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Video Price Pressure Is Cooking

17 Jun, 2003 By: Holly J. Wagner

It's no secret that home entertainment software dealers are under pressure from a lot of directions.

This industry is accustomed to a love-hate relationship with content providers and the constant tug-of-war over product pricing and who profits from video products. Sellthrough-priced DVD has complicated matters, putting extra pressure on new releases. DVD has also created new competition from online rentailers and renewed pressure from other directions, notably mass merchants and the drug and grocery segment. Everybody wants to milk this cash cow.

The pressure will only get more intense as grocers still not ready to get back into a rental business that has to be managed start to see the possibilities of using vending machines to manage rental inventory. Some of the vending machine suppliers essentially pay the store a commission for floor space and send their own employees in to manage the machines and inventory. They get their product from the same distributors as the independents (presumably at the same prices), but they don't have to worry about paying similar overhead (rent or employee) costs. If the vending segment takes off in the U.S. the way it has in other countries, that's going to put more pressure on specialty stores. So will the EZ-D self-destructing discs, if they catch on.

Disney/Buena Vista is gambling that people would rather pay $6 or $7 for a disc they have to watch in two days than have to run back to the store or risk a late fee.

In another possible problem for independents, DreamWorks will put some titles out on no-frills editions for $19.99, joining Columbia TriStar and Fox in the strategy. That won't just put pressure on pricing for new discs: it brings the prices dangerously close to what many dealers get for used discs, a part of the business they have used to buffer themselves from other pricing hits.

Many independents can trace a trend of declining profits directly to the dawn of revenue-sharing agreements that put them at a disadvantage with regard to buy-in price. But the market now is changing so fast it may be difficult to make such a direct correlation if business starts dwindling again.

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