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APAR's WORKING WEEKEND: Whose Price Is It, Anyway?

10 Nov, 2000 By: Bruce Apar

A more timely headline would be “whose vote is it, anyway?,” but we’re in the business of entertainment, note elusive elections. So on with the show…

When consumer goods and services are modeled for the marketplace, which comes first: perceived consumer desire, or the imperatives of distribution? Without casting aspersions on the latter, the answer is a no-brainer. First you figure what people want, then you figure how to negotiate the perils of the pipeline to get it to them.

That is simply said. Not so simple are the vagaries of the VHS rental business in these crazy, hazy days of revenue-sharing. Even messy market conditions, though, can’t alter absolute fundamentals. One of those is the consumer comes first, last and always. For a more schooled, eloquent elaboration of that theme, catch Amazon.com founder and c.e.o. Jeff Bezos deliver the keynote at the Home Entertainment Expo & DVD Festival in Las Vegas on Jan. 7.

So how is it that one of the home video industry’s most productive doers and original thinkers is agitating for DVD labels to raise their prices? That’s what Flash Distributors president Steve Scavelli is asking for with his campaign for a “two-tiered pricing structure” on DVD that echoes the time-honored VHS rental window.

The rationale is that you build a protective shield around a new release for the rental trade that lasts for several weeks or months by keeping it out of the hands of retailers who only sell goods. The supplier does it either by pricing each copy beyond what any consumer or retail seller would pay to have it, or leasing the copy to a rental outlet on a pay-per-transaction basis. After the so-called rental window outlives its usefulness, the same movie is repriced to a level of affordability for ownership.

DVD is not VHS. It is the successor to VHS. With the digital format tearing up the shelves and injecting much-needed excitement into all parts of home entertainment, why retard momentum by jacking up the retail price? Sure, you can argue, it hews logically to the law of supply and demand: when demand is riding high, soak the customer.

But in the case of DVD, to what end? Aah. There’s the rub. It has little to do with suppliers, who have already established their preferred pricing levels for DVD, and it has even less to do with satisfying consumers, who have voted with their wallet in favor of DVD ownership. It has mostly to do with those in between-–retailers and wholesalers.

Mr. Scavelli proposes that DVDs be priced at $49, “and then three or six months later be reduced.” That would frustrate the considerable consumer base of DVD collectors just getting used to purchasing a DVD movie at an affordable price when it’s released simultaneously at rental on VHS. It also would keep the new-release DVDs out of the hands of high-volume merchants whose sales velocity eats into rental transactions.

An estimable industry veteran who runs a successful distributorship, Mr. Scavelli argues that not every movie is worth owning. True enough, but are those not worth owning worth a retailer buying wholesale off a $50 retail price? And if a movie’s not worth owning (a highly subjective judgment to begin with), why worry about competition from sales outlets, and why should the supplier go to the bother and marketing expense of repricing it at all? Just price it low out of the gate as a cheap-inventory rental copy.

Prevailing DVD street prices, generally under $25 for new releases, open the field to retail sellers as well as rental locations. It works for most everybody, but not everybody sees it that way. Those who don’t want to own a DVD can still rent the DVD from retailers who can afford more rental copies, without revenue-sharing, than they could under a DVD rental-pricing window, where their cost per rental copy would double. Hollywood Video’s chairman Mark Wattles has gone on record supporting the same, self-serving, “consumer-be-damned” sensibility of a two-tiered pricing structure. It’s a solution without a problem.

At the same time, Blockbuster reportedly is leaning on Hollywood labels to delay DVD versions of hit titles until the rental VHS copy of the same movie can pay back its cost and then some. That says consumers are clamoring for DVD; otherwise it wouldn’t be cannibalizing VHS rental revenue.

This is not to say an industry always can satisfy the consumer completely-– goodness knows, the video industry’s conceit for years was that it thrived on not giving the customer what she wanted, which led to the revenue-sharing rampage. But with DVD, the industry appears to have reached a very happy medium, and if some are unhappy, an industry cannot always completely satisfy all its trade customers either.

It’s only fair to note that Mr. Scavelli and I are longtime friends--of video, and of each other. He is nothing if not indefatigable, generous, tough-minded, trustworthy and tons of fun to hang with.

But often our politics don’t mix-–IM me when there’s a new President, Steve--and just as often our industry positions are poles apart. That’s what makes horse races-–and contested elections.

Hail to DVD!

Comments? Contact Bruce directly at:bapar@advanstar.com

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