Apr 10, 2009


The world’s biggest film market, India, is now embroiled in a classic distribution channels battle.

Just as the battle played out in U.S. markets decades ago (with Supreme Court anti-trust implications!) Bollywood movie makers want to slice the box-office pie one way, the big theater chains want to cut it another. Film producers are demanding a straight percentage split, exactly the same for every movie. Chain owners say that when the film is a dud they should only fork over a smaller share of its receipts.
Both sides are right.

As The New York Times story describes, the problem isn’t that one side is trying to be fundamentally unfair to the other. It’s that even though both are in the movie business, a producer’s commercial realities have only one thing in common with those of a theater owner: ticket sales.

Otherwise, they’re looking in opposite directions. Movie producers have to raise money, then create and manage giant short-term businesses. Theater-owners’ eyes are riveted on the fixed costs tied to their real assets: debt, rent, maintenance, wage labor. The movie becomes just a medium of exchange.

When two ends of a distribution channel don’t understand each other’s business – and these two clearly don’t – we see channel conflict. Bollywood movie makers are withholding films, theater owners are bad-mouthing the producers in public. Much of their combined energy, time and money is being dissipated as waste heat.

Channel relationships very often become dysfunctional like this. Therefore, a big part of my teaching and advisory work aims to turn distribution system antagonists into more collaborative partners.

The first step is always the same: Help each side appreciate the economics and operating constraints that govern the other side. Help a supermarket chain understand what it’s like for a consumer packaged goods to worry about new product development and supply chain quality control. Help the manufacturer see why the retailer isn’t paying much attention to the manufacturer’s products but is obsessing about store sales per square foot.

It’s not easy to develop a language that bridges between these mindsets. When you manage it, however, you have the makings of a bigger system. More efficient, more intelligent, more competitive.

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