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Target Wary of Download Pricing

9 Oct, 2006 By: Thomas K. Arnold

Studio sources confirmed a report in Monday's Wall Street Journal that Target Corp. has sent a letter to the studios, insisting they provide equitable pricing with movie downloads or else face less support from Target for their DVDs.

The chain, with about 15% of total U.S. DVD sales, is the second big retailer to voice reservations about the impact of digital downloading on the traditional packaged media business. Earlier, Wal-Mart sent an executive to Hollywood to express the company's concerns.

The Target letter, from president Gregg Steinhafel, said the chain believes “it is apparent that movie downloading is a competitor to DVD sales.” And if new movie-downloading services pay less for movies than Target does, then the chain would “re-evaluate” its support of the studios' DVDs in its stores and in its circulars, according to the letter.

Steinhafel's letter said Target had become aware some studios had made new releases available to download services at a lower cost than DVDs. The chain's fear is that if download services get better deals, they can pass these savings on to consumers, giving them a competitive advantage over packaged media — and traditional retail establishments.

Studio executives, none of whom would speak on the record, say they understand Target's concerns. But in upcoming meetings, they will play up the differences between DVDs and downloads.

“That's going to be the discussion,” one studio executive said. “It's all in your definition of a level playing field, and there are inherent differences between the two businesses. In one you have a high-quality image, high-quality sound, extra features and permanence; in the other you have lower picture and sound quality, lack of true portability and questionable permanence.”

In an e-mail reply to a phone call, Target media relations representative Anna Goeppinger sent a statement summarizing the retailer's “position on DVD sales.”

“It is Target's position that there should be equity between the alternative means of delivering movies to consumers,” according to the statement. “Target does not object to competition, but we do expect a level playing field upon which to compete with the online services.”

New DVDs routinely wholesale for about $17.75, but mass merchants such as Wal-Mart and Target typically sell them for less than $15 their first week out to drive traffic into their stores, a practice known as “loss-leadering.”

High-profile new releases such as X-Men: The Last Stand, Curious George and The Fast and The Furious: Tokyo Drift are now selling for $19.99 on Movielink. On rival CinemaNow, most new releases are $14.95, with Tokyo Drift available for just $9.99. For that price, consumers also can burn their own DVD of Tokyo Drift, an option not available for most movie downloads.

On the Apple iTunes music store, where only Disney movies are now on sale, consumers can pick up last week's hot new release, The Little Mermaid, for $12.99, about three dollars less than the DVD was priced its first week at Target. This week, Target is charging $19.99 for the title.

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