DVD wars come to online retailers

First books, now movies, the price wars between the biggest retailers just keep getting hotter. Walmart, Target and Amazon are all slashing pre-order pricing on some hot new releases like "Harry Potter and the Half Blood Prince."

Walmart said Thursday it would reduce prices for soon to be released DVDs to $10 at Walmart.com. Target and Amazon quickly followed, threw in free shipping and forced Walmart to drop its prices down to $9.98. Keep in mind, the deals are for online pre-orders of movies not yet released.

All this price cuttings seems like a great deal for consumers, but is it really? Highly competitive pricing can't be sustained for long, or extended to the entire category. Retailers simply can't sell things at a financial loss indefinitely. They do it to increase traffic, turn up the marketing machine, get a lot of press and sell other, more profitable items.

And sometimes, pricing like this deals the final blow to an injured and limping competitor like Blockbuster, which closed nearly 1,000 stores this summer.

There's a reason these price wars get waged among discount stores and general mass merchants (and Amazon counts among these). Specialists like Blockbuster don't have other product categories to operate as profit centers while taking a loss on the hot new movie releases. Popular new movie releases are its profit center. Selling the latest Harry Potter film at a loss puts an end to the entire business. And given the financial state of specialty stores like Blockbuster at the moment, that end could come sooner rather than later.

Which is exactly the point. Walmart lowers prices on popular movies, then Target and Amazon follow suit. Deal hungry shoppers eat up the discounts and before you know it, a major chain or the local mom and pop (if you're lucky to still have one) closes down forever.

It's like watching a Darwinian business tale. What retailer is fit enough to survive?
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