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Pricing is In Limbo But the Question Is, How Low Can You Go?

23 Jan, 2003 By: Thomas K. Arnold

If you've happened to walk into your friendly neighborhood Wal-Mart recently, one of the first thing s you see, in the high-traffic aisles, are huge dump bins of DVDs selling for $5.88.

This isn't budget fare, either—virtually every title I picked up was from a major studio, albeit deep catalog.

Wal-Mart isn't talking, but sources within the industry say this signals the start of a major initiative for the giant discounter — selling DVDs for rock-bottom prices. One studio executive, speaking strictly off the record, even said he was urged to lower list prices so Wal-Mart could offer more catalog product for less than $6 a pop.

Talk about price erosion. Indeed, falling prices, particularly on the catalog end, are apparently causing some studios to think twice about opening the floodgates on their vaults, as they had planned on doing in the first quarter of this year.

“I'm not going to put stuff out there and have it sell for $5,” said one irate executive. “There's no money in it for us, and it's a complete waste of time.”

Rather, he said, he's going to focus on selectively releasing catalog product in pricier “special edition” versions.

I'm quite certain that DVD pricing is going to emerge as the hot-button issue of 2003. I don't think we're going to hear much about two-tiering or rental models, particularly now that Tom Lesinski is over at Paramount, the last of the old-school studios. This business clearly belongs to sales, and any retailer who questions that need only look at Blockbuster to see how wrong some of our industry's brightest minds were about the future of our business.

But I do think we're going to see a lot of tinkering with price points, as studios try to achieve a balance between maintaining margins and giving retailers what they want.

In the fourth quarter, we saw new release prices plummet to unheard-of depths, with the big chains selling virtually everything that came in for less than $15, at least for the first week.

We also saw catalog prices steadily decreasing — and this trend appears to be picking up.

Sooner or later, prices are going to have to bottom out. The question is, how low will we get?



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