Question

1. Consider a hypothetical situation where a connectivity company intends to develop a connected system for movie theatres. This potential product would integrate controls for lighting, security, environmental and occupancy. The potential product would be positioned to be sold as one unit per theatre screen.    

Provide your assumptions of U.S. market potential for selling such a product. Present your estimates of the total market size based on (a) number of potential customers and (b) selling price of the product (hint: you must select and explain your per unit selling price). Based on such, alongside assessment of competitive products (if any) that can serve as comparables, provide your estimate of the addressable annual market at the height of sales. [You may ignore all costs (e.g., development, implantation, distribution and maintenance), we care only about revenue from the number of units we can sell annually and the selling price.] There is no “right” answer, but it is imperative that you describe the assumptions that drive your market assessment.

Answer 1

This is niche market and can serve monopoly because of innovative product in short run. However entry barriers being low and threat of substitution being high there cannot be monopoly in long run.

Hence its best to have first mover advantages by keeping selling prices low so maximum theatres adopt it and achieve economies of scale.

As per Nielsen 2018 resesrch approximately 50 million people visit cinemas. Market size is 11.5 billion dollars with 43000 screens overall in UsA.

If cost of this new technolgy is assumed at 10000 dollars per screen per year which is much lower considering cost of distribution and patent and manpower . Then we can achieve maximum sales.

Hence even if 20 percent of 43000 screens adopt new technologies at selling price of 10,000 dollar per year

Then total revenue comes out around = 20%× 43000× 10000= 86,000,000 dollars.