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TK's MORNING BUZZ: The Rapidly Dropping Price of DVD Players --- a Double-Edged Sword for Hollywood Studios

18 Sep, 2000 By: Thomas K. Arnold

The rapidly dropping price of DVD players is a double-edged sword for the Hollywood studios.

On the one hand, players selling for less than $200 are fueling the already-exploding DVD sellthrough market. Priced not much more than VCRs, these cheapo DVD players are well within the budget of the average American family and provides them with a ready excuse to take the DVD plunge--an affordable techno toy the whole family can enjoy.

The number of DVD households is soaring, and that means the studios stand to sell a lot more discs than they did a year ago, when the penetration rate was a fraction of what it is today--and what it will be by the time Christmas comes around.

But on the other hand, $156 DVD players are also fueling the DVD rental market, which the studios grudgling accept, but have never embraced. The people who are buying these inexpensive DVD players aren't going to want to plop down another $20 every time they want to watch a movie; unlike the early adopters, who didn't mind spending $500 or $600 for a DVD player, they're not aficionados. They're just regular Joes who are buying DVD players the way they bought VCRs a decade ago--and they're much more likely to rent because while they are eager to feed their new machine, they don't have the money or the inclination to build the huge DVD libraries that their wealthier, high-tech predecessors did.

While studio executives have kept surprisingly mum about the DVD software pricing issue, perhaps because they don't want to rain on anyone's parade at the moment, you can bet it's foremost on their mind. It's simply a matter of economics that the studios can't afford to let DVD rental cannibalize the VHS rental market--not with DVDs selling for less than half what videocassettes are wholesaling for, even under the most generous copy-depth or revenue-sharing terms.

Privately, many studios would like to see Warner Home Video president Warren Lieberfarb's revenue-sharing plan for DVD succeed. So would smart retailers--because if it doesn't, what happens next is a wild card. Talk of a two-tiered pricing structure, mirroring that of VHS, has all but died down, because studios don't want to risk killing the sellthrough market by channeling most hot new releases into rental first.

The only alternatives are to introduce a VHS rental window of maybe three or four weeks--which several studios are already effectively doing by pulling back from their previously aggressive day-and-date stance because of "delays in recording the director's commentary," "replication problems," or other such flimsy excuses--or let the market dictate the terms.

The problem with that is, if the market dictates the terms and it's not what the studios want to hear--if demand for DVD rental continues to grow, to the point where it seriously cannibalizes the VHS rental market--then Hollywood, faced with a dramatic drop in revenues, may do something drastic, like go day-and-date with pay-per-view.

That'll kill the DVD rental market--and the VHS rental market, along with it.

Sound ridiculous? Never happen?

Don't forget, this is Hollywood.

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

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