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TK's MORNING BUZZ: Is Two-Tier Pricing for DVD Really Such a Bad Idea?

9 May, 2001 By: Thomas K. Arnold

One of California's notorious "rolling blackouts" hit just as I was about to begin writing today's Buzz, so I had to keep my thought alive in my brain and in the hour it took for the power to come back on I'm hoping the cranial marination had a positive effect.

Today's topic is our inherent love of the status quo and fear of anything different. Retailers have been notoriously wary of change, even if in the end the change has a positive effect on their business. Remember when sellthrough pricing first came around? Retailers howled bloody murder, warning that a low price is no tradeoff for the loss of an exclusive window and that the mass merchants would kill them if they tried to compete on price -- until they realized that if they treat sellthrough titles as cheap rental product they're the ones who stand to make a killing.

Now, change is in the wind again. There's growing talk about how DVD is cannibalizing VHS rentals, and how studios are losing their shirts because discs are so much cheaper than rental cassettes. Something's got to give, the talk goes, and more and more fingers are pointing toward a two-tier pricing structure, which also gives studios the chance to slip in the revenue-sharing component they so desperately want for DVD.

Retailers are already in a tizzy over this prospect, but I wonder if their anger will last. One longtime advocate of independent retailers, Steven Scavelli, president of Flash Distributors, breaks stride with his compadres and says in the long run, two-tier pricing might not be such a bad idea because it might be the only thing keeping alive the video rental market. If the studios lose money because DVD supplants VHS as the rental medium of choice, they might be inclined to do something drastic, like close pay-per-view windows or accelerate video-on-demand rollout.

So now I ask you to think long and hard. Is two-tier pricing really such a bad idea? It's sort of going back to square one for video retailers -- once again, they get the product first, before the mass merchants have a chance to sell it directly to consumers. But the price they pay is a significantly higher list.

Is it worth the tradeoff? You tell me.

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

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