DVD pricing gets all shook up

Rent or buy? For a lot of home movie viewers the answer depends on the film, but studios and rental outlets may decide for you as each struggles to be profitable in the age of digital downloads and changing consumer habits.

Blockbuster has been struggling to find relevance since Netflix appeared. The extraordinary ease of having DVDs delivered was a tough act to compete with. Not even Blockbuster's "no late fee" promotion made an impact. People would rather take advantage of a new convenience than admit they can't return a movie to the store on time.

So now, questions about Blockbuster's future are much more serious and the DVD rental businesses are doing battle with the studios supplying their product.
The entertainment writers at the Los Angeles Times are doing a great job of covering the events and explaining why this mirrors the music industry in the early days of file sharing. But now that some studios like Warner Bros. are threatening to withhold rental copies until roughly one month after they go on sale, it's the 1990s all over again when a similar tiered pricing and release system was in place.

Back in the days of VHS, studios priced new releases at around $100 a tape to discourage consumer purchases and drive rentals. Rental chains like Blockbuster and Hollywood negotiated better rates for buying in bulk, hurting the independent shops, much like big discount stores do today with pretty much everything. If you lost a rented movie, the store would charge you a jaw-dropping amount to cover the tape.

A set period of time, say one year later, the same film would drop to a more palatable sell-through price of $19.99, for rental shops and consumers alike. The older the movie, the lower the price.

Then came DVD, and the studios discovered the public had an insatiable appetite to own their favorite movies. People would actually spend money to repurchase movies they already owned on VHS on DVD, if the price was right.

So the phrase "day and date" become common. Movies were released to rental and sell-through on the same day/date. Rent or buy, the choice was yours.

As the bargaining power of rental chains like Blockbuster declined, it became more important to work with retailers that sold entertainment software. Best Buy, Target, Wal-Mart, all help set terms. The system today reflects that, and studios make more money on DVD sales than rentals.

But now there's something threatening the studio's profits -- Redbox's super-cheap $1 rentals -- and we're back to bickering studios and business models again.

History does repeat itself. But in spite of what the anti-aging industry would like us to believe, it's not possible to turn back time. Especially when it comes to technology and consumer habits.
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