Video Concepts, Inc. (VCI) markets independently produced films on DVDs through a variety of video retail outlets.

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Question:

Video Concepts, Inc. (VCI) markets independently produced films on DVDs through a variety of video retail outlets. VCI is deciding whether they should obtain the rights to a film titled Burnt Orange Forever. VCI estimated the total market for the film will be 100,000 units.

Other data available:

Distribution rights for the film: $100,000.00

DVD Label design: $5,000.00

DVD Package design: $10,000.00

Advertising: $35,000.00

Reproduction of copies: $4,000.00 per 1,000 units

Manufacture of packaging: $750.00 per 1,000 units

Royalties: $500.00 per 1,000 units

DVD Shipping Costs: $1 per unit

VCI's suggested retail price for the film is $20/unit and the retailer's margin is 50%. (There are no other channel intermediaries such as wholesalers to consider.)

1. VCI is considering a shift to digital distribution, replacing DVD production with digital downloads. Calculate the breakeven units (downloads) required given the following data:

Lower retail price of $15.00
Digital distribution retailers (iTunes, Amazon) will require a 25% margin
VCI will sill need to pay distribution rights for the film, as well as royalites for each download.
VCI will still need to design a digital "poster" for the film, costing $5,000.
VCI will not need to produce DVDs, design/manufacture packaging, or ship DVDs
As there will not be brick-and-mortar retail outlets, a higher level of advertising will be necessary: $50,000.00