RE: Pricing of DVD vs. Video.

["Popham, Karyn" <KPopham@sph.uth.tmc.edu>]

Here's my understanding of the situation:

When VHS is first released, it's "priced for rental," $60 and up: the
video stores pick up their multiple copies of the new releases and, since
private parties can't or won't afford the price, they go and rent from the
store. Everyone's happy.

After the video stores have had their run with it, the tape is then
released "priced for purchase", which is typically well under $25.

This approach maximizes the income stream to the party releasing the
video, keeps the video stores happy because they in effect have an
exclusive for six months or a year, and keeps the customers happy because
they know that eventually the price will come down.

>From surveying my local video stores, it is clear that while they are
>stocking DVDs, the bulk of their business is still VHS. Until the
>penetration of DVD players escalates dramatically, that's likely to stay
>the case. Result: the video stores don't automatically purchase dozens of
>copies of hot new releases in DVDs. Result: pricing DVD "for rental"
>doesn't get the company as much revenue stream as pricing it "for
>purchase" from day one.

It's all about maximizing profits. Consumers often don't grasp the
economics of a situation from the profit-maker's point of view.
Conversely, as we've discussed on the Free Online Scholarship site, the
profit-makers sometimes don't understand the situation from the consumer's
point of view. In the latter case, the producer usually doesn't understand
the potential market IF the item was reasonably priced; they assume a
limited market and price accordingly. Which is why A Very Big Company
passed on producing personal computers--they couldn't see the market
potential, because they couldn't see to what purposes ordinary people
would put number-crunching machines.

What's the number-one use of computers? Entertainment. Playing games,
instant messaging, and all the ways people use them to pass the time and
enjoy themselves.

What's the number-one use of VCRs? Renting movies from the video store.
Is that what the inventors THOUGHT it would be used for? Nope. They
thought they were selling convenience (time-shifting), not entertainment.

Popham's law: Any technological advance can be highly profitable if you
can turn it into a form of entertainment.

Cheers,
Karyn Popham
UT SPH Houston