Movie studios are in something of a dilemma lately when it comes to planning their future channel strategy for distribution of their films. Electronic distribution is very profitable because, of the typical $4.99 cable companies charge consumers to rent a movie. The studios get to keep about 70 percent of that. DVDs are less profitable. The usual gross margin received by studios on the sale of DVDs is about 30 percent. But there's a catch. Even though electronic channels for distributing movies are growing rapidly, "old fashioned" DVDs still account for approximately 70 percent of film profits. So, while electronic distribution holds great promise, especially given the expected growth potential for showing movies on mobile devices such as smartphones, physical DVDs are still an important distribution channel for movies.
What kind of channel strategy would you recommend to the movie studios to deal with this challenge?