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TK's MORNING BUZZ: Are Rental-Priced Videocassettes an Endangered Species?

16 Jan, 2001 By: Thomas K. Arnold

Are rental-priced videocassettes an endangered species? This question is particularly relevant now that Blockbuster is petitioning studios to raise prices on new DVDs to rental-cassette levels -- a proposition bitterly opposedby the big DVD retail sellers as well as many video specialists, who like having low-priced rental product, for a change.

Now, we've all heard studios say they can't let DVD rentals cannibalize VHSrentals, because they make so much more money from each cassette they sell toretailers than from each disc. And yet copy-depth programs and revenue-sharing have brought the average price of a VHS cassette way down, to somewhere around $30 -- less for independent product, which, sadly,increasingly tends to go for whatever retailers (particularly the big ones,like Blockbuster, that buy en masse) are willing to pay.

Indeed, one industry analyst I spoke with told me that fewer than 15% of the rental cassettes that are sold to retailers go for the full wholesale price, which is just north of $70.

To me, it appears studios are losing their rental-cassette revenue stream regardless. DVD isn't doing it in nearly as much as the studios' owncopy-depth initiatives, including but not limited to revenue-sharing.

So not only do I see Blockbuster's bid for higher out-of-the-gate DVD pricesfailing, I see the VHS rental pricing model disintegrating as well. Retailers are already paying a lot less, on average, for a rental-priced cassette this year ($30) than last year at this time (high $30s).

If this trend continues, then a year from now, there will only be a few dollars between the average price of a rental cassette and a sellthroughcassette -- and when that happens, studios pricing all their VHS product forsellthrough will be right around the corner.

I could be wrong. Readers, what do you think?

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

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