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Monday, July 1, 2013

Shareholder questions about pricing tiers and operations...

Hannover managers have received a variety of questions from shareholders regarding the Company's policy on tiered-pricing structures for key accounts, and how this corresponds to industry practices and / or fair-trade rules.  So here's the short answer to an otherwise complex, if not mind-numbing, pricing policy.

For DVD's and Blu-Ray units, "list" wholesale pricing by category is as follows:

a).  Direct Retail purchasers:  45% off suggested retail;
b).  Two-Step Wholesalers for Schools & Libraries:  50% off suggested retail;
c).  Two-Step Wholesalers providing "rental ready" or stickered products:  55% off suggested retail;
d).  Internet Sellers purchasing less than $20,000 per year:  50% off suggested retail;
e).  Internet Sellers purchasing more than $20,000 per year:  55% off suggested retail;
f).  Subscription outlets (e.g., Netflix):  60% off suggested retail;
g).  Mass Merchandisers requiring "retail ready" and purchasing $500,000 or more per year (e.g. Walmart):  65% off suggested retail;
h).  Kiosk retailers purchasing $250,000 or more per year, and not requiring full packaging (e.g. Redbox):  75% off suggested retail;

The above discount structures are comparable to all major home video suppliers / indie studios.  From a practical sense, how might this look on a specific title basis?  Let's use ZOMBIE WARZ as an example.

Approx Avg. Percent
Units Wholesale Sub-Total Of Total
Direct Retail Buyers                  150  $             8.22  $             1,233 0.48%
Two Step Libraries                  400  $             7.48  $             2,990 1.16%
Two Step Rental Ready                  600  $             6.73  $             4,037 1.56%
Internet (Small Accts)                  100  $             7.48  $                 748 0.29%
Internet (Large Accts)                  500  $             6.73  $             3,364 1.30%
Subscription Units                  400  $             5.98  $             2,392 0.93%
Mass Merchants            25,000  $             5.25  $        131,250 50.77%
Kiosks            30,000  $             3.75  $        112,500 43.52%
           57,150  $        258,513

Clearly, in this particular scenario, a mass merchant (such as Walmart) and a Kiosk outlet (such as Redbox) comprise 94% of the total revenue streams.  Other items - such as "Toys in the Attic" which has been especially popular with Internet sellers, as well as with Schools and Libraries - has a revenue model that's more evenly spread away from mass merchants and kiosks. 

From the standpoint of rationalizing the different pricing for different categories of purchasers, it's most easily represented with Redbox.  The first photo below shows a partial shipment of 18,000 "DVD discs only" of "ZOMBIE WARZ" for Redbox.  The second photos shows a ROW OF PALLETS that were required to ship the same quantity of units of "PINK SKIES" for WalMart.  Clearly, from a standpoint of space, weight and freight, it's significantly cheaper to ship "discs only" than to ship fully packaged DVDs.  Additionally, the savings from not having to create four-color wrap inserts, plastic shell cases, security EAS stickers, top spines and shrink-wrap, add to the savings enjoyed on a kiosk sale vs. a standard mass merchant retailer sale.  Of course, with Video-On-Demand, even the disc manufacturing and freight costs are eliminated!  But that's the subject of a blog for another day.