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November 08, 2012

Lessons we can learn from the DataBlitz vs. XPlay fiasco

The recent round of news stemming from the NBI raid of DataBlitz stores around the metro has given us quite an insight on how the machinations of distributorship comes into play.

A couple of months ago, we touched a little bit on the way distributorship works in the Philippines in our story ‘Why international gadgets don’t have local warranty‘.

X-Play has been aggressively mobilizing their PR machinery to get their side of the story and explain why they had to resort to going to the courts and had all of the branches of DataBlitz raided.

Whether the allegations that pirated copies of NBA 2K13 are being sold by DataBlitz are true or not, it was up to the local courts to determine probable cause so let’s leave it to the judge who signed the warrant to make the determination.

But here’s what we can make of this whole mess — that X-Play is running after DataBlitz because the latter was selling copies of NBA 2K13 that were not officially distributed by X-Play. This means that X-Play wasn’t making any money for every legit copy of NBA2K13 that DataBlitz has sold.

What DataBlitz could have done was made parallel imports of NBA 2K13 and shipped them in from other countries like HK (the statement from DataBlitz mentioned they bought some copies from X-Play though). The copies could have been original (although news sites are saying they were pirated copies) and licensed but it was thru another distributor from another country.

From the looks of it, DataBlitz was selling a combination of locally distributed copies and parallel import copies.

While X-Play made from money by selling DataBlitz some of their copies, the ones that were imported by DataBlitz themselves aren’t counted. From a consumer point of view, it seems fair and legit since it still came from the original the game developer and publisher, 2K Sports.

From a business stand-point, it could be a different picture altogether. Let me try and shed some light on why this is so:

* X-Play claims they are an exclusive Philippine distributor of NBA 2K13. This means that they deal directly with the developer/publisher, 2K Sports. No other Philippine entity was given the same authorization to distribute.

* In return, the exclusive distributor is given a quota on the number of sales they should deliver. This means they will have to ship in and pre-pay a minimum number of units or license (I heard it was 20,000 licenses but let’s just assume that was the quota).

* The local distributor will also be tasked by the publisher to spend for marketing the product and other campaigns in the country. This is on top of what they committed to pay for the quota.

* The exclusive distributor will take on all these additional costs because they are promised by the developer/publisher that all local sales will go thru them and not thru any channels.

From a business stand-point this looks like a good proposition right? And it’s a pretty common practice in the distributorship (take for example the iPhone 3G/iPhone 4 and Globe exclusivity back in 2010) industry.

* If another local seller makes a parallel import of the same product and sells it locally, the distributorship is taken out of the loop and does not make any money. Parallel import is the act of shipping in original products from another country without the expressed permission from the owner/manufacturer/publisher. This means you can go to Hong Kong and buy 1,000 units of the iPhone 5 and then sell them in the Philippines.

* From the bigger picture, that 1,000 sale of the iPhone 5 is credited to sales of the Hong Kong distributorship, not the Philippine distributorship. Apple might not be aware of this and these are considered grey products.

* So if the local distributor was tasked by the publisher/owner to meet a sales quota in the country, their sales projections are now skewed because of the parallel imports. This means that if they projected to sell 20,000 units per year but the grey market was able to take 5,000 units and sold it first, it means the distributor is left with 5,000 unsold units for the year. They can still sell it the following year but that’s already somewhat considered a loss in potential sales.

There are a few things a distributor can do from this point on:

* They suck it up and continue paying for the fees to be the exclusive distributor and ignore the parallel imports.

* They give up the distributorship if they cannot meet the quota because of competition from parallel imports.

* Fight back and chase after the folks who import the products directly from other countries.

In this case, X-Play sought the help of the courts which prompted the raid.

We’re not taking any sides here. We’re just trying to explain what could have happened that led this this fiasco.

In fact I know of a lot of local dealers/resellers that combine locally distributed units with parallel imports in their inventory. This gives them better margins (from parallel imports) and at the same time some form of legitimacy as a dealer/reseller (since they also buy from the local distributor).

