DVD price probe stirs up Hollywood hornets' nest

[Don Brown]

Here's a story from Screen Daily which has some relevance to Japan and the 
DVD market here.  By way of contrast, in Japan the average price for first 
release DVDs is about 4,700 yen, compared with 15,000 yen for VHS (?!).
Don Brown


DVD price probe stirs up Hollywood hornets' nest 
Colin Brown in New York                  June 12, 2001 

Brussels regulators are to investigate why European customers tend to pay 
more for the same recent Hollywood movies on DVD than their counterparts do 
in the US and Canada. They are also opening a potential hornets' nest by 
questioning the practice of charging full price for DVD re-issues of old 
catalogue titles.

The European Union probe, which follows a similar investigation into 
musical compact disc prices that was launched in February, comes at a time 
when the studios are already arguing among themselves over precisely how 
much they should charge for hit movie titles in this fast-growing format.

The European Commission, the executive body of the 15-nation EU, revealed 
on Monday that it had sent letters of complaint to the major distributing 
studios: Walt Disney, AOL Time Warner, 20th Century Fox, Vivendi Universal, 
Paramount, MGM and Sony Pictures. So far, only Disney has confirmed plans 
to co-operate with the investigation.

At the heart of the complaint is the process of embedding each DVD with 
worldwide regional copyright codes so that the same disc that is released 
in the US cannot be immediately played on European DVD players. In theory, 
such coding prevents Europeans from seeing a DVD title well before its 
local video release; in practice, argues the Commission, such mechanical 
anti-piracy restrictions are discriminatory against EU as the tags also 
give the studios free rein to overcharge their overseas customers.

Consumer groups say Europeans pay anywhere from $17-$27 per title, while 
prices range in the US from $15-$25. "We have received a significant number 
of complaints from private citizens on this matter. In each case the 
complaint is virtually the same - namely, that DVD prices are significantly 
higher in the EU than in the US,?Mario Monti, the EU's competition 
commissioner, said in a text prepared for delivery in Stockholm. 

"It is important that, if the complaints are confirmed on the facts, we do 
not permit a system which provides greater protection than the intellectual 
property rights themselves, where such a system could be used as a 
smoke-screen to allow firms to maintain artificially high prices or to deny 
choice to consumers," said Monti.

He added that the Australian Competition and Consumer Commission had 
already concluded that the regional coding system as it applied to its 
geographical segment of the global marketplace was imposing a "severe 
restriction of choice" on consumers down under.

Although Monti noted that his Commission's probe into questionable pricing 
methods for music CDs led to the quick end of those practices, tackling DVD 
pricing policy may prove trickier than he and his Commission colleagues 
imagine. For one thing, there is no such thing as a uniform cost even in 
the US. Warner Bros veers towards the bargain prices, charging $18.89 for a 
hit title such as Miss Congeniality, in the hope of stimulating mass market 
penetration. But Paramount Pictures, the corporate sibling of Blockbuster 
Entertainment, tends towards the higher price bracket, listing a film such 
as Double Jeopardy for as much as $29.99. Disney, too, is an advocate of 
charging at the top end for such family-friendly collectibles as Toy Story.

Other studios can fall anywhere between these two poles: Columbia TriStar 
Home Entertainment, for example, is launching the special DVD edition of 
Crouching Tiger, Hidden Dragon at a suggested retail price of $27.96 - 
which is still higher than the top European price quoted by the EC.

Even at the lowest prices, however, the major studios still enjoy fat 
profit margins on every DVD sold around the world since manufacturing costs 
are a little lower than with VHS and revenues that much higher. Remove the 
costs and complications of the regional coding process, as the European 
Association of Consumer Electronics Manufacturers is urging, and the DVD 
manufacturing cost would drop even further.

According to recently published figures from Adams Media Research, the 
studios? gross profit per DVD disc currently works out at around $14.02, 
compared with just $6.51 for each VHS videocassette sold in the US. 
Overseas, that studio profit figure is undoubtedly even higher because DVDs 
can still be marketed as luxury items aimed at international enthusiasts 
and early adopters willing to pay top dollar for superior sound and image 
quality.
 

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