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THE MORNING BUZZ: Market Tensions Grow as DVD Continues Its Ascendancy

9 May, 2002 By: Kurt Indvik

Over the past several months we have been covering a number of stories here on Hive4media.com and in Video Store Magazine that I think paint an interesting picture of the market tensions in the home video industry.

On the one hand, we continue to celebrate DVD and its continued growth in the market, which has revitalized the home video industry like nothing else. This week's grand event in London heralding the upcoming DVD release of Harry Potter and the Sorcerer's Stone illustrates the growing importance Hollywood is placing on the little digital disc. The creative community is also embracing the format in ways that will lead to further advancements in DVD programming and, thus, contribute to greater consumer demand.

But as DVD continues its ascent to the dominant format for home video, it is causing a lot of turmoil within the industry. This comes to light in the number of stories we have done on the major studios' and other suppliers' continuing pricing and distribution maneuvers as they try to find a way to maximize their profit potential from DVD; in essence it's a struggle for control of what they see as slipping margins on a highly successful and growing home entertainment product. Those struggles include how low to price DVD new releases and catalog product, what to do with VHS and the studios' continuing realignment of the distribution network as they choose to use it for both the rental and sellthrough markets.

The trends seem to be coming into focus. We can expect to see more studios and other suppliers take some fairly radical steps to recapture as much control of the total home video distribution process as they can, especially as it pertains to rental, to ensure they leave no money on the table.

Meanwhile, retailers are also battling on the pricing front, fueled by DVD's entry into the market as a sellthrough product. Mass merchants are pricing new theatrical release DVDs as loss leaders, at least at street date, to attract more buyers into their home video sections where they can find a wide selection of heavily discounted DVDs (and some not-so-discounted catalog product, actually). In response to the price wars on DVD, specialty retailers are responding with aggressive used DVD promotions. In a Video Store Magazine front page story this coming week we explore the concern that the industry is prematurely devaluing DVDs as it tries to maximize its return on what is, at the moment, the hottest consumer product in the world.

In its fifth year, DVD is dramatically changing the landscape of the home video business in ways that are both exciting and, depending on your viewpoint, perhaps a bit foreboding.

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