Moser Baer, an Indian leader in digital media manufacture (DVD’s and VCD’s) is helping change the piracy paradigm. In a laudable initiative, they are acquiring copyright licenses to a wide range of movies and selling DVD’s/VCD’s for rock bottom prices.
Indeed, the use of such “mild” economic principles is a much smarter way of tackling piracy than the oft “aggressive” and terribly expensive anti-piracy campaigns carried out throughout the country. Perhaps we need to replicate this “pricing” model in the pharmaceutical sector as well, so that brand name drugs can be made available at affordable prices. As SpicyIP has been reiterating, pharma pricing is a major cause for worry–and big pharma has shown a great reluctance to price differentially in developing country markets. No doubt, in recent years, owing to pressure from civil society groups. some have adopted more reasonable and fairer pricing policies. Readers will recollect that SpicyIP carried an earlier news item of Sanofi Aventis pricing an antimalarial pill differentially in the same country!!
Apart from the “fairness” argument, such a strategy may make economic sense, particularly in a populous country like India (a potential market of 1 billion!!). Of course, parallel imports are often propped up as the key disincentive for not adopting differential pricing policies. However, as an earlier post explained, “technology” may be the right answer to this conundrum.
Incidentally, while visiting my uncle in Kerala recently, I found that his refrigerator contained medicines worth a whooping Rs 10 lakhs (USD 25,000). No–he is not a terminally ill patient with a penchant for expensive medicines! He is a leading cancer specialist-and gets a number of these freebies as samples from pharma companies. Each vial/strip was worth about a lakh (USD 2500)!
If smart thieves were to raid his house, they would no doubt head straight to the refrigerator and not the safe!!
Anyway, for those more interested in Moser Baer’s revolutionary pricing strategy, see this case study by ICMR. Excerpts below:
“Moser Baer said that it would spend up to Rs. 5 billion over the next few years in this new initiative, which included plans to acquire copyrights and licenses for 7,000 movie titles in all major Indian languages…
Many analysts welcomed Moser Baer’s entry in the Indian home video market and expected a shakeup in the industry. The Indian home video market was highly fragmented and affected by rampant piracy. Moser Baer said that as per a research study, India had over 26 million DVD/ VCD users and had witnessed a growth rate of over 25 percent. However, despite this high potential, the home video market accounted for only 7 percent of the total film industry revenues of Rs. 79 billion.
This was quite different from developed markets such as the US, where the home video market was as large as the theatrical market in terms of revenues. Moser Baer’s entry was expected to change the pricing dynamics in the industry as the existing VCDs and DVDs were priced between Rs. 100 to Rs. 200, and Rs. 200 to Rs. 600 respectively. “Yogesh Mathur, Group CFO of Moser Baer, said that the company would leverage its proprietary technology and manufacturing strength to offer VCDs and DVDs at prices as low as Rs. 28 to Rs. 34 respectively.
The company intended to make movies more affordable for home viewing and encourage consumers to build their own personal movie library. In addition to growing the market, analysts expected Moser Baer’s low-price strategy to affect the home video piracy market. However, some industry experts felt that video piracy would continue to remain active as it was the new movie releases that were mostly affected by piracy. Hiren Gada, vice president of Shemaroo Video, a leading market player in the home video market, said “Pulling down prices may curb the price-sensitive piracy-a movie being copied and sold for 10-20% of the original price.
But what will be hard to tackle is the time-sensitive piracy, which happens because, according to law, there has to be a time lag between the theatrical and home-video release of a film.” Moser Baer would have to work with movie producers and film distributors to shorten the time to market a new movie release and allay their fears that the home video market could affect their business. Moreover, Moser Baer could find it difficult to provide low prices for the latest movie releases as the rights would be costlier when compared to old movies. Technology obsolescence was also a key threat. But, the company said that it was prepared and had made investments in new technologies such as Blu-ray.”
hey shamnad: very interesting take on Moser Baer’s (MB) pricing strategy. I think it’s one of the most brilliant business models in the entertainment industry so far. I especially appreciate the fact that MB has made an effort to acquire licenses for non-Hindi language films as well. They advertise ambitious plans of acquiring 50 percent market share of the home film industry in three years; and I won’t be surprised if they pull it off.
I have a question, though. If you see the home film industry in India, it’s pretty much only MB that has taken upon itself to price its discs so low. Competitors like Shemaroo and T-series (that I can think of immediately) still price their discs at a minimum of 2-3 times the price of MB discs.
(One reason for this is very likely the fact that MB manufactures its own discs, making it easy to cut costs. But there is the usual competition argument, and the guess that eventually the remaining companies will also bring down their prices.)
