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The Revenge of Copy Depth, and More

17 Feb, 2004 By: Holly J. Wagner

Readers assail me and other VSM columnists every time we say VHS is over, but I cite you all to the unanswered questions in Blockbuster's Q4 and full-year financials.

The chain took a $1.3 billion charge “to impair goodwill and other long-lived assets.” In its SEC filing, Big Blue disclosed that only about $900 million of that was goodwill. So where is the other $400 million?

I'm thinking much of it's in the lost value of VHS and the rapid drain of new-release DVD value. We've all acknowledged that mass merchant pricing drives the value of new releases down within a week or two. That can make copy depth an expensive proposition.

Last month I held back making predictions for the year ahead, but now I think it's time. So here are a few things I think will happen this year:

  • All those indies who sued Blockbuster and the studios over rev-share deals they said forced out the little guys can celebrate now, because Blockbuster is paying the price for whatever advantages it may have received in earlier years. The chain will pay for its copy depth in new-release titles.

  • Hard times have already hit the two biggest chains. This will accrue to the benefit of smart indies, who are more agile and able to make changes in a changing market.

  • The rise of the used-disc trade will push new and used DVD prices ever lower. Studios will reprice sooner to keep their products on the shelves at mass merchants.

  • Chain subscriptions will force indies to lower their rental prices. Some may even have to offer subscriptions. Anyone who can't differentiate on title selection will have to rent for cheap.

  • Disposable discs will become even less relevant. Closing the price gap between the full-featured discs and those with bare-bones, expiring content will make EZ-D a more and more difficult sell, especially if used-disc prices track lower with new discs, and chains are forced to offer subscription rentals.

  • Netflix will pick up beau coup subscribers. Blockbuster will try to charge a few bucks more for its subscriptions, but anyone who finds out about Netflix — and by the way, I saw my first Netflix TV ad a couple of weeks ago — will feel foolish paying more than $20 a month for a subscription.

  • VOD, whether delivered by cable or Internet, will start to move to the forefront. Once consumers are paying for a monthly subscription, heavy consumers are likely to shift their $20 or $30 a month to the cable company and save the cost of gas.

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