Chapter 4 Discussion questions and answers

Chapter 3 : Discussion questions

Discussions：

Part 1 (page 119 problem 3) In example 4-5 , we discuss the revenue-sharing contract between Blockbuster Video and the movie studios. In the case, the benefit for Blockbuster is clear: purchase price is reduced significantly from $65 to $8 per copy. What are the benefits for the studios?

Answers: In the revenue sharing contract between the Block-Buster and the Movie studios the Blockbuster has requested the Video supplier to reduce the cost of the Video CD from $65 to $8. From this contract it is clearly evident that the profits of the Block-Buster has dramatically improved because they purchased whole lot of videos and also could rent the videos to the 20% customers that they were missing. This is also advantages to the Movie studios since according to the contract, as the movie studios will be sharing 30 to 45% of the profit for each rental. Hence the Movie Studios will benefit from the increase in number of rentals. Thus this can be considered a win-win situation. But it should also be noted that movie studios should keep in track of the actual number of rentals that the Block-Buster rental store is making as the book also mentions that the Walt-Disney studios has filed a law-suit against the

block-buster rental store as they have caused them a loss of $120 million in revenue sharing for four years.