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SKU-ed Perspective

9 Mar, 2012 By: Chris Tribbey, John Latchem

Paramount/DreamWorks’ Puss in Boots had several unique DVD and Blu-ray configurations, including three exclusive to Walmart.

There are more choices than ever for consumers to watch their favorite home entertainment content.

Two or three versions of a movie stare back at customers at their local Best Buy or Target or Walmart, as studios try numerous configurations. Today you can find titles released as DVD only, Blu-ray only, Blu-ray/UltraViolet, Blu-ray/iTunes combo pack, Blu-ray/DVD/iTunes combo pack, 3D/Blu-ray/DVD/iTunes combo pack, with release configurations differing from studio to studio.

The industry lingo for each different version is SKU, an acronym for “Stock Keeping Unit.” For studios, offering more SKUs for a title is about packing more value into disc releases.

Tom Adams, principal analyst and director of U.S. media for IHS, said the studios’ move to multiple SKUs is meant to prolong the life of disc, the most lucrative part of their business. Sticking with simple Blu-ray- or DVD-only SKUs likely would require drastic price cuts, he said.

“It’s probably prudent to support higher prices with more value in the box until consumer spending overall recovers,” Adams said.

WHAT is a SKU?

SKU: Stock Keeping Unit — a code used to identify each unique product or item for sale in a store or other business

It was Walt Disney Studios Home Entertainment that pioneered the Blu-ray/DVD combo pack with the October 2008 release of Sleeping Beauty. It wasn’t long before every studio caught on: Packaging a DVD with Blu-ray helped push consumer adoption of high-def and offered more options for consumers to watch content.

“The combo pack initiative has been very successful for Disney and has proved to be extremely popular with consumers,” said Lori MacPherson, EVP of global product management for Walt Disney Studios. She said Disney combo packs accounted for 30% of all North American combo pack sales in the industry in 2011.

“The various packaging configurations offer incredible value and utility and enable purchasers to future-proof their collections as well as introduce them to Blu-ray,” she said.

“It’s really about offering consumers the highest value for their purchase,” Robert Read, SVP of worldwide high-def marketing for Universal Studios Home Entertainment, said about the various configurations his studio offers. “Our combo packs offer consumers the ultimate choice and convenience in viewing their favorite movies anywhere, anytime on an array of devices, making it a natural fit for any lifestyle.”

Scott Hettrick, publisher and editor-in-chief of 3DHollywood.net, said that the studios are releasing more variations to simply give customers what they want.

“Studios must provide content on as many different formats as possible in order to reach a collective mass audience,” he said.

The studios have attempted a number of strategies. Most notable among the different strategies:

  • Staggered releases for different SKUs: Disney was the first major studio to push separate Blu-ray and DVD release dates, starting with catalog titles such as Snow White and the Seven Dwarfs. The studio released a Blu-ray/DVD combo pack, sometimes with digital copy, and slated a DVD-only version for release about a month or two later. The first new theatrical released this way came with Pirates of the Caribbean: On Stranger Tides. Paramount Home Media Distribution used this strategy for Paranormal Activity 3.
  • Blu-ray/DVD combo, no DVD-only SKU: Another strategy being more frequently adopted, especially for indie and foreign fare, is releasing the title only as a Blu-ray/DVD combo pack, with no separate DVD-only release. Sony Pictures Home Entertainment has used this SKU the most (Incendies, Of Gods and Men, Higher Ground, Restless), and Fox also has released a few titles this way (Another Earth).
  • Blu-ray/digital copy combo packs, no DVD: Some studios, most notably Fox, offer Blu-ray/digital combo packs with no DVD.
  • Digital copy: Digital copy distribution often varies from studio to studio. Some titles will include a separate disc containing just the digital copy. Some include the digital copy on the DVD disc of the movie, and some offer the digital copy as a download.
  • UltraViolet: The cloud-based storage format removes the need for a separate disc, but as with digital copy, there is still a slip of paper with a code included in the package. Disney has yet to sign on to UltraViolet and offers traditional digital copy downloads (such as iTunes), but often has separate Blu-ray/DVD and Blu-ray/DVD/digital combo packs, with the digital copy pack about $5 more. Warner and Sony offer all their digital copies through UltraViolet now. Universal and Paramount offer both UltraViolet and downloadable digital copies using the same access code. Fox is an UltraViolet member but has yet to release any discs with UV access.
  • 3D: When studios decide to release 3D versions of movies on Blu-ray, they tend to come in full combo packs containing at least three discs (3D Blu-ray, regular Blu-ray and DVD), or more if there is a bonus disc or a disc for a digital copy.

