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TK's MORNING BUZZ: Industry Tongues Are Wagging About Hollywood's DVD Rev-Share Deal With MGM and Warner's 'Swordfish' Cassettes Served at Sellthrough

7 Aug, 2001 By: Thomas K. Arnold

Industry tongues are wagging about two hot news stories that just broke: Hollywood Entertainment Corp. inking a DVD revenue-sharing deal with MGM Home Entertainment, and Warner Home Video releasing Swordfish at a sellthrough price even though the film doesn't fit the standard sellthrough profile.

VHS, the end is near.

By sharing revenue on DVD rentals even though the price of discs hasn't gone up, Hollywood has sent an important message to the Hollywood studios: demand for DVDs is going to exceed anyone's wildest expectations, and he who has the most discs is going to win. Consumers are going to see a marked increase in DVDs at Hollywood Video stores, and the chain wouldn't be plotting such a drastic move without extensive research that indicates consumer demand for DVD is going to continue to soar.

Now, logic tells us we're not going to see a sudden spurt in overall consumer home entertainment spending, particularly on the rental end. It's just that middle America is ready to jump head - first into DVD, at the expense of VHS.

Hollywood has seen the writing on the wall, and it wants to be the first big chain to take action. Hollywood is hedging its bets; regardless of whether studios raise prices on DVD, Hollywood, as the first big brick-and-mortar chain to share revenue on DVDs, is bound to get them cheaper than the competition, and that can only help as the general public's transition from VHS to DVD accelerates -- and, rest assured, it will.

Warner's decision to price Swordfish cassettes directly for sellthrough also bodes ill for VHS. As one of our regular readers, Tom Hannah of Video Quest in Joliet, Ill., points out in a recent e-mail, "This movie does NOT fit the profile of a sellthrough- priced title." It's rated 'R', it only grossed $68 million at the box office, and it's not a comedy or a family film -- it's an actioner."

I haven't talked to my friends at Warner yet, and I hesitate to speculate on their reasoning until we do get a chance to chat. And yet I've had lots and lots of conversations with them in the past, and I know their average yield per cassette isn't that much more than that of a DVD. I also know that Warner's long-range plans don't include rental.

Is Warner, as Tom Hannah speculates, "testing the market to see if the future is in sellthrough pricing for all formats?"

Again, without talking to Warner, I hesitate to make any judgments.

But if I were a betting man, know where I'd put my money.

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

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