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You're Off the Mark, Target

13 Oct, 2006 By: Thomas K. Arnold

In nearly 20 years of covering this business, I just received my first response from Target Corp. What prompted Target to break its unspoken vow of silence? The chance to confirm studio reports that it sees digital downloading as a threat to traditional retail, and to make sure the sites selling movies through digital downloads don't get price breaks that could heighten a competitive advantage.

Now that we've opened a dialogue, Target, here are some things I'd like to share with you:

1) You said you want “a level playing field upon which to compete with the online services.” However, a download isn't the same as a DVD. There are no extras, packaging or returns, but there is an inferior picture and sound. Besides, why the sudden sensitivity about price? Don't you take a bath on every new DVD you sell the first week because you use them as a loss leader to drive traffic into your stores?

2) Digital downloads and packaged media aren't going to cannibalize each other, at least not in the short term. They're two distinct businesses. Who's going to buy a 52-inch HDTV and play a download on it? Heck, downloads might even help DVD sales; maybe consumers scanning Movielink or iTunes menus will find a new release they want to add to their DVD collection, but otherwise might not have known was coming out.

3) A lot has been said about Apple blowing out episodes of TV shows such as “Lost.” But if you look closer, you'll find boffo sales only among a select handful of shows. Meanwhile, TV DVD keeps growing. Conclusion: Consumers are buying $1.99 episodes of “Lost” in case they missed the broadcast, but turning to DVD to buy the whole season for their collections.

4) X-Men: The Last Stand and The Little Mermaid made fantastic showings, sellling 5 million and 4 million units, respectively, on DVD their first week in stores. Both also topped the download charts. At least at this stage, electronic sellthrough is an incremental business, adding dollars to the overall home entertainment pie.

At our TV DVD Conference, analyst Russ Crupnick of The NPD Group said digital downloading of TV shows constitutes less than 1% of the “TV acquisition” business, with more than 99% still coming from TV DVD. Target, what are you worried about?

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