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The Economics of Hawking Foreign-Made DVDs—for $11 Billion The Economics of Hawking Foreign-Made DVDs—for $11 Billion

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The Economics of Hawking Foreign-Made DVDs—for $11 Billion

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Penguins stroll past photographers at the premiere of the animated film "Happy Feet" at Grauman's Chinese Theatre in Los Angeles, Sunday, Nov. 12, 2006. (AP/Chris Pizzello)()

Earlier today, the Supreme Court ruled that books produced under copyright and sold inexpensively overseas could be legally resold in America. So how rich are you about to get shipping Chinese copies of DVDs stateside? We do the math.

Before you go ahead and form Cheap DVD Imports, LLC, it's important to understand the legal terrain you're operating on. In a 6-3 decision, the Court ruled in favor of Supap Kirtsaeng, a Thai student who was studying at UCLA. As the Los Angeles Times reports, Kirtsaeng quickly realized that the textbooks students used here were far less expensive in Thailand. Having apparently already learned a lesson about capitalism, Kirtsaeng began buying books at home and selling them in California.

 

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The publishers, understandably, didn't like this, since they were losing money in the deal. They sued for copyright infringement and, at first, won a judgment of $600,000. Through the normal circuitousness, the case eventually got to the Supremes. The core question was whether or not "first sale" doctrine applied; in other words, whether the provision that allows the purchaser of a copyrighted work to resell it applied to works produced overseas. (It is, naturally, more complicated than that, but that's the gist. See SCOTUSBlog for more details.) And the Court decided it did.

SCOTUSBlog indicates that Kirtsaeng made $100,000 on the deal. But he was schlepping a limited quantity of heavy, expensive books. There was a better way.

 

In 2006, Time Warner and its affiliated studios started selling DVDs in China for as little as $1.60 a piece . Which means that the 2006 movie Happy Feet, for example, which cost $15 in the U.S., was going for $13.40 less in China. What if Kirtsaeng, instead of making his money in books, had invested in Happy Feet seven years ago?

The first question is how many DVDs he could have shipped. In July of 2006, Samsung Heavy Industries launched a new container vessel that could hold 9,600 20-foot containers. Or, upgrading to a larger container size, 4,800 40-foot containers. And in 2005, it cost about $1,500 to ship one container from China to the West Coast (according to a guy commenting on a website, so, you know).

How many DVDs could fit in one container? A DVD case is 190 mm by 135 mm by 15 mm; a 40-foot container, 11.577 m by 2.294 m by 2.509 m. Meaning that each container could hold 173,200 copies of Happy Feet. And that Samsung megaship could transport over 831 million in total.

How much would that cost? At $1.60 a DVD and $1,500 a container, Kirtsaeng would have needed to outlay an imposing $838,560,000 to launch his enterprise. But the rewards would have made the plan worth it. After the first 55 million copies of the DVD he sold, he'd be making a profit. And if he sold every copy of Happy Feet stateside for $15? He'd have made $12.47 billion gross profit. Take out the $838 million investment, and Kirtsaeng would have netted $11,631,840,000. That would have been enough to cover the 2006 out-of-state tuition at UCLA 400,000 times over — and the price of his books.

 
  • Cost per DVD: $1.60
  • DVDs per container: 173,200
  • Containers per ship: 4,800
  • Total DVDs: 831,360,000
  • Cost to ship a container: $1,500.00
  • Total cost: $838,560,000.00
  • Retail price of DVD in US: $15.00
  • Gross in US: $12,470,400,000.00
  • Net profit: $11,631,840,000.00

There are a lot of caveats, of course. The United States probably didn't need 2.78 copies of Happy Feet per person. (In fact, the movie only sold 13 million copies through 2010.) If you planned to set up shop somewhere besides the Port of Long Beach, you'd have to pay for trucking. Also, each disc would be region-encoded to China, Region 6, which would have been a boon for DVD manufacturers. Although having the movie overdubbed in Chinese would also have been a problem.

And that was all in 2006. While we now know this would be perfectly legal, nowadays Cheap DVD Imports, LLC, would face an additional problem: no one buys DVDs. But we strongly encourage the formation of Cheap University Textbooks, LLC. Seems like a market that's poised to grow.

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