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THE MORNING BUZZ: The market is talking. Are studios listening?

11 Feb, 2002 By: Stephanie Prange

Last week's finish to our 2002 pricing series, "VHS: Flat Pricing the Elixir for Longer Life?," got several retail responses.

As might be expected, retailers are in support of anything that lowers their costs and they'd like those costs to be as little as possible.

But perhaps the most ominous comment -- and one studios should heed -- was the account of one retailer's decision to drop VHS altogether and go only with DVD. The move was profitable, he noted, and set him apart. Another retailer said he had not yet done it, but planned to go all DVD. And yet another said that if he can't get a good price on cassettes from a particular studio, he'll just use the money to buy more DVDs and skip purchasing VHS copies.

Retailers seem to be sending a clear message, and the studios have begun to listen. Some have gone to flat pricing on VHS (notably MGM Home Entertainment, which pioneered the practice), and Warner Home Video has tested sellthrough pricing on traditional VHS rental fare. But indications are the studios may not be moving fast enough.

As one of my esteemed colleagues commented, "With the price of some VHS tapes, it's in the interest of retailers to buy their customers a $79 DVD player."

As quickly as the tables turned in favor of the big chains during the recent copy-depth and revenue-sharing surge, they seem to be turning again -- this time in favor of the independents. The flat sellthrough pricing of DVDs makes converting rapidly to the format a no-brainer for the indies.

Chuck Grachan, owner of 22-store JC Flicks in Joliet, Ill., interviewed for our VHS versus DVD space story mentioned that he hadn't yet broken even on some VHS titles released in November and December -- and these were big ‘A' titles.

"At this stage for VHS, it's managing risk," he told Video Store Magazine.

It seems some retailers are finding the risk of buying expensive VHS tapes is too much. They need some incentive to keep the format alive.

Another factor forcing retailers' move to DVD is sheer space. Rentailers are finding it increasingly difficult to balance floor space allocated to DVD and VHS cassettes. If a store has already weeded out most of its VHS catalog, purchases of VHS copies of new releases are the next obvious category to pare down -- unless the studios make it worth their while, through low pricing, to keep the format alive.

It's becoming increasingly clear that the time is now for studios to decide whether they want to keep the VHS market around. It seems the ball is in the studios' court.



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