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THE MORNING BUZZ: DVD and VHS Pricing Tests Continue

4 Apr, 2002 By: Kurt Indvik

Two studios this week demonstrated some resistance to the declining price of DVDs both as a way to find the highest possible margins on DVD, and as a way to buttress against the too-rapid pace of conversion away from the VHS cassette. As I have said in this space several times this year already, 2002 will see a lot of exploration in pricing schemes as studios look for the right combination of rental versus sellthrough pricing, VHS versus DVD pricing.

Buena Vista Home Entertainment announced a slate of five high-profile titles, all at a suggested retail price of $29.99, most definitely on the high end of the DVD sellthrough spectrum. What makes this price point all the more interesting is that it is attached to some of the more critically acclaimed films from the studio this year, indicating that Disney may be exploring the finer areas of price elasticity when it comes to high-profile, (if not high-grossing) films.

The films are: The Shipping News streeting June 18, ($11.4 million box office); The Royal Tenenbaums, streeting July 9 ($51.6 million B.O.); Amelie, streeting July 16 ($31.1 million B.O.); In the Bedroom, streeting Aug. 13 ($35.1 million B.O.); and Iris, streeting Aug. 20 ($4.5 million B.O.).

Video Store Magazine has reported in the recent past on indications that Disney's DVD pricing has, by and large, not followed the downward trend, perhaps to maintain a pricing level that befits consumers' value perception of the product at this point. It will be interesting to see how other studios react to Disney's move in the coming months.

Later in the week MGM Home Entertainment announced it was testing a new pricing scheme designed to extend VHS's lifespan in this period of transition. MGM set a $22.50 dealer price on both its DVD and VHS versions of rental-destined A Rumor of Angels, allowing retailers to be flexible with their purchase balance of the two formats depending on their local markets, and to take the VHS to DVD conversion at a more manageable pace.

"Retailers will purchase at least as many or an equal number of VHS to DVD, where before you had a segment of retailers pushing to do away with VHS simply because there was such a big difference in cost," said Ted Engen, president of the Video Buyers Group.

Here we have one very interesting attempt by a studio to explore the upper reaches of studio return for sellthrough DVD titles in that fine realm of critically successful films with a narrower appeal. While the MGM program also keeps its DVD pricing high on a similarly narrow-appealing film, but also tests the lower reaches of VHS pricing to see if, "all things being equal," VHS can put the brakes to its precipitous drop in the face of DVD and avoid an untimely death. The idea here being that VHS's dramatic decline, at least in the rental business, may be manufactured to an extent by a price differential between the two formats pushing retailer adoption of DVD software for reasons of retail economics more so than by consumer demand. Keep in mind that the penetration of DVD has a long way to go before it reaches the number of U.S. households still actively using VHS.

It will be interesting to see how these various pricing tests do, and to what extent DVD pricing continues to go lower this year as DVD player penetration rises.

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