Download the latest issue of Business Today Magazine just for Rs.49
Taking on piracy, profitably

Taking on piracy, profitably

It added content to its blank CD/DVDs to make home viewing affordable.

Historically, the home video market in India has been highly fragmented. Before 2007, no single company had been able to capture a significant share as none had the distribution capability or a large content base in multiple languages. Also, rampant piracy was eating into the market share of brands.

The 'legal' players used to price home VCD/DVDs at a large premium and stress the quality difference compared to pirated videos. Though this created a profitable channel, home viewing formed a much smaller share of film industry revenues than it did in markets like the US. With many small players competing and using essentially the same strategy, the opportunity to use innovation for breaking out of the pack was potentially very large. But it takes courage to challenge the dominant orthodoxies and not every company is willing to contradict the prevailing wisdom.

Key Challenge
Diversify into branded home video, which was an impulse purchase with customer displaying no brand loyalty.

Use technology and pricing advantage in blank disks to create low-price, high-quality products.

Moser Baer, which is today the world's secondlargest producer of blank optical disks, was willing to do so. "With the entertainment business, we charted out a strategy which had really not been followed anywhere," says Ratul Puri, Executive Director, Moser Baer, adding: "Later, someone was explaining the term Blue Ocean strategy to me, and I realised that is exactly what the entertainment division is!"

Delhi-based Moser Baer had invested heavily in manufacturing capabilities to get huge economies of scale.

But it was worried that the limited technology life cycle of the disks would make its capacity obsolete and redundant. Moser Baer was also conscious of its low brand equity, as it dealt with a commoditised product: Blank CD/DVDs.

So, it started looking for innovations to move up the value chain beyond its present business and created an entertainment division. To bring a new competitive model to this industry, the company looked at four aspects—reapplying its manufacturing and technology capabilities, building the distribution capability of a fastmoving consumer goods or FMCG company, acquiring and exploiting content, and building a sustainable brand with a clear value proposition.

Technology, which Moser Baer understood well, enabled it to break the mould in the home video space. Before Moser Baer entered the market, there were essentially two price points for each VCD/DVD—the legitimate content came in disks priced at Rs 300-500 each, and the pirated stuff was available at Rs 30-40 per disk.

Moser Baer solved this price-or-quality puzzle to produce high-quality VCDs/DVDs at prices up to 80 per cent less than those charged by established players. Consumers always want a quality product, but Indian consumers want a quality product at a very low price. For Moser Baer, low prices meant high volumes—and a stronger business case. Moser Baer's strategy completely changed the industry from a high-margin, low-volume one to a lowmargin, high-volume one. The company could effectively challenge the pirates and change the basis of the competition.

However, for a pure-play optical media player, it was a difficult transition since the sale of each DVD or VCD also depended on the movie that it had, not just the brand of the company making the blank DVDs or VCDs.

Explains Puri: "It is relatively easy to put a brand on something and sell it. Here you are selling two things—a brand and a movie. You really have to get the consumer to say 'I want to buy a movie but I want to buy a Moser Baer movie'. That is something that we have been able to achieve and that is mainly because what we are offering is a good value proposition."

But the application of superior technology is not enough—competitors will usually eventually catch up. It is crucial to have more types of innovation. So, to create a distribution network that had a wide reach at a very low cost, it aggressively hired talent from the best FMCG companies and borrowed tactics that were new to home entertainment.

Harish Dayani, CEO of Moser Baer's Entertainment Division, says: "If the price of our DVD is comparable to that of a chocolate, it must be sold in a shop that sells chocolates." This included activating new channels like cycle carts in cities. Each cart is expected to carry 35 best-sellers.

Moser Baer also realised that control over content was necessary to defend its new business model. After launching its home entertainment business, it acquired the rights to 10,000 titles (or over half the total content created in India) in Hindi and 14 regional languages. It also entered into a tie-up with regular content producers like UTV to release their productions on home videos after a certain period of theatrical release. Moser Baer is now moving into new content generation, with plans to produce content specifically for DVDs in direct-to-home educational and devotional categories.

All this helped Moser Baer to create a brand with a clear consumer benefit—a high quality product widely available at delightful prices.

The innovation did not stop. When prices of blank DVDs fell sharply in late 2008, pirates were able to bundle more movies into a single disk at a low cost. For Moser Baer, more content per disk would have meant higher cost.

So, it started innovating to reach new audiences. It created an extended offering with collections (like the "Shah Rukh Khan 6 pack" of six movies of the Bollywood superstar) priced at a premium and aimed at high-end customers. It also created a brand 'Super DVD' priced at Rs 27-30 with three movies to cater to the rural markets and take the pirates head on. "The market is evolving and one has to continue to respond," says Puri.

In just a few years, Moser Baer created a disruptive change in the home entertainment business. The average cost of movie VCD/DVD has come down from Rs 125/250 to Rs 25/50, respectively. Even the share of home entertainment to the film industry's revenues has gone up from eight per cent to 20 per cent. Moser Baer's home entertainment business now accounts for 10 per cent of group revenues of Rs 2,344 crore, and it has become a household brand, with 50,000 sales outlets and over 400 distributors.

It says the business is making a profit at the EBIDTA, but much depends on how much it pays for each movie title and over what period it amortises that cost.

Puri points out: "The most important thing from here on is to deepen the distribution reach.... The aim is to reach the million retail outlets that are in mofussil India." Add to that is the widening of the online distribution model as volumes pick up on that side.


1. Business Model: Creating a high-quality, low-margin, high-volume business model to penetrate home entertainment business.

2. Networking: Forming relationships with content providers across regions/languages.

3. Core Process: Leveraging technical capabilities in manufacturing to radically reduce the cost.

4. Product Performance: Established a new priceperformance level in the home entertainment industry.

5. Channel: Adoption of a low-cost "FMCG-type" distribution model complete with regional offices, sales team and a right mix of FMCG and entertainment trade distributors.

6. Customer Experience: It has negotiated to get the movie "LSD" on a DVD within 10 days of its release in theatres, against the usual delay of six months.

Organisations that achieve breakthrough innovation usually cover at least 3-4 types of innovation included in the framework. Moser Baer fulfils six.

Published on: May 12, 2010, 8:29 PM IST
Posted by: AtMigration, May 12, 2010, 8:29 PM IST