400 and the movie rentals were about INR 50INR 100 per DVD (Exhibit VI). No tC Company Eros Entertainment Excel Home Video Exhibit VI Comparison of CD/DVD Prices in the Home Video Market (2007) Prices (in INR) VCD 28 66 99 149 DVD 34 149 399 499 Moser Baer Entertainment Ltd. Shemaroo Video Pvt. Ltd. 31 Thakur Atul, India Dominates world of films, http://timesofindia.indiatimes.com/in dia/India-dominates-world-of-films/ articleshow/4827912.cms, July 28th 2009 The H ome Video Market, http://theviewspaper.net/the_home_video_market/, January 30 th 2008 Fernando Rajiv, THE CASE :Cracking the home video market, http://www.financia lexpress.com/news/cracking-the-homevideo-market/194917/0, March 24 th 2007 The Ho me Video Market, op.cit. 32 33 34 10 Do Sony Pictures 69 399 The price war in DVD/VCD industry Compiled by the author st arted when other companies like T-Series Ltd., Ultra Video Ltd., etc., lowered t heir prices to survive the competition. Industry players such as Shemaroo Video Pvt. Ltd., Eros Entertainment, Excel Home Video and Sony Pictures also reduced t he prices, but they were higher in comparison to MBEL's prices. op y

Moser Baer's Pricing Strategies: Competence-based and Value-driven? No tC According to the industry estimates, the cost of replicating movies on a CD is a round INR 14. Distribution and tax costs amount to another INR 3 and INR 2 respe ctively, bringing the total cost to INR 19. But Harish Dayani (Dayani), CEO of M BEL, claims that Moser Baer has in-house facilities to replicate CDs for Rs 10.3 5 He states, Our production cost is only Rs 13, and the resultant margin is enoug h for us to profit. We will launch new movies, too, at identical rates. That mean s MBEL is claiming a margin of INR 15 (against the estimated industry standard o f INR 9) per CD, which is still far below that of rival's INR 150 (minimum).The co st per DVD of a typical DVD manufacturer is tabulated in Exhibit VII. Exhibit VII Estimated Cost of Each Moser Baer DVD (in INR) Raw material costs op y Particulars Cost per DVD 2.00 0.35 2.00 0.25 1.00 0.15 0.25 Lighting, water and power Salaries and wages Insurance Depreciation Other administration expenditure Office rent, repairs and maintenance 35 36 The Home Video Market, op.cit. Multi-tier distribution channel is the distribution channel in which the product is sold through many channels ultimately to reach its customers. Overview, op. ci t., page 15 Pinto Ashwin, DVD market on the cusp of change, http://www.indiantelev ision.com/special/y2k7/dvd_feature.php, September 22 nd 2007 Ibid. Jaitly Tarun, et al., Reinventing the Future: Moser Baer Ltd,http://www.scribd.com/doc/16245450 /Initiating-CoverageMoser-Baer, November 18th 2008, page10 37 38 39 40 11 Do 6.00 In order to expand its presence, MBEL Copyright costs acquired copyrights/e xclusive license for Printing and packaging costs 1.00 around 10,000 movie title s in almost all the Advertisement cost 1.00 major Indian languages like Hindi, T elugu, 1.00 Tamil, Kannada, Malayalam, Bhojpuri, etc., in Showroom shelf expense s 2007. On the distribution front, MBEL had a Dealers' commission 0.50 strong well - organised, multi-tiered distribution 0.50 channel36 that made its titles avail able in over Other distribution costs 200,000 outlets across the country.37 Thou gh Taxes 2.00 a late entrant, with its pricing strategies Moser Source: Accordin g to author's estimates based on Industry Baer made a dent in film video markets.

It reports adopted a low-margin strategy in the home entertainment market. It fi xed the price of its CDs and DVDs less than movie tickets (more than INR 50), ch eaper than a pirated disc (which is available at INR 80INR 100) and even lower th an a rented disc (rent for a new release is INR 50).38 The company also launched a single VCD of songs in all the major Indian languages, at prices starting fro m INR 20.39 It offered home video titles in film and non-film categories. It eme rged as a leader in this segment in a span of 6 months consolidating its pan-Ind ia presence and nationwide-spread distribution reach coupled with aggressive mar keting.40

