DVD Prices (again)

[A.M. Nornes]

In the last week or so there was some discussion of DVD pricing in the wake
of the EU announcement concerning price fixing in the European market. I
wanted to send the following material along, but it took a while to get
permission. We discourage attachments on KineJapan, but this is a rather
unusual and useful one which will be nice to have in our archive (apologies
to those of you on slow modems). It's a section from a University of
Michigan Business School student project by Mark Hancock and others, a
project which I consulted for. It was a requirement for their degrees, and
focused mainly on identifying the domestic players in the Japanese video and
movie production/distribution industry and (there had to be some finance
angle for the school) putting a value on their movie catalogs. The project
involved going to Japan and conducting interviews with various people in the
industry above and beyond library research.

One theme they discerned is that, with the exception of anime, Japanese
companies place very little value on their historic films.  Of course there
are some exceptions, but the norm is most movies realize 95% of their
revenues within the first 3 years of release.  Their main interest was
live-action films, so they didn't get into much depth on anime or the
production companies that specialize in anime (e.g., Studio Ghibli).

Aside from the report, I gave him a set of questions that I was particularly
curious about. His answers are below. Mark wanted me to point out that these
answers and the report are fairly speculative, and at moments
impressionistic.

Markus

___________________________________________________

>1) I would like to know how Japan maintains its inflated prices for tapes.
>
> For the most part, Japanese companies (with the exception of possibly the 3
> majors - Toho, Toei, Shochiku) feel they are at the mercy of
> Hollywood.  They rely primarily on the distribution of foreign (i.e,
> American ) films.  They maintain that, in order to cover the high minimum
> guarantees charged by Hollywood, they had to sell VHS movies at about
> 16,000 yen (US$140).  However, that does not explain the high price of
> domestic content.  One possibility is they want to maintain consistent
> pricing across domestic and foreign content.  Another is the high minimum
> guarantee provides an excuse for them to charge more for
> everything.  Presently, DVD in Japan is almost exclusively a sell-through
> (as opposed to rental) format.  The price of a Japanese DVD (about US$50)
> is much lower than the historic price of a sell-through VHS tape, though
> still not as cheap as US movies distributed by US companies in Japan (about
> US$20).  We were told the US companies charge so little because Japan is
> gravy to them - the US companies recover their costs in the US, so they
> don't need to cover anything but distribution costs in Japan.
>
> 2) And more than anything, I'd like to know why Japanese studios and
> >distributors are regionalizing their DVDs, so that they cannot be played
> >outside of Japan. Since they are generally the most expensive DVDs in
>the.....
>
> This is probably the easiest for me to guess.  The answer is "film
> rights".  Foreign companies pay very large sums for the rights to Hollywood
> movies and don't want to lose revenue opportunities to pirated software
> from a place like China.  This is true in many countries, not just
> Japan.  I say Hollywood because film rights for a US blockbuster can start
> at $10 mil for Japanese distribution rights, whereas foreign rights for an
> average Japanese film might be had for the price of a car.
>
> My impression from my interviews with Japanese companies is they have low
> confidence in their product, not just internationally, but also within
> Japan.  There is also little interest in Japanese movies by the US
> studios.  One exception is "Shall We Dance", but the word is it was a pet
> project of one executive at Miramax.
>
> Though I realize I did not provide definitive answers to your questions, I
> hope I gave you some insight and points for follow-up queries.
>
> Mark Hancock
> MBA 2002
> University of Michigan
> hancockm at umich.edu
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