Target aims for download prices
UPDATE: Investor report questions studios' commitment to online
By Jennifer Netherby -- Video Business, 10/13/2006
OCT. 13 | Target Corp., one of the biggest sellers of DVDs, sent a letter to studios last month urging them to price downloads similar to DVD or the retailer will “reconsider” its investment in the disc business.
In a statement pointing out the thorny issue facing studios trying to develop downloads as a new revenue stream while protecting their DVD revenue, Target said: “It is Target’s position that there should be equity between the alternative means of delivering movies to consumers. Target does not object to competition, but we do expect a level playing field upon which to compete with the online services.”
In the letter, Target president Gregg Steinhafel called for a “level playing field” on pricing of downloads and physical DVDs.
Wal-Mart also has reportedly complained to studios about download pricing. However, the largest mass merchant has confirmed that it is looking into developing its own download store and also is reportedly in talks with Apple about an iTunes partnership. Target sells DVDs online through Amazon.com.
One studio source predicted that the eventual rollout of in-store download kiosks could lessen the pressure from retailers on the download front.
Target’s letter seems to underscore a research report distributed Oct. 9 by Pali Research noting that how DVD retailer Wal-Mart and others react to download pricing will be an issue for studios.
Pali’s report said low pricing on downloads could pressure studios to lower wholesale pricing on DVDs or risk losing retail shelf space. If that happened, studios would likely lose more on those lost DVD dollars than they would on any sales gains from downloads.
The Pali report noted that iTunes’ low prices have helped to sell downloads but questioned what the benefit was to Disney, the only studio so far to sign a movie download deal with Apple.
“However, the more important issue is how do Wal-Mart and the other physical DVD retailers react to iTunes’ retail pricing [that] they cannot afford to match, as their wholesale price is generally at least $2 more than what iTunes is paying Disney,” the report states.
Pali predicted that Apple’s pricing structure is likely to change as the company works to sign more studio deals. The report said Apple has begun discussing higher prices with other studios, more than the $14 to $14.50 iTunes is paying Disney for movies.
Pali also questioned whether any studio aside from Disney is truly serious about entering the movie download business.
Pali said pricing on Amazon’s Unbox service, on par with DVD pricing, is unattractive to consumers who are getting an inferior picture and are limited to watching downloads on a computer.
“Unbox is essentially a way for studio executives to look like they are moving toward digital and trying to thwart a growing digital piracy problem, without endangering the core physical DVD business,” the report noted.