Moser Baer's Pricing Strategies: Competence-based and Value-driven? The challenge for MBEL was to make its low margins work its high-volume strategy with its distribution network as a key tool. The company tapped small towns and villages after its initial success in urban areas. It spent INR 25 crore in the first year of its operations with the distribution effort from outlets to vendo rs on hand carts and cycle carts (akin to ice-cream carts) with massive brand bu ilding campaign.45 The brand building campaign helped the company to differentia te itself from others while attempting to be an end-to-end player from producing a film to selling it at the customer's doorstep. MBEL's core competency vested in i mproving technology in existing segment and adopting Fast Moving Consumer Goods (FMCG) model46 for distribution segment to drive volumes. Instead of consumers go ing to a nearby outlet, we are experimenting with the outlet going closer to the consumer. We have piloted this concept successfully in some areas and propose t o expand the specially-designed cycle carts in operation from 150 to 1,000, prim arily to cover smaller towns, stated G. Dhananjayan, COO, Entertainment Business of Moser Baer India.47 The biggest challenge for the company was to create a nic he in the home entertainment industry where piracy was rampant. 41 42 43 Overview, op.cit., page 32 Seshan Govindkrishna, Spinning new strategies, http://www.business-standard.com/in dia/storypage.php?autono=281358, April 17th 2007 Shahid Aliyah, Piracy in India's e ntertainment industry causes huge losses to economy, http://www.livemint.com/2008 /03/ 31121923/Piracy-in-India8217s-entert.html, March 31 st 2008 Moser Baer -Hell o Movies, op.cit. FMCG model where the customers get attracted towards a particul ar product enabling to puchase it whichever store he/she visits Pitalwalla A. Ya ssir & John Reji, Moser Baer takes films to doorsteps in small towns, http://www.m ydigitalfc.com/ companies/moser-baer-takes-films-doorsteps-small-towns-462, Apri l 9th 2009 44 45 46 47 12 Do Business to Business (B2B) is the exchange of products, services, etc., between the two companies rather than business and customers. No tC Despite competition, piracy remains a major challenge for the players in this se gment. The time gap between the theatre release and the CD/DVD release in the ma rket was long (6 months) which was causing a havoc on the revenues of the Indian film industry. Piracy used to begin in theatre on the first day of the movie re lease. Hand-held video cameras are used to record the movie off the screen, whic h is then copied onto blank CDs and DVDs for illegal circulation. Piracy is ramp ant even after the original CDs of the movie are released in the market. Duplica tion from the original CD takes place at an exorbitant rate. The other types of piracy include optical disc piracy and Internet piracy. As of 2007, the organise d home entertainment market was estimated to be worth INR 650 crore while the pi rated market was nearly twice the size at INR 1,000 croreINR 1,200 crore.43 Accor

ding to Ernst & Young India, almost INR 16,000 crore is lost due to piracy.44 op y MBIL was regarded as Business to Business (B2B)41 company and was recognised as one of the most sought after IT savvy companies before its entry into the entert ainment division. In order to have its distinct identity and instant recall valu e, it adopted the pull and awareness marketing strategy through its `Hello Happine ss' campaign to reach out to its customers and communicate the value proposition o ffered. As a mark of assurance, the company offered a certified quality money ba ck guarantee in case of any manufacturing defect and promised to replace the dis c absolutely free.42

Moser Baer's Pricing Strategies: Competence-based and Value-driven? No tC 100 FY07 The success of this strategy was demonsrated by films like the 15-year old Bolly wood superhit Baazigar, which sold 150,000 copies on the first day of its releas e in 2007 and Jab We Met for INR 36 crore ($9 million) in disc sales in 3 months , while Jodhaa Akbar notched up INR 76 crore ($19 million).49 With this, MBEL ac hieved break even sales in less than 12 months of its operation by notching up r evenues of INR 160 crore ($40 million) in the entertainment segment. 50 Out of t he total revenue generated by MBIL, nearly 6% of revenue came from entertainment business in 2009 (Exhibit VIII). Exhibit VIII Revenue Generation of Moser Baer India from Various Business Segmen ts (20072010) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7.8 7.5 op y 25.4 5.9 68.7 84.7 FY08 FY09E Optical Media Entertainment Distribution To meet that end, MBEL decided to increase its scope of video distribution right s by making MBEL a 100% wholly-owned subsidiary and venturing into film producti on which complemented its home video segment. In addition to the distribution st rategy it adopted new technologies such as Bluray as a tool to drive volumes in its new business. As a part of expansion plan the company also planned to invest INR 120 crore in film production and acquired home video rights for old blockbu ster movies across different languages.48 43.1 4.9 52 In addition to physical distribution model, Moser Baer launched online sales mod el also as a part of its marketing strategies. It believes that every product ha s its importance and is helpful in capturing market share. It believes that the sales of old movies are small in number, but people would browse and pick them u p when they come to take a copy of a new movie.51 Moser Baer also intends to app ly this model in its overseas markets. FY10E Solar PV Source: Moser Baer India ltd., http://www.businessstandard.com/pdf/moserbaerq4fy08 .pdf, 2008, page 3 In December 2008, MBEL signed an exclusive home video licensing agreement with U TV motion pictures. Dayani, commented that, Moser Baer's entertainment business is working towards the consolidation of the home video space in India. Our strategy is based on the twin pillars of affordable 48 Ravikumar R.,Ten films in Moser Baer's production kitty for 2009", http://www.thehi ndubusinessline.com/2009/03/10/ stories/2009031051161500.htm, March 10 th 2009 I bid. Moser Baer, http://www.superbrandsindia.com/images/superbrands_book_2008/Mose r%20Baer.pdf, page 2 Bhandari Rohini, `We don't believe in the `me too' model' Moser Baer ntertainment CEO Harish Dayani, http:// www.businessofcinema.com/news.php?newsid=

