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VHS Pricing Will Have to Change

2 Feb, 2003 By: Kurt Indvik

The pressure continues to build on VHS and its continued viability in the market, at least as it's handled for new major theatrical releases. I expect we'll see studios trying different approaches to this challenge in 2003.

Fox's new One Price Lease program is a response to this pressure and we'll have to see how that program works out. My own opinion is that most retailers will shy away from any complicated or goals-based programs and by the end of 2003, if not sooner, you'll see VHS priced equally with DVD on all new theatrical releases.

It's all about cash flow.

While no one at Blockbuster is saying it, I think there was a bit of a message in Big Blue's recent .decision not to carry VHS versions of New Line's Simone and Buena Vista's Tadpole. And it has more to do with available dollars than the intricacies of audience preference for one format over the other. The fact is that with a focus on volume buying of DVDs for rental and sales (new and previously viewed), regardless of title VHS is just going to be the victim when a decision is made to use cash for other purposes.

The two titles Blockbuster shunned on VHS were both small players during their theatrical run (Simone $9.7 million, Tadpole $2.8 million), though Al Pacino's starring role in Simone gave it an extra boost. The VHS versions were priced for rental. Blockbuster didn't offer much deep reasoning behind the move other than to say its purchase decisions are based on “what our customers want and the economics of the product.”

Economics, indeed. Consider that last week, Paramount's Serving Sara ($16.9 million box office), not a big hit by any means, debuted on Blockbuster shelves in both DVD and VHS formats (the VHS priced for rental). The Banger Sisters, from Fox, arguably a more mainstream hit with star power ($30.3 million), yet not a world beater, also appears on Blockbuster shelves in both DVD and VHS (priced for rental).

Blockbuster spokesperson Liz Greene told VSM not to read into this any trend, from the retailer's standpoint, of no longer carrying rental-priced VHS. Certainly the fact that Big Blue picked up rental VHS on the above-mentioned titles bears this out. But I won't be surprised if we see Blockbuster make these choices again soon, and with more frequency.

Cash is always king and operating expenses for retailers big and small are going up, most notably in the area of insurance. Retailers are reporting 30 percent to 50 percent hikes in their employee health and business insurance policies. Meanwhile retailers are trying to react to the burgeoning DVD audience by adding more depth in their DVD purchases of new releases and making an investment in converting VHS catalog to DVD as they can. Something has got to give.

While the sheer force of DVD adoption hammers VHS business, studios' two-tier pricing practices on many new releases will only add fuel to the mounting funeral pyre for the videocassette.

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