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Catalog DVD in Price Fall

4 Apr, 2003 By: Thomas A., Jessica W.

Spurred by excess inventory and demands by big retailers, prices for catalog DVDs are bottoming out, with $5 discs readily available at most mass merchants and consumer electronics chains.

Meanwhile, the plunge has prompted at least one studio to hold off releasing a slew of older films on DVD, as it had intended to do once the household penetration rate hit 40 percent.

“We're going to be more selective,” said the president of this studio's home video division, who asked not to be identified. “The margins simply aren't there.”

While plenty of DVDs were on sale for less than $10 during the fourth quarter, it wasn't until recently that new lows were hit:

  • At Wal-Mart, consumers can take their pick from a wide array of studio catalog titles selling for $5.88, from New Line Home Entertainment's Corrina, Corrina to Columbia TriStar Home Entertainment's Two Moon Junction and Whatever It Takes, the latter a special edition. Some stores have huge DVD dump bins set up in high-traffic aisles; at others, the cheap discs are displayed on merchandisers, ironically headed “Hot New Releases.”

  • Despite its more upscale image, Target Stores offer sections of “Value-Priced DVDs” at its larger Greatland stores. Titles on sale for $5.99 include 20th Century Fox Home Entertainment's Grand Canyon, Drive Me Crazy and Paradise Road.

  • Best Buy hasn't quite broached the $5 price point, except with budget titles like GoodTimes Entertainment's The Proud and the Damned ($4.99) and a handful of Platinum Disc ‘B' titles ($5.99). But one Southern California location has recently taken its sole shelf of VHS cassettes and replaced much of it with “DVDs $7.99 & Under,” including such major-studio offerings as Warner Home Video's Forget Paris ($6.99) and Good Morning Vietnam ($7.99).

    Most of these catalog titles carry suggested list prices of $9.98, a price point that has mushroomed in recent years. According to the DVD Release Report, suppliers last year released 1,150 DVDs priced less than $10, up from 939 in 2001 and just 359 in 2000.

But until recently, even mass merchants prone to deep discounting, like Wal-Mart, had sold these titles at or just below list.

The latest plunge, observers say, is the result of increasing inventory and a desire by big chains to boost volume sales in hopes of making up for the losses they typically take in competitive first-week discounts of new releases.

“Studios are manufacturing an awful lot of stuff and realizing that not any old movie is going to sell,” said one veteran home video observer. “If you put out 20,000 units and only sell 7,000, those 13,000 units you take back aren't a lot. But after this keeps happening, time and time again, you're stuck with a lot of product building up.

“The question then becomes, what are you going to do with it? These are not great bottles of wine that sit on the shelf and get better with age.”

In the VHS-only days, excess inventory didn't build up as quickly because most studios recycled cassettes that didn't sell.

“The studios all had degaussing programs,” said one former home video executive. “You passed the tape in front of an electronic field and wiped the signal off, and then you refurbished the black case. After that, it was free to be used again.”

Retailers also are driving the lower price points. The fourth quarter of 2002 saw rampant discounting of new releases their first week in stores, often by as much as $2 or $3 below the wholesale price.

“So they're trying to make the margins somewhere else,” said the president of one major-studio video division who asked not to be identified. “Some of the big mass merchants want this very low price, because they feel it will entice the impulse buyer and lead to very high-volume sales. And that's the only way they can offset the hit they're taking on new releases.”

John Quinn, EVP at Warner Home Video and video “category captain” for Wal-Mart, agrees. “The margins on lower-priced titles tend to be higher because they're not as price-competitive,” he said. Even if DVDs are selling for $5.88, the margins can be as high as 20 percent, assuming an average wholesale cost of $5 for product that carries a $9.98 SRP, he said.

“On new releases [by contrast], they're making less than 12 percent -- or zero,” Quinn said.

Still, industry analyst Tom Adams questions the logic of this thinking. “That's a slow way to make up selling 15 million copies of the latest big hit at a dollar loss,” he said. “You're making a dollar profit, but how many copies do you have to sell -- how many copies can you sell?”

Adams believes $5 DVDs are bad for the industry because they lower the format's perceived value.

“Everybody's concerned about the intentional drive to sell catalog real cheap,” he said. “It's like we're seeing 10 years of VHS history compressed into one year with DVD. A very similar thing happened with VHS, which started out being $19.95 and then $14.95 and then $9.95 and then $5. But it took from the late 1980s to the late 1990s for that to happen.”

Studio executives are divided about plunging prices of catalog product. “All these retailers are experimenting with various price points, and they're finding that with some of these older catalog titles, this product is selling very aggressively,” said one executive. “There's a demonstrated level of success at this price point, and higher price points wouldn't necessarily demonstrate the same level of success.

“So the question becomes, do you want to generate revenue, any type of revenue, on these titles, or no revenue at all?”

But another studio executive said he thinks, “it's ridiculous that prices have gotten to this point this fast. Sure, they're taking old, tired stuff, but there's another argument to be made that they're devaluing DVD, which isn't a very smart thing to do.”

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