The Beginning Of The End Or The End Of The Beginning?

Sometime in the year 2000 it's expected that 20th Century Fox and/or Disney will introduce rental pricing for DVD.

What does this mean for DVD advocates? For some, it's the beginning the end, and for the others the end of the beginning.

VHS became the video powerhouse it is today primarily because of two things.

The first was porno. VHS recorders were available for some time before they really started to sell, and what really kicked the numbers up was the availability of hard-core porn at home. Your standard issue perverts no longer needed to gather up their trench coat and head for the theater, they were now able to bring Deep Throat and other adult classics home and peruse them at their leisure.

The second thing which drove VHS player sales was video rental. The studios were opposed to the idea of renting their movies to the public, primarily because of piracy issues, but eventually came around when video revenues started to become a significant portion of their income. Now, a film isn't green lighted before the domestic and international video markets are taken into account.

DVD has gotten this far because of a relatively new force in the market. Sell-through.

A number of years back, some of the studios (most notably Disney) figured out that if they priced their VHS videos at less than $30, people would buy them for their home library. Using this technique, coupled with the moratorium on their titles, Disney has made billions of dollars off of home video revenue.

When the DVD group came up with the DVD standard, a part of that standard was to offer sell-through pricing. As such, DVDs have been priced very low (with a few exceptions), and even titles which were only available for rental on VHS (i.e. The Matrix) are available for purchase on DVD. Very soon this will change.

Now that the DVD market has gotten larger, the studios are beginning to look very seriously at the idea of rental pricing. The concept is very simple, and goes something like this:

If a DVD is priced for sell-through, at a suggested list of $29.95, the studio probably sells that DVD to the distributors at a price of around $12 (most retailers don't sell at suggested list, instead selling for a significant discount off list). The cost of the DVD is around $3 after packaging, etc. is taken into consideration, possibly as high as $5 when marketing is considered (although that's usually piggybacked on the VHS marketing). If the studio sells 50,000 copies of the DVD in question, then they make around $450,000. No small lump of change to us, but very much pennies in the bucket to a studio like 20th Century Fox (when you consider they're used to talking about millions of dollars).

Even the best selling DVD on the market, the Matrix, has probably brought in around $8 million for Warner Brothers. A big chunk of change, but consider that they've been selling the VHS at rental pricing ($100 ) and have probably sold close to the same number of VHS copies as DVD. That equals around $80 million.

Eventually, everything is priced for sell-through (usually six months to a year after rental pricing is introduced), but fiscally it makes great sense for the studio to price for rental initially on some titles. It can make even more sense when revenue-sharing (allowing stores to buy multiple copies of a title at a discount, in exchange for a percentage of the rental revenue) is taken into account.

More popular titles (i.e. Disney animated titles) are priced for sell-through right from the get-go. Less popular titles (especially straight-to-video titles) are priced strictly for rental, with sell-through prices taking a long time to come into effect.

So what does this mean for DVD owners?

Well, in some ways it means the party's over. No longer will you be able to buy that obscure horror title for under $30. In other ways, it's just beginning.

The increased popularity of DVD (as evidenced by more than 500,000 players sold into retail through September) will mean more movies will be released on the format. The introduction of rental pricing policies will also mean more obscure titles will be released on the format. Unfortunately, most of us won't be able to afford to buy them.

Still, is it really that painful to wait an extra six months before buying the DVD of Hellraiser XVIII? More popular titles like Star Wars (if it ever comes out on DVD), The Sixth Sense and The Matrix will always be priced for sell-through initially. The studios lose too much heat with rental pricing on these types of titles. Less popular titles will be priced for sell-through, but honestly, most of us are probably renting those titles anyhow.

The only people this change will be really bad for are mom and pop video stores, who will lose the ability to recoup costs on rental DVDs very quickly. Sadly, it once again becomes Blockbuster's territory, and that's a shame.

And so it goes...as DVD grows, expect to see more changes like this, but it's all good for the format in the end. And besides, now those porno people can watch Deep Throat frame-by-frame. How can rental pricing be worse than that?

Last week's quote of the week was identified correctly by Daniel Morrell, who identified the quote as coming from Network. He joins the elite group of people who have answered a quote of the week correctly twice.

This week's quote is from a film which is not as popular as some other like-minded films, but should be. First person to get it right wins a copy of Mars Attacks!

Man #1: I'm not dead.
Man #2: What are you then?
Man #1: I'm Alive!

Anyone who's seen the film should recognize the quote...it's a pretty intense film. If you know where it's from, email me at

ken@dvdfuture.com