To push your hypothesis further: Arguably, it is fanciful to expect the entire pharmaceutical industry to experiment with such pricing. If you were to recommend *one* company in the pharma industry to get such a (hopeful) domino effect rolling, which would it be? and why?
Hi Sumathi,
Thanks for the incisive comment. You’re right–Moser Baer leveraged its position as the second largest manufacturer of optical disks to achieve these economies. And the dynamics of the content industry and DVD manufacture is quite different from pharma innovation and drugs.
However, why do you say that reducing prices for drugs in developing countries is “fanciful”? Most of the important drugs are still overpriced in the developing country markets. There are countless examples. See MSF’s documents on comparative international pricing. So, in theory, almost all of them could bring prices down and sell to larger percentages of the populations. And even assuming we believe the 1 billion (now this has also shot up) figure for drug development, they will still recover their profits from the developed country markets alone. As I say in the post, the alleged reason why they don’t price lower in developing country markets is parallel imports–and here, technology may be a good answer. I’m not sure I’d agree that pharma companies would run into losses if they priced lower in developing country markets. So even assuming that Shemaroo is not pricing lower than Moser Baer because it would make a loss is true, the same logic cannot hold good for pharma companies.
a) Sumathi, I think that Tseries does NOT price its VCDs/ DVDs three times as much.
It has a differential pricing policy and moves from 39 odd rs to 100 odd rs depending on the commercial factors like novelty/ star cast etc.
b) I do not know how ICMR says
“according to law, there has to be a time lag between the theatrical and home-video release of a film.”
I wonder which law is being spoken of here. To my knowledge, CD rights are contractual and first purchaser of theaterical release puts in a clause for delayed/ minimum time difference between his theatre release and original producer allowing for CD release.
I think Aamir Khan specifically even mentioned this for his Lagaan film CD release as the reason for time gap.
For quite some time, I have seen TV advts of MB coming out with such CDs/DVDs comprising of bundled films of Rajnikant’s hits, including the “not so latest” hits of Prakash Raj (in Tamil).
Infact, a week back, I read in (print version) a Tamil weekly magazine (Ananda Vikatan) that Prakash Raj and MB are jointly producing three Tamil films and the production work for all the three has started already !
This is another strategy of MB to be closely watched. As per ICMR quoted law, though it seems that MB cannot acquire CD rights for the latest releases, I think they are trying to work-around.
I have no prior experience of using MB products, so I cannot vouch for their quality. it will be interesting to have first-hand experience of watching the films from these CDs/DVDs for better judgement.
Other than TV advts, they are extending the marketing campaign to book shops as well. Yesterday, I noticed, in Higginbothams, Chennai, a separate stand filled with such CDs/DVDs from only MB.
NOTE:
Starting from 04-Jan’08, Chennai book fair will be open for public until 17-Jan’08 and will not be surprised to see MB’s booth; but, I will not be in town to report this!
#Mars: I have tried several MB discs/films in at least three languages, and have gone home a happy customer in re quality, and of course price. One thing they could work on is that peculiarly Indian problem of subtitling – not all their dvds have subtitles – if they put those in, they can scout for a share in places where no market exists (malayalam/bengali/tamil cinema in hindi/english-speaking markets, for example). Also their distribution licenses are still only national. They would do well to go beyond, especially when it comes to selling the films to an international market.
#genericipguy: Thanks for pointing this out. My comment on T-series’ pricing was based on the discs I had seen myself on the market, and a cursory look at their website. But it is interesting that MB has a flat rate regardless of the cast?. Also, the cheaper T-series films I have seen were typically those out of copyright, dating from the ’40s (some Ashok Kumar films, I think).
#Shamnad: I attended a lecture recently delivered by someone from the biotech division at the OECD here. Although she spoke only about medicines for neglected and emerging infectious diseases, she suggested that even in small markets such as *this* one, there had to be “commercial viability” to encourage R&D and manufacturing. (I am reading her presentation while writing this, and quoting verbatim.) She implicitly also said that OECD was interested in this primarily because these so-called “diseases of the poor” were beginning to affect their countries. As a result, they needed to nip things in the bud, and get companies to start looking at these diseases. She also made the very naive comment of there being *no* market for such medicines in the developing world (for which she was immediately attacked from all corners, of course). How do you hawk the idea of differential pricing to an entire industry when the institutional structure supporting that industry refuses to acknowledge that it makes good business sense, and it’s not just about the paternalistic argument of subsidising the *poor* countries? That is why I suggested such a pricing move would be best begun by a solitary player rather than the entire industry collectively (I don’t see collective will) – and then watch the others follow suit…
Dear Sumathi,
Great points. I’m not sure I see the link between our debates here and neglected diseases. The incentives for innovation in neglected diseases work quite differently from incentives for innovation in what are typically referred to as “developed” country diseases or “global” diseases. And my points on pricing pertained to “global diseases” and how it makes business sense to price lower in developing countries.
