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DVD Trading Will Drive Prices Down Like Nothing Else

27 Apr, 2004 By: Holly J. Wagner

A couple of recent articles in The New York Times and the Wall Street Journal told how studios are selling the same titles we buy here in other countries, notably Mexico and Russia, for about one-fourth of the price. The idea is that people will buy the authorized copies if they are affordable — a standard that is vastly different in other countries from what it is here.

The implication is that piracy here could drive the prices down here, too, if more people buy bootlegs or the folks on Capitol Hill get less sympathetic to the content industries.

You can't blame downloading for everything, though it's at the heart of a bigger truth: A lot of music retailers went down and record labels suffered losses because the industry wouldn't keep up with the times.

The music content providers hamstrung the retailers with format and prices. They tethered techie consumers to CDs and then overcharged for them (I know, because I recently got my $13.86 check from the class-action settlement the industry made for overcharging consumers for CDs for years).

In the movie industry, disc prices are not the same issue. Consumers abandoned CDs partly because they could get a movie and hours of bonus features for the same price. The value proposition is clear.

What else is clear is that pricing pressure will come from a different quarter in the United States — consumer trading. Whether it's sharing titles with friends, trading them to acquaintances or selling them to retailers, consumers have figured out that there are more economical ways to watch movies.

Most retailers are still focused on just selling off their rental copies that are no longer doing brisk trade. It's hard to predict what effect Blockbuster moving a third of its domestic store base into consumer trading will have on the marketplace, especially on independent dealers.

But I think this will end up being hard on the studios and on Netflix. I'll be quite surprised if Blockbuster doesn't reduce its buy rates on a lot of new releases as the trading model takes hold.

Sure, some customers still want to see the new release at street date. That's why Netflix plans to spend millions to beef up its new-release copy depth. It's why mass merchants use new releases as loss leaders every week.

For most of the rest of us, there still isn't any such thing as a video emergency. We can wait a week or two until the price comes down and still have something with trading value after we're done watching. That may not be good news for the suppliers.

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