The home video
industry-wide move to revenue-sharing is taking its
toll on leading video wholesalers, such as Ingram
and Image Entertainment. Overall, revenues have
been dramatically reduced by studios selling
direct to the major home video chains under the
revenue-sharing umbrella. With a large base of
independent home video retailers being forced to
close their doors due to an inability to compete
with the large rental chains, distributors are
finding it increasingly hard to maintain their
business at previous levels and are reducing
overhead expenses, particularly those associated
with the rental part of the business, in an attempt
to stay profitable.
For independent retailers, revenue-sharing has been
one of the ways that have helped them stay
competitive, but with studios increasingly selling
direct to the major chains, the competitive
environment is becoming much more difficult.
Even sell-through DVD product is now being sold
direct by some studios to major Internet e-commerce
accounts, bypassing the traditional video
distributor. And with LaserDisc all but extinct,
Image Entertainment and Pioneer Entertainment could
be seriously impacted if the studios completely
bypassed them to sell DVD direct to all the major
chains and Internet e-commerce concerns. Already,
Pioneer has announced that it has discontinued its
LaserDisc business. The result, in such a
competitive environment, will be to increase DVD
discounting. Online retailers with lower overhead
and more aggressive business models will certainly
continue to price their DVD sell-through
competitively to drive revenue and to show their
IPO shareholders that they can achieve scalable
growth to drive stock prices and investor momentum.
Already Amazon.com, Big Star Entertainment, DVD
Express and Reel.com are pricing aggressively to
drive multiple DVD sales.
Mass market brick and mortar chains such as
Wal-Mart, Kmart and Target are readying their
launch of DVD in their stores and that is certain
to mean aggressive pricing on hit titles. The
combined effect will be to drive DVD awareness and
hardware penetration. With Divx gone, power
retailer Circuit City will redirect its focus on
DVD to compete for marketshare with Best Buy,
Musicland, Tower and other record chains.
All combined, the impact on the consumer will be lower prices on DVD, assuming studios will not shift from the present low-cost sell-through model to a rental model.
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