Yes, there is no collective will to price differentially–and most of my earlier posts have harped on this lack of collective will. But it is not correct to suggest that no one is doing this. GSK’s differential pricing is an excellent example–and I personally think this is a combination of PR (GSK was one of the first companies to come under attack for pricing policies re: ARVS in Africa) and business sense. Much more needs to be done–and I’m sure other companies would follow suit.
Dear Sandeep,
You’re absolutely right. There is no law mandating a gap b/w theatrical release and home video release. This obligation is built in through the contract and has now come to be an accepted practice in the industry.
Thanks for your comment, Mars,
I second Sumathi here–I’ve watched movies on MB’s disks and the quality is good.
Sumathi,
I just came across the point that even MB does NOT put the same price for all movies.
Its recent DVD for Jab we met is expensive 🙂
GenericIPguy
Dear all,
It is a quite interesting debate. Well, the main aim behind lowering the price of ODs (Optical Discs) is to combat with problem of counterfeiting.
Shamnad, you pointed out that the main reason behind counterfeiting is that the innovators sell their product at higher prices. But let me mention to you that in case of drugs, counterfeiting is done for both generic drugs as well as that of innovator’s products. Thus, inspite of the fact that there is availability of generic drug at much lower rate but still counterfeit drugs are available in the market.
But I do agree that if the drug is under patent protection and there is no availability of generic drugs then the innovators can lower their price to lower the problem of counterfeiting. But here I second the thought of Sumati that not all the companies will be ready to lower their prices (excepting the ones who are already big giants). We cannot match orange with apples. It might be possible in IT sector to lower the cost but not atleast in case of pharmaceuticals wherein the cost incurred in discovery and development of the drug is quite high. Also, the innovator puts lot of money in filing and thereby maintining the patent. This statement can be supported by the fact that there is great hue and cry against move of Govt. to bring more drugs under DPCO.
Shamnad, also you said that even if companies reduces the cost of the drugs in develoing countries then they can recover their expenses from developed countries. I don’t agree to this because if I am a small innovator comapny then I will rather try to increase the revenues of my company by selling the product, though with little price arbitration, in as many countriues as possible where there is great demand for my drug.
In case of pharmaceutical industry, the companies will not lower the price of their drug merely for the reason to help curb counterfeiting. Yes, they will do so for other good reasons e.g. taking the case of Novartis which started selling the drug gleevec free of cost wherein the reason was to take more and more patients in their favor and trying to campaign that if their drug gets patented then it will not be available at unaffordable rate.
I would also like to have comments of Sandeep since he serves in a large generic pharmaceutical company and has got practical experience.
Shamnad: yes, one can’t compare the two groups of diseases, and their corresponding pharmaceutical treatments, but I used the instance to illustrate what I see as the general point of view here. But, of course, I hope GSK’s example is followed quickly enough…
Sandeep: 😀 Darn. Just when I thought I had hit on something interesting… This is making me eat my words, and say mea culpa. Sigh.
Dear Anon,
a) Would prefer if you put in your identity here :-I
b) As for large or small/ generic or innovator companies, I only know one basic fact: till the time that any producer can get away with a higher price, he will charge the higher price.
Sandeep.
To Sumathi,
Dont fret 🙂
I had learnt that MB or for that T-series have differential pricing a long time back.
But to MB’s credit, T-series came close to this price ONLY after MB launched the 39/- DVD ads on a large scale.
Sandeep
Hi Sandeep,
My name is dolly and i am currently pursuing law.
Dear Anonymous (Dolly?),
Thanks for your comments. I wasn’t blindly transposing the Moser Baer example to the area of pharma. Counterfeiting is more of a problem for the content industries than it is for pharma. Brand name pharma finds generics to be more of a problem!! Though generics are perfectly legal and most would agree that generics ought to be encouraged wherever possible. Unlike content pirates….
But in terms of pricing, generics and content pirates share somewhat of the same equation. I.e. both have mere “manufacturing” costs, and do not bear the cost of R&D or of creating “content” (as the case may be).
If brand name manufacturers lower prices to a level close to generic prices in developing country markets, they capture larger chunks of the market and make good profits. Seems fairly straightfoward to me. And companies like Glaxo are already doing this….
lastly, how many small innovative pharma companies do you know that operate at a global level, with the kind of marketing might of Pfizer etc. Its a highly concentrated industry with very few big players–that market most of the big drugs….
