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Studios Tinker With Pricing Schemes on DVD

28 Mar, 2002 By: Thomas A., Joan V.

Record companies are under fire for raising CD prices while music sales are in a slump.

Studios, meanwhile, continue to cut prices on DVDs while demand is soaring — although there are indications that for new theatrical releases, prices have bottomed out and are beginning to climb upward.

Overall, the average suggested retail price for a new DVD release has fallen from $24 in 1999 to $19.95 last year, according to the DVD Entertainment Group.

Buena Vista Home Entertainment, which charged just under $40 for its first batch of animated classics on DVD in late 1999, now has list prices averaging in the mid-$20 range. Even the lavish two-disc Snow White set, released last October, listed for just $24.99.

“Studios have taken a more aggressive stance on pricing with DVD than they have with VHS,” said Stephan Pepe, DVD and video merchandising manager for online retailer Amazon.com. “In many instances, they're going after market share.”

Suggested retail prices (SRPs) for catalog titles have declined the most — in large part to placate mass merchants like Wal-Mart, who cater to impulse buyers and are emerging as the leading class of DVD sellers.

Older library DVDs routinely come to market at SRPs of less than $15. Warner Home Video last November reduced 20 titles to $9.95, including Private Benjamin and Sharky's Machine, while MGM Home Entertainment is repricing 10 titles, mostly direct-to-video DVD movies, to an SRP of $9.98, effective June 4. Independent suppliers like Artisan Home Entertainment and Wellspring Media, too, have repriced catalog titles to less than $10.

“For [some] product, particularly direct-to-video which all these properties are, that's the appropriate price point in the development of the format,” said MGM sales EVP Robert Wittenberg.

DVD price point erosion is “happening quickly,” one studio executive agreed privately. “The studios are trying to get more DVD catalog into the mix at retail and in order to do that they have to start mirroring as closely as they can VHS pricing,” he said.

He believes the availability of low-priced movies will help speed up DVD adoption and penetration while boosting DVD catalog sales.

“The flip side is, there was hope in some quarters we'd be able to maintain higher price points out there on DVD than [on] VHS, but now I don't know how long that's going to [take to] happen,” he said.

Retail and entertainment analyst Jeffrey Logsdon at Gerard Klauer Mattison & Co. blames price experimentation on the quick adoption of DVD, which is causing studios and retailers to test what the consumer will bear.

“The hardware penetration levels have occurred at a much faster pace than expected even a year ago,” Logsdon observed. “Right now most of the studios and vidtailers are going through the experimental, quantitative phase of figuring out where the supply/demand equilibrium is — what happens if we drop a buck? Two bucks? — and correlating that to the type of product we're dealing with.”

Baker & Taylor president Jim Ulsamer also sees pressures in the marketplace that force DVD price points down to the “familiar” level of VHS, with SRPs dipping to below $10 to cater to mass merchants and discount clubs.

“Pricing moves are driven by the desire to reach certain customers,” he said. “It all depends on what the consumer is willing to pay as product is reintroduced as catalog to the DVD consumer.”

Ralph Tribbey, editor of the DVD Release Report tip sheet, believes these plummeting catalog prices are dragging down the overall average. He maintains that prices of new theatrical DVD releases, which account for the lion's share of sales, are on the way up.

His figures show an average SRP of $27.58 for new theatrical titles released in the first quarter of this year, up from an average of $26.91 in the fourth quarter of 2001 and $26.93 in the third quarter of 2001. Based on titles already announced for release, Tribbey projects an average SRP of $28.01 for second-quarter 2002 new theatricals.

“The market clearly indicates it can support higher prices for new theatrical DVDs,” Tribbey said. “The battle that we've dreaded coming — rental pricing for DVD — is not being done in one fell swoop, but we're getting nickeled and dimed.

“We're not going to two-tier pricing, but there is no reason to sell new theatrical product in the marketplace at suggested lists of $19 or $24 when you can do just as well at $27.98 or $29.99.”

Going into the fourth quarter of 2001, Tribbey said, many studios believed that for the market to really expand, “prices had to come down.” But consumer spending patterns showed price wasn't a factor, at least not in the case of hot new theatrical releases.

“It's all title-driven,” Tribbey said. “Consumers are willing to pay the price.”

In the fourth quarter, some new DVDs were priced too low, Tribbey said. Shrek, for example, came out on two discs with no suggested list price, just a minimum advertised price (MAP) of $19.95.

“Any studio that goes out there and really cuts it to the bone is, I think, really foolish, because the consumer still buys this stuff at the current price point,” Tribbey said. “Now, when the bloom is off the rose — either deep catalog or stuff that's been around forever — that's a different story. You can always go lower. But with new releases, there's no reason. I don't see anything in the cards right now to suggest we have to get into big price battles.”

Fox Home Entertainment is one studio that has kept prices relatively high. Fox has occasionally dipped to below $15 for catalog titles, but for the most part keeps library titles at $19.98. New theatrical releases, meanwhile, are either $27.98 (Behind Enemy Lines, Joy Ride) or $29.98 (Sexy Beast).

“Consumers will pay a higher price for a higher value,” said Fox video SVP Steven Feldstein.

Additional reporting by Jessica Wolf.

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