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THE MORNING BUZZ: Flat Pricing for VHS Rental Product on the Horizon

31 Jan, 2002 By: Kurt Indvik

In next week's Video Store Magazine we take a look at what the studios are going to be trying this year with regards to pricing VHS rental product in the face of DVD's continual triple-digit growth in rental revenues. Because despite DVD's climb up the sales charts (with a bullet), we are most definitely a dual-personality (platform) industry during the transition.

DVD may be the fastest-growing consumer electronics product in history, but consider that VHS players are in some 90 million homes in the U.S. and in 2001, according to Video Store Magazine market research, VHS accounted for more than 68 percent of all home video sales and rentals, and about 79 percent of all rental revenues. It's quite a tightrope the industry will be walking this year.

The balancing act in 2002 will be maintained by studios as they experiment with flat pricing on VHS rental product, distancing themselves with copy-depth programs that are noticeably being phased out. No one wants a two-format scenario to last forever and DVD pricing and content value is the clear format winner. The point is how to thrive in the interim, however long that is. Thus, the current dual platform reality is forcing the studios to move toward a lower flat-price scenario for VHS to shore up continued retailer support on the rental side. Some executives interviewed for the article this week speculate the average VHS rental price could go as low as $25 to $30 for ‘A' titles.

That's a good thing for retailers who must serve customers, who are caught up in the struggle as well. Walk into any video store and you can almost feel the growing racks of DVD glacially pushing to move VHS out of the way. But it won't be so easy. Like many customers I see in the stores, I have to wander from DVD (for my wife and I) to VHS (for the kids upstairs) dealing with the same conundrum as everyone else – at least until I get my second DVD player. I need both DVD and VHS.

What impact flat pricing VHS rental product may have on DVD will be interesting to watch. For the sake of speculation, let's say rentailers will not necessarily use the lower VHS pricing to expand copy depth, but to exact better margins on any given title. Given that possible trend, should we anticipate a slowdown on the percentage of DVD to VHS bought on a given title (that is, they will buy a few more VHS, a few less DVD than they would have before flat pricing)? I'd be curious to hear from some retailers as to how they would respond to a flat pricing scenario for VHS rental product.

How would flat-priced VHS rental product affect your buying patterns? Tell us here!

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