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Blu-ray Bets ‘All In’ on Black Friday

Industry counts on cheap titles, players to entice consumers to upgrade. (After that, all bets are off.)

The moribund home-video business is counting on Black Friday.
Both studios and retailers are hoping that a flurry of price-slashed $3.99 DVDs and $7.99 Blu-ray titles will kick-start consumers’ desire to own movies rather than rent them — and in the process, persuade many of them to finally switch to the higher-end format.
“An awful lot is at stake,” said consumer electronics analyst Richard Doherty, noting that studios and their retail partners need for people to adopt the newer Blu-ray format and start building disc libraries again instead of renting movies for a dollar at Redbox.
“The studios still make money on a $3.99 DVD sale,” he explained. “Not as much as they used to, but certainly more than they do at a Redbox kiosk.”
One thing is for sure: With huge retailers, including Wal-Mart and Amazon, making discs and disc players key to their fierce ongoing price battles, movie-related goods are the “it” product during the busiest retail shopping day of the year — the day after Thanksgiving.
And the prices are, well, insane.
An LG Blu-ray player, for example, which sold for over $300 just a year ago, can be had on Amazon for $99.99 this week. Also on Amazon, you can buy brand new DVD versions of Oscar winners including “Crash” ($4.99!) or “Slumdog Millionaire” ($7.99) for less than the price of movie popcorn.
Meanwhile, Blu-ray discs are discounted all over the shelves of Wal-Mart, where the Steve McQueen classic “Bullitt” ($8.36), the George Clooney/Brad Pitt remake of “Ocean’s Eleven” ($9.86) and Nicolas Cage’s “Ghost Rider” ($7.98) are all priced about a third of what they probably should be, given the current youthful life stage of the three-year-old format.
As Wal-Mart ($405 billion in annual sales) takes an aggressive stand against the encroachment of Amazon ($20 million in yearly revenue) by implementing severe price cutting on popular consumer items like movie discs – what they call a “loss leader” strategy in the retail game – much of the reduced margin gets written into the stores’ financial books.
However, the studios themselves are absorbing much of the margin dent, too, through retail subsidies. It’s all part of a strategy to get people buying again, and – they hope — buying Blu-ray.
“We expect Blu-ray to be a loss leader to some degree in the fourth quarter,” conceded Fox Home Entertainment president Mike Dunn, speaking to TheWrap at last month’s Blu-con conference in Los Angeles.
With the rental side of the business thriving, aggregate retail transactions of DVD and Blu-ray titles are actually up significantly over the 1 billion or so that were made in 2008, according to Adams Media Research’s Denis Cambruzzi. However, with the number of higher-margin sell-through transactions way down, overall home entertainment revenue is expected to once again decline in 2009, somewhere probably in the single-digit range.
“In this recession, what the consumer is telling us is, they don’t want to own the movies as much as they did in the past,” noted Cambruzzi.
Of course, the ability to walk out of Wal-Mart with a new Blu-ray player and the beginnings of a next-generation-format library for under $200 this Black Friday potentially has the power to revert consumer behavior back into “buy” mode.
According to Doherty, the consortium of studios, retailers and consumer electronics retailers backing Blu-ray project that with the huge price discounts, 2009 will end with more than 10 million U.S. homes having already adopted Blu-ray, a major chunk of those in the latter half of this year.
“I don’t know anybody in the industry who is getting a holiday this year,” Doherty said. “Everybody in Hollywood and everyone in consumer electronics is biting their nails, seeing how this weekend goes.”
If it goes as expected, the consortium will have finally landed a major beachhead in its three-year quest for mainstream consumer adoption of Blu-ray.
But then comes another hurdle: Nobody in the industry wants prices to stay this low.
“Consumers expecting $7.99 Blu-ray titles over the long term is not part of any business model we’ve been privy to,” Doherty said. “Blu-ray is coming down in price at rate that is much faster than DVD at a comparable stage in its life cycle. You didn’t see $7.99 DVDs three years in.”
Indeed, for their part, giant Japanese-based manufacturers of DVD players enjoyed five full years of healthy profits before Taiwan-based manufacturer Apex blew the margins out of the player business by selling a cheapo model in the U.S. for under $100.
“Apex ruined everything,” Doherty noted.
Certainly, after the holidays are over, and the studios have gotten a big sales bump, they’d like everything, price-wise, to go back to where it was before.
But there are no guarantees.
“These prices on players, for example, are not going to bounce back to $200 after the holidays,” Doherty explained.
Then again, even if the price on movie goods is permanently degraded, Doherty says there’s long-term benefit in having people buy instead of rent – or, worse, commit piracy.
“There isn’t a studio I’m aware of that’s losing money by selling movies for $2 in China,” he explained. “Do they want that to happen in the U.S.? Of course not. But unless a better-trusted model for delivering movies in North America emerges, (disc) sales remain the only vehicle Hollywood can count on.” 

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