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Stores Bringing Blu-ray Disc Prices Below $20

10 Nov, 2009 By: John Latchem

Premium pricing for new Blu-ray Disc releases appears to be falling by the wayside as part of an all-out effort by studios to bring the high-definition format to the masses.

Indeed, Wal-Mart and several other mass merchant retail chains have begun to sell certain new Blu-ray Discs at less than $20, practically the same price as a new DVD.

“There’s a lot of aggressive discounting going on,” said Tom Adams, president of Adams Media Research. “We expect to see more of that.”

Studio executives initially saw Blu-ray Disc as a way to get consumers to pay more for movies after years of steady price erosion on DVD, particularly on the catalog side of the business. But with the troubled economy slowing Blu-ray Disc’s move into the mainstream, executives are rethinking their strategy and sacrificing premium pricing for faster mass adoption.

“Clearly, price is a factor, especially in this economy,” said a home entertainment division president of one of the six major studios. “We originally saw Blu-ray as a way to generate incremental revenue from premium price points, but we’re at the point now where we’re willing to settle for [Blu-ray Disc being] a replacement technology.”

During the Nov. 3 Blu-Con 2.0 conference in Beverly Hills, Calif., Best Buy EVP Mike Vitelli complained about Blu-ray Disc’s higher pricing, which he sees as an obstacle to mass market adoption — particularly since the format doesn’t yet have widely available portable or mobile player options.

Wal-Mart has started offering new Blu-ray Discs of theatrical films such as Paramount’s Transformers: Revenge of the Fallen and G.I. Joe: The Rise of Cobra, 20th Century Fox Home Entertainment’s Ice Age: Dawn of the Dinosaurs and Aliens in the Attic, and Sony Pictures Home Entertainment’s The Taking of Pelham 123 at $19.96 their first week on shelves.

Judging by online presales of upcoming titles for late November and early December, several other retailers are following suit. Target and Amazon.com have joined Walmart.com in offering a slew of films on Blu-ray for less than $20: Warner’s My Sister’s Keeper, Four Christmases, Terminator: Salvation, Harry Potter and the Half-Blood Prince and The Hangover; Sony Pictures’ Angels & Demons; and Fox’s Night at the Museum: Battle for the Smithsonian. In most cases, the Blu-ray is offered at only $1 or $2 more than the DVD version, and cheaper than multi-DVD special editions that offer more bonus content than the basic DVD, but usually have less content than the Blu-ray version.

“There’s something about that $20 market in business that doesn’t change, despite 3% inflation in the last decade,” Adams said. “DVD sales at mass market exploded after falling below that $20 barrier. That seems to be the magic price point.”

The drive to lower the store-selling price of Blu-ray Disc releases is likely a response to retailers such as Vitelli who say it’s tough enough to push a new format in this economy without being saddled with significantly higher prices.

Adding further pressure to lower prices on new Blu-ray Discs is the surge in rentals, a byproduct of the recession industry pundits say is behind the 13.9% drop in year-over-year packaged-media sales.

Studio sources say the lower store prices are being made possible in part by a significant drop in the wholesale price they charge retailers for new Blu-ray Discs, although they hasten to add that mass merchants also are using Blu-ray Discs as loss leaders, meaning the sales price is actually below cost.

On the surface, little has changed. Studios will typically list a new-release theatrical DVD at a suggested retail price of $29.99, with the Blu-ray Disc version of the same title listing at $39.99 or $35.99. According to the industry tip sheet The DVD Release Report, the average studio SRP for both theatrical DVD and Blu-ray Disc titles has actually increased since 2007, the first full year Blu-ray was on the market.

“That just shows the irrelevance of suggested retail prices,” said one veteran industry observer.

According to a Home Media Magazine survey of pricing at Best Buy, Target, Wal-Mart and Amazon.com, the average shelf price of a new Blu-ray Disc of a theatrical film has dropped nearly $2 from the first half of 2009 to the second. And from the third quarter to the fourth quarter, the price has dropped nearly $3, based on pre-release pricing from the stores’ Web sites.

“Premium prices were going to shrink,” Adams said. “But we didn’t expect to see prices under $20 this year.”

The average price charged for new basic-configuration DVDs also has dropped about $2 from the first half of the year to the second. A lot of this change is due to several retailers pre-selling new-release DVDs of hit films for $10 or less heading into the holiday shopping season.

“It’s a question of whether it’s worth it for the traffic,” Adams said. “And they are all in desperate need for a strong comeback. They’re willing to lose a buck or two on a DVD. So yes, it is worth it.”

Studios also are stepping up the production of Blu-ray Disc combo packs, which contain both the Blu-ray Disc and the DVD versions of a film in the same package and typically sell for the same or not much more than the standalone Blu-ray Disc.

“[The DVD in the combo pack is] a cheap thing to give away,” Adams said. “The more, the better, if it encourages consumers to move on.”

Adams projects 9 million Blu-ray ready homes at the end of this year, up from 3 million at the end of last year. He said the format has less than 10% market penetration, after discounting PlayStation 3 gamers who he says don’t have any interest in buying movies.

Once the number of homes hits the 25 million to 50 million range, Adams said, studios should be able to safely phase out DVD completely.

“[Blu-ray is] going to be adopted, in our view,” Adams said. “It’s the next player you buy. It will be under $100 for the holidays this year, and under $100 permanently starting next year. The adoption curve is healthy. It gives the studio a lot of options.”

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