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UPDATE: MGM Continues Flat Pricing

3 Jul, 2001 By: Joan Villa

Heartbreakers will follow Hannibal as MGM Home Entertainment’s secondbig entry into flat pricing.

The $40 million box office title will hit video rental shelves Oct. 2 at a $40 retail price for VHS — $5 lower than the Aug. 21 releaseHannibal, which generated $165 million at the box office.

As reported here June 29, the move mimics MGM’s Hannibal strategy of eliminating price programsand retail goals, according to executive v.p. of sales Robert Wittenberg. Although Hannibal is still in solicitation and sales numberswon’t be final until the July 31 prebook date, Wittenberg says so far orders have been brisk enough to warrant extending flat pricing to thecomedy Heartbreakers, starring Sigourney Weaver and Jennifer Love Hewitt.

“We’ll continue with this approach as long as it works,” promises Wittenberg. A date for MGM’s next box office title, What’s the Worst that Could Happen?, has not been set, he says, although sources expect arental release before the end of the year and another $40 flat price.

“We’re spending our time as a sales organization interfacing with retailers about what’s an appropriate amount of product to have togenerate maximum return on investment for them, and as long as we can align our expectations it will be fruitful for all of us,” Wittenberg says.

Although MGM has fielded some criticism for charging $10 higher for Hannibal than retailers would have paid under previous MGM copy-depth programs, the company defends the strategy of allowing retailers to purchase what they need rather than buying to meet studio formulas.

“Overall, by and large, the response to what we’ve done has been met favorably by retailers big and small and allowed us to do what we setout to do and get the focus back on the product.”

The lower price is a function of lower box office, he explains. “By our estimation, this is the appropriate price for product that performs thatway theatrically.”

One distributor, who says MGM gave him “astronomical” sales numbers to hit for Hannibal, will try to meet the studio’s expectations because hebelieves a simpler approach to pricing will ultimately halt sideways distribution and benefit the industry.

“It’s no coincidence that since programs started we’ve lost distributors — they’re hurting all of us to some degree,” he says. “If aretailer is going to have the luxury of full-line video distribution in the future, then one price is essential.”

Faced with high VHS rental product goals from many studios, retailers either don’t order the title and buy what they need from otherretailers, or buy their goals and sell what they don’t need, he says.

“That has the effect of strengthening subdistributors and weakening distributors and that’s not healthy for the industry,” he adds. ”Oursales people and our company realize it’s important to us and this stage of the industry that one-price programs be successful.”

Other studios such as Artisan Home Entertainment and Twentieth Century Fox Home Entertainment have also experimented with flat pricing, generally on second-tier product.

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