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TK's MORNING BUZZ: We'll Know Soon If Two-Tiered Pricing for DVD Was a Studio Trial Balloon or a Threat Come True

8 Nov, 2001 By: Thomas K. Arnold

We're getting awful close to D-Day, the day we find out if one or majorstudios make good on their threats earlier this year to implement a two-tiered pricing model for DVD.

Back in May, a high-level executive with the home video division of one of the six majors told me it was a done deal. New releases would come out on DVD in two versions: one for rental and one for sellthrough, with the rentalversion a different color and bearing a higher price. Enforcement was still up in the air at that point, he told me, given that nasty old First Sale Doctrine, but there had to be some other way -- perhaps by limitingdistribution or refusing to sell to rental dealers who insisted on renting the cheaper sellthrough disc.

I haven't heard anything on this front since, and wonder whether it might have been a trial balloon the studio floated just to see what kind of reaction it would get.

We should know soon. This studio executive promised to make an announcement in time for the January release slate, and that's right about now.

Those who regularly read this column know where I stand on the matter. I remain firmly committed to sellthrough pricing on DVD, believing it's unwise to mess with a good thing. We've trained consumers to buy movies, and they're doing so in record numbers -- just look at preliminary sales tallies for Snow White, The Mummy Returns, The Phantom Menace and now Shrek.

Consumers who were hesitant to buy movies on VHS are amassing sizeable collections of discs, and throwing a wrench into this success story would be shortsighted. I've heard the argument that DVD is cannibalizing VHS andstudios are losing tons of money but, frankly, I don't buy it.

For one, while the buy rates of the new breed of DVD user -- the mainstream families who are picking up $100 players at Best Buy -- may not be as high as those of the early adopters, they are still a lot higher than in the VHS-only days, and this is a trend that should be nurtured and cultivated.

If there is a financial falloff, it's most pronounced on the secondary-title side, but I still maintain it's worth the tradeoff. Sales of rental-priced 'B' movies have been declining since the early 1990s, and while the market did get a temporary lift with the advent of across-the-board, studio-direct revenue-sharing and output deals, those days are coming to an end as well.

With the security blanket of output ripped to shreds, studios are going to bea lot more selective in what they acquire for video release -- and all of asudden cannibalization will matter even less than it already does.

The only smart move would be to maintain sellthrough pricing for DVD, and Ihope the studios -- all the studios -- are smart enough to recognize this.

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

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