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THE MORNING BUZZ: Used DVDs Are Transforming the Retail Business

20 Jun, 2002 By: Kurt Indvik

The growing development at retail of previously-viewed DVD sales is another example of how DVD's sellthrough pricing continues to rejuvenate the specialty retailer business, while at the same time driving up sellthrough numbers for new theatrical hits at mass merchants.

Not only have the lower price points on DVDs given rentailers, large and small, significantly larger margins on rental product, but they're helping specialty businesses compete with mass merchants in sellthrough.

The model for turning rental DVD product into used sellthrough product works for large and small rentailers. The key is DVD's sellthrough price point, which allows rentailers to recoup the return on their rental inventory a lot quicker and start moving some of that inventory to a sellthrough bin weeks (months?) earlier than with VHS previously viewed tapes.

Rentailers are, on average, selling off nearly one-fourth of their new-release inventory as previously viewed videos (DVD and VHS) within the first two months of a title's street date, according to Video Store Magazine market research. Anecdotally, when it comes to DVDs, retailers are pulling the sale trigger after several weeks on some titles. That's another good in-store reminder for customers who haven't bought themselves DVD players to get one. Another incentive may be the pricing of previously viewed DVDs which, according to Video Store Magazine market research, dropped in 2001. Interestingly enough, pricing on previously viewed VHS actually inched upward. As part of our 2001 Top 100 survey, our market research team found the average sales price of a previously viewed DVD dropped from $12.18 to $11.99 in 2001, while a previously viewed VHS cassette sold for an average of $8.19 in 2001 as compared to $7.98 the year before.

What price retailers put on previously viewed titles depends on many factors, including depth of inventory and popularity of the film. But because the ROI on DVD is so much stronger on the rental side, retailers have much more pricing flexibility to attract buyers to their used DVDs. Another plus for rentailers is their ability to prepromote previously viewed sales on the rental product, as we have already seen major chains such as Blockbuster and Hollywood do. In the first three months of 2002, Blockbuster's used-DVD and game sales increased by more than 31 percent compared to the same period a year ago after a major expansion of their used inventory.

It will be interesting to see how stores continue to manage their floor space in this DVD era.

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