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TK's MORNING BUZZ: Are Distributors Selling Any DVDs This Fourth Quarter?

29 Nov, 2000 By: Thomas K. Arnold

Are distributors selling any DVDs this fourth quarter?

With rampant discounting by mass merchants and heavyweight software-sellers like Best Buy and Circuit City, the video specialty retailers who these distributors serve are telling me that they're cutting orders left and right and, instead, buying their inventory at retail.

The same, it appears, goes for VHS sellthrough, which has always been deep-discounted to death by the Big Guys.

Ray Jewell, the feisty Texas retailer who launched the pro-windows "Red Hat Brigade" this summer, sent me this dispatch last night:

"As a result of the cheap prices available at the mass merchants I did not order any sellthrough via distribution. I was able to take newspaper ads to Wal-Mart, which matched the prices and had no limit on sales. The results were over $300 in savings on Perfect Storm. Another retailer in our group saved over $500 on one week's new releases. To a small retailer a possible $1,000 a month is big money. Distribution is being hurt badly."

Good for you, Ray, although I can't help but empathize with distributors, who truly are being caught in the middle (or should I say "crossfire?").

This problem needs to be addressed, and distributors should immediately man the phone lines and call their friendly studio rep for assistance. My hunch is that the big chains, in at least some cases, are selling DVDs for less than distribution's cost, and that's simply not right.

If the chains are selling DVDs below their cost, then it is my understanding that this is illegal. If they're making pennies, then the studios should at least afford distribution the same courtesy and charge them the same price the big chains are paying.

All of this calls to mind an earlier debate this industry entertained, about the devaluation of video. It was eloquently argued that fast-food chains like McDonalds that were using videos as premiums were lowering the perceived value of video in the consumer's mind, thus damaging the entire industry.

I believe a similar argument can be made in regard to DVD. Twenty bucks is a fair price to pay for a movie that cost millions to make, particularly with all the special features studios are now packing onto the discs. And, as John Thrasher of Tower Records and Video pointed out to me in a phone conversation Monday, even at $20 DVDs are a bargain.

"I think people understand that at $20 or less for more a movie that cost $200 million to make, that’s a good buy," John told me. "But for some band that nobody’s ever heard of, to charge $18 for a CD that cost $15,000 to make in some garage, what is that?"

So why sell DVDs for less than CDs, as some of the big guys are doing? Given the explosion in player sales, it's really not necessary. And even if there are short-term gains, they're certainly not worth risking the long-term perception of DVD as a quality product.

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

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