Among the major studios, only Sony Pictures typically releases the 3D disc as a standalone purchase.

Disney, for its 3D releases of the “Toy Story” films, released each film separately as a full combo pack, but the boxed set of the 3D trilogy contained only the 3D discs for each film, in case those who already purchased the non-3D combo packs just wanted a simple upgrade.

Sometimes, as with Disney’s Pirates of the Caribbean: On Stranger Tides and Cars 2, the 3D combo pack offered exclusive bonus content the regular combo pack didn’t.

Though many new-release titles today have multiple SKUs, not every SKU is available at all retailers. Some don’t stock 3D versions in stores. Some don’t stock the Blu-ray-only version. Walmart tends to be the most consistent in offering Blu-ray-only versions, but often doesn’t have the 3D version. Target sometimes has the 3D version. Best Buy may or may not have a Blu-ray only version. And stores often will have exclusive versions of some titles, offering different extras or packed-on souvenirs, to create completely different SKUs.

“We know who our consumers are on a title-by-title basis and retailers know who their customers are on a store-by-store basis,” Disney’s MacPherson said. “The resulting mix of packaging configurations represents the best products for the core customers of that particular store. It’s more evidence of us giving them what they want, how they want it.”

Ted Engen, founder of the Video Buyers Group, a consortium of independent video stores, said the combo packs may present a challenge to some retailers of what to stock, but better too many choices than not enough.

“In a lot of retailers’ opinions the combos helped start the momentum for Blu-ray, and all the combinations make perfect sense,” he said. “Consumers don’t want to buy a Blu-ray and a DVD for something separately. With the combo pack your Blu-ray plays in the living room, and the DVD plays everywhere else.”

But Russ Crupnick, SVP of media analysis for The NPD Group, isn’t convinced all these options are a positive, especially being so inconsistent from studio to studio.

“I think you have to put yourself into a shopper’s shoes, standing at a display at Walmart, or online at Amazon,” he said. “It’s just tough sorting through all these different SKU variants, which no doubt will have different prices. You really have to be an educated consumer to absorb it all, especially if each studio adds variants of some sort. And then think about the retailer: seems like a logistics challenge from a purchasing and shelving perspective.”

Bill Hunt, editor of TheDigitalBits.com, said giving consumers options is a good thing, but “you just can’t make everyone happy.”

“The problem is that not all retailers stock all versions, so the risk is that someone goes to Target and wants just the Blu-ray and ends up having to pay more for the title because it’s a combo pack — or worse, doesn’t buy it at all,” he said.

Still, there probably are consumers who have purchased a combo and ended up trying high-def because of it, he noted. But with the “really savvy, experienced fans,” all the different SKUs may be an annoyance.

“When you’ve got a movie fan who’s already purchased a title two or three times on different formats, they know what they want and they know what truly gives them value and what doesn’t,” he said.

And then there’s the replication side of the equation. More SKUs means more responsibilities for the major replicators. Disney’s MacPherson said that simply requires more advance planning.

Kevin Sullivan, VP of business development at Technicolor, which handles replication for several studios, said his company has invested heavily in both replication capacity and packaging capabilities.

“As such, we have been able to handle the increased combo-pack business without any meaningful strain on our resources,” he said.

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