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THE MORNING BUZZ: VOD Is A Reality. It's Called DVD

8 Apr, 2002 By: Thomas K. Arnold

While prices for newly released DVDs of recent theatrical hits appear to be inching upward, as we recently reported, there are voices in Hollywood who believe this is merely a temporary blip on an otherwise downward spiral.

They envision a day in the not-too-distant future when consumers will be able to buy the latest and greatest DVDs for about $10, half the price of a CD. Some studio naysayers see such a scenario as foolishness and wonder why anyone would want to cut prices, particularly so drastically, when demand is soaring.

But there's a method to what some see as this madness, and it is this: by pricing DVDs so low, the discs will be fully embraced by those retailers who live and die by the impulse buy. DVDs will be available for sale on supermarket endcaps, at the drugstore checkout counter, maybe even in the convenience store, right next to the chips and salsa display. Music stores would sell DVDs alongside CDs (as so many already are); today's video rental stores would sell DVDs and pride themselves on their breadth of copy, just as they did in the pre-copy-depth days of VHS, without having to worry too much about being outsold by the big discount chains (there's less wiggle room on a $10 SRP than there is on something listing for $24.99).

DVDs will fast become ubiquitous, this line of thinking goes. The rental-priced cassette will disappear, and while some retailers will still rent DVDs the vast majority will sell them, simply because for 10 bucks consumers will prefer buying to renting, with all its inherent hassles (return trips, late fees, etc.).

At this point, skeptics might wonder, all right, so you're going to kill the rental business and cut sellthrough revenues in half, practically giving away discs for $10 when you could just as easily sell them for $20. Where's the logic in this?

For starters, sellthrough would become a volume business, bigger than anyone ever dreamed of in the VHS-only days. This, in turn, would give packaged media a virtually foolproof hedge against video-on-demand, if not a preemptive strike, because consumers would be enticed to build their own movie libraries and thus have no need for an electronic archive that requires a $3.95 charge on their credit card or cable bill every time they want to watch a movie.

The argument could be made that $3.95 is still cheaper than $10, but the Hollywood voices say the difference is nominal when one takes into account two things: 1) the wealth of special features that come with a typical DVD, a menu that's sure to become even more expansive – and interactive – as time, and technology, progress, and 2) our ingrained aversion toward paying as we go for our home entertainment.

This last point needs some clarification. In the last 25 years, television has become demonstrably better. We've gone from 12 channels to hundreds of channels, dozens of them devoted to nothing but movies – and yet everything gets paid for on a monthly basis, just like the water bill, the power bill, the car payment and the mortgage.

Every attempt to get us to pay per transaction has failed. Pay-per-view is a joke, limited to boxing matches and other sports contests where one "subscriber" invites the whole neighborhood and the actual yield per viewer is minimal. Divx, the pay-per-play DVD variant that bowed its pathetic head in 1998, has become one of the entertainment industry's most notorious (and costly) failures.

Simply put, these Hollywood voices say, the coming arrival of true video-on-demand doesn't necessarily mean there's going to be a market for it. And any market that does emerge could quickly be derailed by cheapo DVDs and the rapid build-up of home movie libraries. Instant access and a vast selection of titles, without mortgaging the farm—video-on-demand, just with a different flavor.

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