Entertainment Pricing

P P P P The Marketing Mix—The Four Ps 2 involve the goods, services, or ideas used to satisfy consumer needs. Product Decisions involve the exchange process between the customer and the seller. Price Decisions involve making the product available to the customer. Place Decisions involve how the goods or services are communicated to the consumer. Promotion Decisions

Discussion Would you be willing to pay $7.99 to download a full album from your favourite artist on iTunes? What about $8.99? $9.99? $10.99? More?

Discussion Think of a new movie that has recently been released. How much would you pay to download it on iTunes? $5.99? $10.99? $15.99?

Discussion How do people in marketing determine what prices to charge, given the flexibility of the consumer market?

Discussion Which items do you think contribute to the cost of movies, CDs, downloads, and television? Is beating the competition equally important in all areas of the entertainment industry? Where is competition a major component in pricing strategy?

Revenue, Profit and Loss Revenue is the total income brought in through the sales of goods and services E.g. Ticket sales, merchandise sales, concession sales, advertising revenue, product placement Expenses are costs used to bring in revenue E.g. Advertising, public relations, wages, salaries, utilities, taxes Gross profit = revenue - cost of goods sold Net profit = gross profit– expenses

Product Placement Product placement is the appearance of a product as a prop in a film or TV show in exchange for a fee paid by the product's advertiser E.g. BMW paid $15 million to MGM to have its cars placed in James Bond movies E.g. Cat in the Hat had more than 40 products appearing in the movie E.g. Cast Away had FedEx as part of the story line E.g. Twilight New Moon had the Volkswagen, Burger King, and Rainier Beer Apple Placement

Pricing Strategies and Goals Pricing in the entertainment field is similar to retail pricing for goods What is the goal of the pricing strategy? 1) Recovering Costs – make up the cost of production, distribution and perhaps unsuccessful products 2) Return on Investment – get the maximum return on every dollar the company puts into a project 3) Competition Pricing – beating out the competitor's price 4) Net Profit Pricing – prices will bring the desired net profit, providing they sell enough units (e.g. movie theatres example on page 279)

Pricing on Television Super Bowl Marketing surveys find that 8% of the viewers are not interested in the game but tune in to watch the commercials Reach and frequency means the number of people exposed to an advertisement (reach) and the number of times they are exposed to it (frequency) On average, it takes three exposures to have a successful ad

Pricing in the Television Industry Three years and/or complete production on 60 episodes = financial success Reruns and syndication The real profits are generated in reruns because most production costs have already been paid, and the product is known to the public and has a ready audience (e.g. Seinfeld) Only about 1 in 5 shows last long enough to produce 60 shows before being cancelled due to low ratings. Can you think of some examples? Some shows start online and then get picked up Some of the longest running television shows are not necessarily aired as reruns

Challenges of Television A challenge for businesses is PVR, TIVO, and DVD recorders that allow people to fast forward or eliminate commercials The Internet and On Demand have fewer commercials (typically 1-4 commercials for a 1 hour show) for television shows Do you think paying more for advertising ensures profits? Explain why or why not.

Pricing in the Film Industry Revenue includes profits from tickets, rentals, video and DVD dales, foreign distribution, toys, CD soundtracks, books, video games, merchandise, tie- ins, and many other spin-offs

Radio and Promotions Record labels pay radio stations up to $1 million in promotional airplay costs before a record is a hit This covers a lot of radio stations in major metropolitan areas. The radio stations can make more money from payoffs by record- company representatives to play their artists than they can from ad revenues

Pricing in the Music and Recording Industries Selling music in CD form through retail stores and e-commerce is a risky business Some artists allow their music to be downloaded for free because of the exposure. Can you think of examples?

Concert Pricing Pricing concert and other public performance relies on estimating public demand and trying to match what others are charging for the same basic entertainment product. Molson Ampitheatre vs. Lee’s Palace

Brands and Pricing Customers' perceptions for an entertainment brand identity can affect purchasing decisions and the price of an entertainment product

Quick Check page 284 What are some of the strategies entertainment companies use when planning prices? How does gross profit differ from net profit? What factors influence the price of concert tickets?

Activity Pricing always relates to cost because everyone wants to recover expenses. Working in a small group: Brainstorm the costs associated with producing a CD and be prepared to discuss with the class. Consider profit margins for CDs and concert merchandise. What do you believe is a fair profit margin for these items? Why? Prepare evidence of your answer.