HIVE EXCLUSIVE: DVD's Magic Price

29 Jun, 2001 By: Ralph Tribbey

Despite much speculation about tiered pricing coming to DVD next year, listprices of new theatrical DVDs have been steadily dropping over the last two years.

The average suggested list price for the 160 movies released so far this year on DVD, fresh from their theatrical runs, is $26.86. That’s down from an average of $27.82 for the 343 new theatrical DVD releases last year and $28.53 for the 283 films released on DVD immediately after their theatrical runs in 1999.

Studio executives say the primary reason prices haven’t gone up, despite escalating demand, is the broadening of the DVD demographic.

DVD is transitioning from the early adopter phase to the mainstream and the new DVD consumers who spend $150 or less on a player are more sensitive to software prices than the early adopters who paid $600 or more for DVD units.

“It’s a price-sensitive product, and consumers are willing to buy more at alower price to offset the margin loss,” says Jim Cardwell, executive v.p. ofWarner Home Video.

Craig Kornblau, president of Universal Studios Home Video, says that when his studio first began releasing DVDs, they were priced at $29.98 or $34.98. But beginning with American Pie in early 2000, Universal lowered thesuggested list price of new theatricals to $26.98, enabling retailers to sell them to consumers for less than $20.

“The magic price point is $20,” he says. “Initially, prices were higher because you had moviephiles who had an insatiable appetite for DVDs and therefore studios chose to price their product higher. Now that it’sbecoming a mass-market business, we need to be at that magic price point.”

Universal isn’t alone. In 1999, 105 DVDs came on the market with suggested list prices of between $30 and $35. In 2000, the tally fell to 52. So far this year, only eight new DVDs have been priced in that range.

“I personally think the trend will continue to be down,” says Richard Kelly, president of management consulting firm Cambridge Associates. “Youare now going from the early adopters to the mass market stage and some studio executives feel they want to put DVD video pricing closer to impulse-buy levels as well as existing VHS sellthrough levels. Therefore, the only solution is to reduce the price, particularly because there’s no factor preventing a reduction other than a loss of profit margin.”

Sources say studios keep between 35% and 40% of the list price on new DVDs. Kelly says that leaves “room for movement, assuming thereduced list price leads to significant increases in consumer buying.” He calls it “a classic case of ‘we’ll make it up in volume.’”

The trend toward lower list prices is a significant reversal from what washappening earlier in the DVD game, when prices were headed upward. The average list price of a new theatrical DVD rose from $26.43 in September1998 to $28.73 by Thanksgiving of 1999. That jump, however, was largely dueto the higher list prices initially charged by studios that were late entries into the DVD arena. Fox Home Entertainment, Paramount HomeEntertainment and Buena Vista Home Entertainment were not aboard at the format’s March 1997 launch; when they did enter the market, they pricedtheir new releases between $29.98 and $34.98, thus driving up the average.

Overall, the average list price of all DVD titles available to consumers has fallen from $25.82 in 1999 to $22.78 last year and $20.39 this year.

This rapid drop is due in large part to nearly 2,000 repricings as well as list prices as low as $14.95 on catalog product. The gap between the average price of new theatricals versus catalog titles has steadily widened, from $1.31 in 1997 to $6.96 this year.