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TK's MORNING BUZZ: A Major Studio Is Banking That the Actual Loss From DVD Cannibalizing Rental VHS May Be a Lot Less Than Anyone Thinks

5 Jun, 2001 By: Thomas K. Arnold

With all this talk about studios considering a move toward two-tier pricing on DVDs, an astute colleague of mine observed, "There's already two-tier pricing: One price for new releases, which is inching upward, and another for catalog, which is inching downward."
That's a good point, and one that may make moot all the fears, concerns and threats about two-tier pricing.

Several studios in recent months have ever-so-slightly bumped up the suggested retail price of new releases, including longtime low-price leader Warner Home Video, which a few months ago went from $24.98 to $26.98.

Meanwhile, catalog prices are tumbling downward, with several major studios -- including Warner, Columbia TriStar Home Entertainment and MGM Home Entertainment -- pricing DVDs from their rich libraries as low as $14.95. Independent suppliers like Winstar are following suit, and the result is a plethora of quality product that can be picked up by consumer for as little as $10, or even less.

On the sellthrough side, the below $15 price point is the magic number to get mass merchants and other large retailers to stock catalog in depth. And my hunch is that the studios that are cutting catalog prices to $14.95 or $14.98 are making a killing. Consumers are enamored with DVD, and it's awful hard to pass up a decent film when it's priced less than a new CD.

On the new release side, list prices are now at least $5 more than your typical direct-to-sellthrough VHS blockbuster. Studios still make roughly twice as much money from each rental cassette they sell, but with DVD prices inching up and a good percentage of the hits being released directly to sellthrough on both formats, I wonder how close Hollywood really is to evening the score?

We may soon have the answer. From what I'm told by high-ranking studio sources, one major Hollywood studio is preparing a study it hopes will answer those nagging questions about how much cannibalization is occurring on the rental end, and how much money studios are actually losing when rental dealers cut back their VHS buys in favor of bringing in more DVDs.

The studio that is commissioning this study is banking that the actual loss may be a lot less than anyone thinks -- which tends to foster the argument against a move toward $39 or $49 prices for new DVD releases and its inherent risk of alienating the potent sellthrough market.

Food for thought.

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

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