7606, March 28th 2008 49 50 51 13 Do

Moser Baer's Pricing Strategies: Competence-based and Value-driven? Exhibit IX Moser Baer Super DVD Prices Films Gujarati Bengali Hindi Other languages INR per DVD Over the years, MBEL has been a consistent performer in generation of revenues a nd margins. Given the current prices, http://www.deccanherald.com/ price points, the company's management expects to break content/19617/moser-baer-cuts-supereven in less than 18 months of hitting the market for each dvd.html, September 18th 2 009 movie title. The company expects to drive its business on volumes and expect s to have its own rights on at least 50% of the movies released in India. Source: Moser Baer Cuts super DVD 52 Ahuja Jyotika and Sundaraman Shruti, Moser Baer and UTV forge strategic alliance for home video distribution of UTV movies, http://www.utvmotionpictures.com/press -releases/utv-press-release-36.pdf, December 16th 2008 Moser Baer takes films to doorsteps in small towns, op.cit. Sekhri Arhun, Interview with Harish Dayani of Mo ser Baer, http://www.indianentertainment.info/2009/06/27/interviewwith-harish-day ani-of-moserbaer.html, June 27 th 2009 Moser Baer takes films to doorsteps in sma ll towns, op.cit. Toshiba sues Moser Baer, 7 other firms for DVD patent violation, http://www.domain-b.com/companies/companies_t/ Toshiba/20090519_toshiba.html, Ma y 19 th 2009 Moser Baer takes films to doorsteps in small towns, op.cit. Moser Baer Cuts super DVD prices, http://www.deccanherald.com/content/19617/moser-baer-cuts -super-dvd.html , September 18 th 2009 53 54 55 56 57 58 14 Do No tC 22 25 27 30 In 2009, the company created a brand called Super DVD a product with three films on one disc that helped to expand volumes and give customers a legitimate and g ood quality product.56 MBEL was the first in the market to deliver this new form at Super DVDs for INR 45.57 In order to counter piracy, MBEL pegged down the pri ce of its Super DVDs between INR 22INR 30 to counter four to five pirated movies for around the same price58 (Exhibit IX). The Road Ahead for Moser Baer op y prices to curb piracy and everywhere distribution to drive mass consumption. UTV has emerged in recent times as one of the leading studios in the country and it s home video titles add luster to our product line. This development further rei nforces our position as the dominant player in the home video space in India.52 T he legitimate market for home videos in India grew from INR 643 crore in 2006 to INR 984 crore in 2009.53 But most of these revenues were eaten up by the pirate s as they released the illegal DVDs within 3 days of the theatre release by offe

ring them at prices as low as INR 30 accounting for about INR 2,000 crore loss p er year of the legitimate revenues.54 In order to curb piracy, MBEL was trying t o come up with fresh content on new releases. For this, it worked with film prod ucers to allow the movies to be released in home video format soon after the rel ease in cinemas. This brought down the time gap between theatrical release and h ome video release which had halved from a year to 6 months. It was also trying t o reduce it further to 100 days for regional films. For Hindi movies, the compan y managed to reduce the period from 8 weeks after the release in theatres to bet ween 46 weeks and for the regional films it planned to bring down the period to 1 00 days.55

Moser Baer's Pricing Strategies: Competence-based and Value-driven? 15 Do No tC Every home video company is trying to reduce pirates' sale with their business str ategies. Since MBEL has been the first to make this move in this stream by reduc ing its prices, the other companies have also followed suit. As the companies ar e trying to grab maximum share of home video market from pirates and create a nu mber one slot in the market for themselves, how far will MBEL be successful in i ts strategy? To what extent will it further reduce price? Can the price reductio n strategy help MBEL to capture the market share for a longer time? Can it compe te with pirated DVDs, which are offered at rock bottom prices as they do not pay license fee? op y There is intense competition in the home video market with the entrance of Big H ome Video as it has struck three major deals with the Hollywood Studios Universa l, Paramount and Warner Brothers making it a major content owner of 60% Hollywoo d movies. As Big Home Video is backed by Reliance `Big' brand, which has various bus inesses in entertainment space, it helps Big Home video in acquiring new movie r ights and capturing the home video market. At one end where old players like Bom bino Video Pvt. Lt., Indus Video Pvt. Ltd. and Ultra Video Pvt. Ltd., etc., are quitting the market due to huge losses from pirates who constitute nearly 90% of the market, on the other end there is emergence of new players with new busines s models to curb piracy and establish themselves in the space created by the old players.