The last biggest case I heard before was Canon Phils. filing a complaint against Kim Store for selling parallel imports of Canon products. That’s probably the reason why you won’t see any Canon cameras in Kim Store’s listing.

Distributorship is a tricky (and risky) business. You either win big by grabbing exclusive distributorship or you can suffer great losses by getting burned from parallel imports.

NBA 2K13 now out in stores

90 Responses to “Lessons we can learn from the DataBlitz vs. XPlay fiasco”

  1. fireice2 says:

    CIDG is the most corrupt law enforcement agency. Malaki bayad kaya nagraraid, or magraraid kasi hindi binayaran.

    We almost conducted an entrapment operation against elements of the CIDG before for extortion. They were lucky the NBI had no spare operatives on that day to conduct an impromptu bust.

    If this was a customs case, they have no jurisdiction.

  2. Frhw says:

    Ano ang case laban sa kanila if original ang copy at ibinabayad ng custom tax?kung smuggle yon malinaw may kaso sila.
    We are in the mktg. business at may mga product kaming ibinebenta as distributor but mostly hindi na nagoofer ng exclusive distributorship ang mga
    Supplier abroad kundi authorized distributorship means more than 1 ang pwedeng magbenta na company dito.wise na ngayon ang mga brand owner kasi the more na mas maraming distributor mas malaki benta nila

  3. The real lesson here is exclusive distribution for traditional retail games is not a viable business model in the Philippines. There have been three (3) ventures for such:

    1.) AMDG – Vivendi (CS, Diablo 2, Warcraft 3, and a buttload of other Vivendi games) + Guildwars
    2.) IAH Philippines – Starcraft 2
    3.) E-Games – Diablo 3

    And we will call the fourth X-Play – 2K13, soon.

    All three of the above mentioned companies do not exist anymore. E-Games technically became X-Play but the point is their business case ultimately failed.

    Exclusive distribution should at least provide consumers with extra value by means of DLC, premium merchandise per purchase, after-sales support, or even an official ranked server or something. If exclusive distributors want to place premiums on their goods, by all means, justify them.

    Where is the extra value of X-Play 2K13s? In a raffle? People would have wanted the game with or without the raffle. People would have wanted the game with or without X-Play’s “marketing”. But most of all, people would have gotten the game with or without X-Play’s exclusive distributorship.

    X-Play, why even bother?

  4. rotero
    Twitter: rubyotero
    says:

    so its like SALES CHANNELING ….

  5. Melvin Ryan Fetalver says:

    I agree that exclusive software distribution particularly in gaming is not a viable model not just here in the Philippines but globally. If you notice the trends, with Steam and Blizzard going for online downloads of games. It’s cheaper because you do not spend on imports, CD’s, Manuals, Cases. Etc. And it’s easier to sell also. Overall that is the trend. So XPLAY making a big fuss about this fiasco, was not only an over reaction. But was very very poorly executed. It did them more harm than good from a PR standpoint.

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  7. Rey says:

    I’ll probably won’t be buying and 2ksport game unless 2ksport revokes exclusive distribution from x-play.

    Sa mga circle of friends ko, hinde na rin sila bibili ng games by 2ksports hanggang hinde malugi ung x-play.

  8. spythere says:

    CIDG Didnt investigate well or lack of experience they should study well first the case background before applying search warrant, kaya ayan nag kanda leche leche na ang pina lalabas na violation, napunta sa smuggling case. he,he cidg kayo hindi kayo anti-smuggling ng Bureau of Customs.

  9. spythere says:

    Kung sino man sa mga Police Supt.ang nag apply ng search warrant hala lagot ka, mag lagay ka na ng karton sa pwet at sigurado palo ka kay judge.

  10. Hen-Sheen says:

    Monopolization. Datablitz does a “GOOD” job in handling the situation. They care about money! In one of their branches, I’ve asked them if they have a copy of that FF13-2 Guide, unfortunately they’re out of stock! One of the workers of that company proactively told me that they have 8 copies of that guide (per store)! They are being cutting edge in cutting down costs with this one 50+ customers & only 8 copies… Doesn’t make sense at all… Like the AVGN would say, What the F**K were they thinking!?

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