We at Moser Baer aim to end piracy in all its forms.
And we believe that a “Uniform price” alone can achieve this. Thats why we do not follow any price discrimination. But at the same time we understand that different people have different needs. So we provide special packs at select locations (read Planet M, Music World etc)which are a little expensive but offer additional features like Subtitles, Attractve packing, additional content (like Making of movie, Director’s interview etc)
The VCDs are priced at 30, DVDs at 34. And new titles at Rs. 49-50.We even offer Akira Kurosawa & Bergman titles at around Rs.399 which is a feat in itself.
The quality is top notch. No compromise there. If you have any queries visit the website.
Spread the Word. End Piracy.
Guys are you still open to comments ?
Sure we are.
I look forward to your thoughts on this post.
I was happy to stumble across this stub. From the comments I gather that there are at least a few who understand the differences between content pirates( pertaining specifically to the digital media) and counterfeit medicines or cheaper generic alternatives(even though they have differing legal implications).
Nicholas Negroponte in ‘Being Digital ‘ speaks about a transformative change that happened in the 1960s when he was working at the MIT Labs – we discovered the ability to effortlessly duplicate “bits” of information. Coupled with the emergence of the internet – this duplication could happen at almost no cost. At Apple they started exploiting this discovering quite early on when they started selling songs for a cent! Even that was hardly enough – online piracy burgeoned and is at its peak right now and if I can hazard a guess it is only going to increase. Negroponte talks about how ‘atoms’ were made irrelevant by ‘bits’. In other words the DVD is useless as long as there is a better medium of transferring these bits stored in those atoms(the DVD). As long as we refuse to accept the transformative value of this change there is no going forward. The case of Pharma industries is different because we haven’t as of now found a way to make these ‘atoms’ irrelevant. We haven’t found a way to spontaneously reconstitute a drug. There is cutting end research going on which will let you transmit smells and odours over the internet. Maybe one day we will be so advanced that I will consult a doctor online who will prescribe me a medicine which will be made by a machine installed for that purpose – all in the comforts of my room – but till that day is come we need to make a distinction between Moser Baer Dvds(electronic data) and pharma industries.
Presently, I am more interested in the former. The internet today can give you almost anything if it is capable of being converted into ‘bits’. As a child growing up in a God forsaken(quite ironic, if you happen to know where I grew up) part of this world – this was an amazing discovery indeed. Suddenly I realised that all that distance and exclusivity was not going to stand in the way of me getting access to information. Access to information is of prime importance. It has oft been said that denying access to information is denying the Right to actualise ones true potential. I completely agree. Moser Baer has done a commendable job by making bollywood movies cheap – even though there are hardly any worth watching – let that be – there is a market for stupid movies and you guys have found a way to sell cheap DVDs I honestly do appreciate that effort.
Then again, when it comes to a Kurosawa, Bergman or Kim Ki Duk movie its priced around 400-600 bucks – honestly how many people do you think can afford to buy them.
People are not militant about the high prices of these movies(music,e-books etc) because unlike generic drugs there is no one dying if you are denied access to it but think again you are actually discriminating against the number of people who quite honestly cannot afford it thereby retarding their intellectual and overall growth. The world is fast changing- artists like Radio Head and a whole slew of electronic artists are giving away their music for free – they make their money out of live concerts and gigs – unless the rules change I am sorry to say but it is going to be game over for most of these electronic media companies. The current model is simply not viable. Think about it – do you think that I would have ever listened to a Loius Armstrong album had it not been for piracy or seen a Kurosawa movie for that matter – there is no reason in crying hoarse saying that the artists are the ones to suffer because if the DVDs are so expensive that I cannot be buying them its the same for the artist – at least here there is recognition and maybe someday when I have the means to start a movie collection I’ll come back and buy the DVD’s with all the fancy covers and Directors commentary.
“Think about it – do you think that I would have ever listened to a Loius Armstrong album had it not been for piracy or seen a Kurosawa movie for that matter – there is no reason in crying hoarse saying that the artists are the ones to suffer because if the DVDs are so expensive that I cannot be buying them its the same for the artist – at least here there is recognition and maybe someday when I have the means to start a movie collection I’ll come back and buy the DVD’s with all the fancy covers and Directors commentary. “
Let me put it this way… yes… a significantly large section of students/ young professionals in India are starting thier journey for Kurosawa on pirated content… but this will change.
For myself, I am trying to build my own collection of movies, not using pirated DVDs.
I am sure that if given a chance of getting legal content at a ‘cent’ I will do so… and not rely on pirated content.
I recall Saregama trying to do some thing like that… not sure of what happened.
GenericIPguy