EBay DVD sellers see less profit

More competition, higher listing fees cut margins

By Danny King -- Video Business, 8/22/2008

AUG. 22 | EBay might look like a hotbed of DVD sales, with more than 160 bids on 60 listings for best-selling Alvin and the Chipmunks, but Internet retailers using the service say business is not necessarily booming.

“I don’t really know how anyone is keeping money from the DVD business—they’re just churning cash,” said Randy Smythe, who sold $4.6 million in DVDs on eBay in 2004 but left that sales channel less than two years later because he was losing money. “They opened the floodgates to competition, which is fine, but the demand didn’t increase, so when you throw in a bunch of sellers, all of a sudden you find your ceiling.”

The combination of a slowing economy, more sources for digital media and flattening overall DVD sales have likely stopped growth and cut margins among retailers who sell discs on eBay. Additionally, strictly online retailers such as Smythe and bricks-and-mortar stores such as Los Angeles’ Laser Blazer are moving product over to Amazon.com because of what they say is a better search engine and an audience willing to spend more.

During the second quarter, eBay’s new retail listings across all categories fell 6% to 559 million, while the amount of merchandise sold on the site fell even faster, down 12% to $14.5 billion, the company said earlier this month.

Although eBay doesn’t break out sales categories, such a drop is likely mirrored in DVD sales, said Smythe, who estimated that about $200 million worth of DVDs were sold on eBay last year.

“Amazon’s more expensive [for product listings], but they’re reaching a wider audience,” said Laser Blazer owner Ron Dassa, who sells about $2,000 a month worth of DVDs on Amazon.com but has only sporadically sold product on eBay within the past year. “It’s a lot of work to deal with eBay.”

EBay doesn’t break out its best-selling DVD titles, but Amazon.com’s best-selling title, The Wire: The Complete Fifth Season, had 59 sales listings on eBay as of Aug. 18, six days after its street date. The sellers priced the release at between 99¢ and $169.99 and have collectively received about 100 bids. Fellow Aug. 12 release Prison Break: Season 3, Amazon’s No.2 bestseller, had 178 eBay listings with prices as high as $125.76.

During the early part of the decade, many retailers entered the online retail market selling DVDs as that format quickly replaced videocassettes as the primary home entertainment medium. Barely a blip on the radar in 1999, DVD sales tripled to $15.5 billion between 2001 and 2004, according to DEG: The Digital Entertainment Group.

Then, eBay sellers could make a living marking up DVDs by about 25% while still undercutting bricks-and-mortar retailers, Smythe said.

By 2006, though, eBay raised listing prices to reduce clutter on the site, while retailers such as Laser Blazer, which started selling laserdiscs on eBay more than a decade ago, and North Carolina-based Movie Mars had become some of eBay’s largest DVD sellers.

By that time, Smythe, whose DVD sales fell to $4.1 million in 2005, had left eBay to direct his efforts toward other online channels such as Amazon. For the second quarter, Amazon’s so-called “other” revenue, which includes revenue from third-party merchants, jumped 52% to $126 million, outpacing the company’s 41% sales growth.

Meanwhile, overall DVD sales rose just 3% between 2004 and 2007 and actually fell last year to about $16 billion. Through June 30, DVD sell-through fell 0.5% from a year earlier, to $6.17 billion, according to data compiled by Video Business and Rentrak.

Facing more competition, eBay has started to give its sellers some relief by cutting some of its listing fees. To spur sales for the holiday season, eBay has said it will drop the cost of a listing of a $25 item by about 35%, starting next month.

“We believe further listing fee reductions are likely over the next few years as the company is pressured by Amazon.com’s third-party business and free Google Product Search listings,” Cowen & Co. analyst Jim Friedland wrote in a note to clients after eBay’s earnings were released July 17.

Additionally, the victory of Sony’s Blu-ray Disc in the next-generation DVD format war caused studios and some media analysts to predict a resurgence of sorts in packaged media.

Still, such optimism isn’t likely to translate to profits for eBay sellers, whose customers are more attracted to budget pricing than the incremental video-quality improvement provided by Blu-ray, Smythe said.

“Blu-ray’s price point is high on the product and on the player, and eBay’s a discount marketplace,” said Smythe. “On Amazon, they want selection and service. On eBay, they want everything, but they’ll give up service to get the lowest price.”