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TK's MORNING BUZZ: Distributors Are Encouraged by Studio Response to Their NAVD Pitch for Lower Unit Pricing on Rental Cassettes

26 Apr, 2001 By: Thomas K. Arnold

Distributors say they were encouraged by the overall studio response to their NAVD conference pitch for lower unit pricing on rental cassettes in lieu of complex copy-depth programs, and I wonder if this time they may finally get their wishes, after all.

Two suppliers in the last year, Artisan Home Entertainment and USA Home Entertainment, have gone to low unit pricing, only to reverse themselves and bump prices up again when it became clear their revenues were taking a bath. That's always been the argument against low unit pricing -- why cut the cost of cassettes when retailers won't buy appreciably more copies? All you're doing is slicing into your revenue stream, sometimes by as much as half. So isn't it better to set goals and develop complicated formulas that keep studio revenues intact while pumping more cassettes into the market? You're essentially achieving the same result, just without any of the risk.

That argument may no longer be valid, however, which is why I believe low unit pricing may be an idea whose time has come. Sideways selling is so rampant that even distributors are getting in on the game, as evidenced by Flash, WaxWorks and ETD having plenty of Universal rental product even though it's officially off limits to all but Ingram and VPD.

Sideways selling helps retailers beat the goal system and, ultimately, results in fewer cassettes entering the market than there would be if everyone played by the rules.

Secondly, DVD cannibalization is on such an upward spiral that studios are finding it increasingly difficult to slap a $70 wholesale cost on a VHS cassette while selling the same movie on DVD for $15.

I can't say for sure, but I would be willing to bet that some of the wiser minds in Hollywood right now are debating whether low unit pricing might not be such a bad idea after all. True, scrapping copy-depth programs and slashing prices might see a decline in cassette revenues, but I believe it would also prolong the life of the VHS rental cassette, which these days is very much an endangered species.

Already, the high price of cassettes is prompting some retailers to make a premature transition to DVD, to the point where they're no longer buying any cassettes. Cut prices and in the short term revenues may slip, but in the long term studios will be a lot better off because at least they'll still havecassettes to sell.

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

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