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TK's MORNING BUZZ: Readers' Response to Talk That Studios Might Switch to Two-Tier Pricing for DVDs Is Unanimously Negative

4 Jun, 2001 By: Thomas K. Arnold

Talk that studios are considering a switch to two-tier pricing for DVDs, publicized in a column here on the Hive last week, attracted a record number of responses from readers, all negative.

And they weren't all from retailers, either: we received some passionate responses from consumers, as well. One wrote, "I just read your article concerning DVD revenue sharing and the studios thinking of adopting a two-tier price system. Is there anything I, as an outraged customer, can do about it?" From another: "Good article. I completely agree with you. What could me and my friends do to stop what can be considered the end of the good life as we know it!"

One retailer had an interesting take on the matter. Bill Duggan of Videoport wrote, "I am a single indie retailer in Portland, Maine. I find that for most titles there is a certain base of moderately affluent customers who prefer buying to renting. Our DVD revenue is over 20% sellthrough! With VHS the percentage never got over 5% except in December. If a 90-day "rental" price structure is put into place most of these buyers will turn into pure renters. The result will be huge loss in sales to the sellthrough chains. It will also change the dynamics of the studios' relationships with Blockbuster, giving the studios even less leverage.

"Before anyone raises their DVD lists above $30 they had better look long and hard at consumer behavior. Most buyers are NOT movie collectors. They are movie watchers. Most of these repeat buyers are buying at the discounted $20 price point to SEE THE MOVIE. If the prices are raised they will rent only. Most of these repeat buyers did not buy VHS at the first repricing. I expect the same to happen with DVD; they will rent like crazy when the movie first comes out, and then ignore it when it finally does get repriced for sellthrough."

Another retailer wrote, "I got into DVD in the fall of 1998, way before all the massive special-edition DVDs we are seeing today. Two of my main reasons for switching to DVD were availability and price. I loved being able to buy my favorite films without having to wait six months. I also liked the price. For example, just the other day I picked up Traffic, Big Trouble in Little China and Requiem for a Dream because of the outstanding prices. If prices shift upward to $39 or $49 I might not even be able to afford any of the discs. If the studios go to rental pricing for DVD it will be economic suicide, as many angry DVD advocates and retailers will strike back. That is a guarantee."

A reader named Gregory Camp suggested studios release two different types of DVD. "One would be licensed for 'home/private use only' (not for rental), and the other would be licensed for 'commercial use' (rentals)," he wrote. "The home DVD would have lots of extras (deleted scenes, commentary, behind the scenes footage, trailers, unrated/directors cut, etc.), and would be free of any promotional trailers (I hate having to watch commercials on DVDs). The commercial DVD would be a straight theatrical version of the film (no extras). Stuff them with promos and advertising. Pricing for the two would be similar to the current two-tier VHS system except that both prices would be in effect from day one and would not change.

"If a rental outlet was found to be violating the DVD license (by renting a non-commercial DVD), then legal action could be taken. This would give the studios the best of both worlds and keep consumer happy."

Yes, Gregory, but because of the First Sale Doctrine, the repeal of which rental dealers successfully lobbied against in the early 1980s, studios can't prevent retailers from renting their product, so under this approach there's no viable enforcement mechanism. Retailers would still be free to buy the "home" disc at a cheaper price and rent it out, pocketing all the proceeds.

Sort of like they do now.

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

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