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Industry pundits haven't lost sight of the fact that DVD has jelled as a consumer format with considerable help from online Internet sales, which might have accounted for as much as a third of all DVD disc sales in 1998 if you're to believe Video Business magazine.
The DVD Video Group thinks that might be too high, but as its spokeswoman Amy Jo Donner says, there's no denying online sales represented "a big chunk" of its estimated 15 million units purchased last year, based on the strong showing by mass merchandisers during the holiday rush.
In any case, actual tracking of online DVD sales is expected to begin in the next few months by VideoScan, a sister company of SoundScan (which tracks audio CD sales), explains VideoScan general manager Tonya Bates. Excluding online sales, VideoScan reported 1998 sales of 9.3 million units, a more than 600 percent over DVD's 1997 debut year sales of 1.53 million units. Some 16,000 retail locations, representing more than 75 percent of the stores selling DVD, report to VideoScan on a weekly basis.
It's no secret that online merchants the likes of DVD Express, Amazon, Reel.com, Shopping.com, BigStarDVD.com and BuyDVD.com enticing buyers with deep discounts of as much as 60 percent off the suggested price (i.e., at cost or worse) is largely the reason the Internet has made as much inroads with the format in such a relatively quick time. A new website at www.dvdsearch.com allows users to comparison-shop by title.
Besides getting discs for significantly cheaper than what they cost at retail, the high percentage of online DVD sales can be explained by Internet users likely belonging to the same demographic group that would be an early adopter of DVD.
From a replicator's perspective, an irony of selling a new release DVD for as little as $9.99, which was the price BigStarDVD.com listed on Feb. 4 for Wild Things, Dune and Blade Runner--or Shopping.com selling This Is Spinal Tap (a $39.95 list) for $12.99--is that it lowers the manufacturing cost ratio to a level never approached with less technically advanced recording media, such as audio CDs or VHS videocassettes. But retail price vs. manufacturing cost is not a matter of debate here.
What is worth considering is whether such ridiculous price slashing is just setting up these upstarts for failure in the near future. The mad rush to grab online DVD marketshare echoes the evolution of the Internet CD merchants that transpired several years ago. It's a safe bet that eventually the DVD websites will merge operations in the same CDnow and Music Boulevard.
Michael Dubelko, president of DVD Express, which sells all new releases for 30 percent off (40 percent on selected titles) and offered 50 percent off its top 100 in December (only to be matched by Amazon.com), wonders for "how long" his competitors can sell way below cost--and he anticipates "a day of reckoning."
Dubelko takes some comfort in knowing a public company "is allowed [by Wall Street] to lose money as long as the fast topline growth and customer economies of scale [eventually] contribute to the bottom line." DVD Express expects to go public later this year.
"I don't think we'll be allowed to sell at these kind of discounts forever," Dubelko admits.
The company recently landed $12 million in new financing to help sustain its price war against other loss leaders. Dubelko says that DVD Express ends up "selling close to cost" between 50 and 100 discs on a daily basis for consumers who take the website's guarantee to match any price found elsewhere on the Web.
Retailers, both brick-and-mortar as well as online, generally prefer to buy from distributors for "one-stop" service, as opposed to negotiating individual deals with each studio, many of which will not sell directly to especially online merchants.
Chris Arns, vice president of sales for Morton Grove, IL-based video distributor Baker & Taylor, notes that a website that's selling a new day-and-date DVD release like The Truman Show for $9.99 "is paying 15 bucks for it. It's crazy. I'm not an economist, but I can't figure it out... It's nuts."
He acknowledges that video distribution is "a low margin, high volume business," and points out that Baker & Taylor's margins for DVD aren't as good as VHS product, for which the distributor generally buys from the studios at 50 percent off list price, compared to 32 percent for DVD.
Taking into account various pricepoints that vary by supplier and volume discounts, Baker & Taylor's customers are paying anywhere between 32 percent and 40 percent off list--which is immediately turned over to the online consumer.
It's the nature of e-commerce, surmises Arns, that a company otherwise would spend $35 to land a name and e-mail address of a prospect in hopes of gaining a loyal customer. "They can take a $10 to $15 loss [on a video product] and be ahead $20," he says of the strange math, noting that such price-gouging is not only a creature of DVD; Baker & Taylor saw the phenomenon with the VHS Titanic package as well. "One of our customers bought it at $18 and was selling it at $10. They sold 250,000 units." |
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