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Fox's Two-Tiered Pricing Plan Worries U.K. Retailers

24 Jan, 2003 By: Jessica Wolf

Though U.K. supplier Fox Pathe has yet to make an official announcement regarding its switch to a two-tiered video pricing plan, rumblings from media and industry watchers in the United Kingdom suggest it's all but done.

Rental dealers in the region are already worrying that Fox Pathe's implementation of a tiered pricing program on all video product with no rental window will cause even more suppliers to follow suit.

Fox Pathe distributes 20th Century Fox and other home entertainment product outside the United States. Reports from The Hollywood Reporter, British trade magazines View and Home Entertainment Week, as well as rental dealers in the region, speculate a new tiered-pricing strategy will begin with the March release of Road to Perdition, which DreamWorks distributes in the United States.

According to industry sources in the region, Fox Pathe's new plan would have all product, both VHS and DVD, priced for sellthrough for consumers. Rental dealers would pay about £20 ($32) more in wholesale costs than sellthrough retailers for the same product.

“Of course, what will happen is some of the small indies will cheat and buy the sellthrough copies and rent them, so there is the possibility of Fox having to take hundreds of dealers to court,” said Chris Simpson, head of leading U.K. chain PrimeTime Video. “Fox says we will be no worse because the price increase is only on the titles that have been going straight to sellthrough [already]. This is of course nonsense, because nobody can calculate how much money will be lost on rental with customers now having the choice to buy day one, and nobody knows if the large retailers will discount the ‘B' and ‘C' titles to encourage sales.”

A primary concern among retailers in the U.K. is that once Fox's tiered pricing plan takes hold, more suppliers will jump on the bandwagon.

“We expect the loss of all rental windows within the year,” said Michael Senker, former U.K. rentailer and current chairman of the Entertainment Software Retailers Association (ESRA), a trade group representing about 850 independent rental dealers in the U.K.

Senker said the real burn comes with the prices on the hit theatrical titles that have always gone straight to sellthrough. Before, U.K. rentailers were on an even footing with sellthrough competitors for cost-to-goods. Now they will be paying a premium for these titles.

PrimeTime's Simpson worries that widespread supplier adoption of the tactic could have disastrous effects on rentailers, both large and small.

“Most dealers work to a budget and will not be able to find the extra money,” he said. “If, for instance, they were going to spend £1.000 on a title, instead of getting 100 copies, they will now only have 33.

“It's an absolute mess.”

The studio's plan is legal in the U.K. under the European Union's Rental Right Directive. U.K. retailers are not protected by anything similar to the First Sale Doctrine in the United States.

Fox Pathe executives promised an official press release last week regarding the new plan, sources said. 20th Century Fox executives in the United States were unavailable for comment at press time.

But Gary Ferguson, SVP at 20th Century Fox Home Entertainment Europe, told The Hollywood Reporter that the supplier is in talks with major rental dealers in the U.K. about the pricing changes. Ferguson also said Fox will examine expanding the program to other European markets like France and Italy.

When Warner launched its tiered pricing plan last summer, the supplier was met with a widespread boycott among independent retailers and most of the region's top chains, including market leader Blockbuster. Though at least two chains eventually reconciled to the new program and began ordering Warner product, several chains, including Blockbuster, PrimeTime and Apollo, as well as many indies, continue to boycott the studio's titles.

News of the potential pricing shift came as a shock to many in the U.K. rental industry, both View and Home Entertainment Week reported last week. Fox was the first supplier to implement a rental window on DVD product in the U.K., and along with rental partner MGM, just rounded out a record-breaking year on the rental front in the region, with a nearly 20 percent share of the U.K. rental market in 2002, and 12 No. 1 rental titles.

A recent report from media-research company Screen Digest revealed that rental-pricing programs like revenue-sharing have largely been a failure in the U.K. The report found that while copy depth in U.K. rental stores rose by nearly 50 percent in 2000 -- when the first major year rev-sharing plans were implemented -- rental transactions only increased by 2 percent.

Theatrical-to-video release windows for Fox Pathe titles have also been shrinking in the U.K., with titles such as Minority Report, Windtalkers, High Crimes and Black Knight getting only three-and-a-half–to–five-month theatrical windows, compared to the typical six months, according to The Hollywood Reporter.

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