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TK's MORNING BUZZ: Inside Studio Execs' Silence on Blockbuster's Campaign to Boost Prices of New DVDs to Rental Levels

5 Feb, 2001 By: Thomas K. Arnold

Except for Warner Home Video president Warren Lieberfarb's unequivocal thumb's down, studio executives have been strangely silent on Blockbuster's campaign to boost prices of newly released DVDs to rental levels.

Maybe they don't want to publicly assail the world's biggest video rental chain, although that didn't stop Lieberfarb from blasting the notion as short-sighted and detrimental to DVD's long-term success.

Maybe they're considering it, but don't want anyone to know. Or maybe they're just sitting on the fence, watching the DVD rental market take off and balancing their opinions on the pluses and the minuses.

The pluses, of course, are that an expected decline in rental revenue has been halted, and even reversed, due to the soaring DVD rental market. All those people who bought under-$200 players this past holiday season aren't going to want to buy movies for $20 a pop, nor can they afford to do so on a regular basis. They're going to want to rent DVDs, just like early VCR owners gave birth to a flourishing rental market. The early adopters are one thing; this is the mass market audience we're talking about, and the plain and simple fact is, they want cheap entertainment.

The minuses, from a studio standpoint, is that DVDs sell for much less, wholesale, than rental-priced cassettes. Every time a retailer buys a DVD instead of a rental-priced cassette of the same movie, the studios lose money, or at least they don't make as much money as they would in a VHS-only world.

But I think we're seeing the beginnings of a fundamental shift in the mindset of studio executives that may help explain this silence on the Blockbuster move. They're wondering if cannibalization is really such a bad thing, after all. The proliferation of copy-depth programs and revenue-sharing arrangements has pushed the average yield per rental cassette down, way down, from what it was just a few years ago. And yet studios are still raking in the bucks, because retailers are buying a lot more cassettes, overall.

The same appears to be happening with DVD. At a low sellthrough price, retailers are buying more and more discs to feed the hungry market, and it is my belief that the equation will ultimately even itself out, particularly when you consider that DVDs are even cheaper to produce than VHS cassettes.

Thus, cannibalization becomes almost a non-issue, and as the DVD rollout accelerates and more and more retailers begin transitioning from tape to disc, I think you're going to find studio bottom lines holding pat and the whole debate about DVD pricing will be viewed as, to borrow from Shakespeare, much ado about nothing.

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

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