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TK's MORNING BUZZ: We'll See More and More Sellthrough Pricing as VHS Rental Prices Continue to Fall and DVD Takes a Bigger Slice of the Rental Pie

8 Mar, 2001 By: Thomas K. Arnold

It's funny how some old objections just don't matter anymore. I had a brief chat with retailer Marc Oringer of New York's Champagne Video today, and briefly touched on pricing of rental-priced cassettes. Marc said he would love for all titles to come out at a sellthrough price. When I asked him whether he was concerned about no longer having a rental window, he said no, he's willing to share product with everyone as long as the price is low.

Marc isn't the only one who feels that way, and I can't help but remembering back in the early 1990s, when the sellthrough business really got rolling.

Retailers were hoppin' mad whenever a studio released a hot new video directly to sellthrough, figuring that the fact that mass merchants and other discounters were selling it would have a negative impact on the title's rental potential.

And this was back in the days when a rental title set retailers back a cool $70!

What happened to change retailers' collective mindset? My hunch is that their fears were largely unfounded, that even if a video came out at a sellthrough price, there were still plenty of consumers who would rather rent it than buy it. And at 20 bucks a pop, it didn't take too many rentals to break even.

Just think about what's happening now with DVD. All DVDs, with the exception of an occasional special edition, are priced at sellthrough, and the typical rental dealer gets his copy of the latest hot release no earlier than the Wal-Mart or Best Buy down the road.

And yet retailers have nothing but good things to say about the DVD rental market, saying it's a growing business and the margins are so much better than on VHS -- even though the average price of a VHS rental cassette is about half what it was back in the good old days of traditional distribution.

So why all the anti-sellthrough hysteria in the first place? I haven't a clue, unless it was a lingering reaction to the sellthrough market in general, which specialists through their own inertia conceded to the mass merchants and music stores.

If that, then we've got a prime example of cutting off your nose to spite your face. Let's face it -- sellthrough pricing is good for everybody, and my hunch is we're going to see more and more of it as VHS rental prices continue to fall due to revenue-sharing and copy-depth programs, and as DVD takes a bigger and bigger cut of the rental pie.

Comments? Contact TK directly at:TKArnold@aol.com

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