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Target Seeks Equity on DVDs

It warns studios that it expects the prices it pays to be comparable to those charged to downloading services.

October 10, 2006|Josh Friedman and Abigail Goldman | Times Staff Writers

Target Corp. is taking aim at Hollywood's flurry of downloading deals.

The retail giant acknowledged Monday that it was pressing Hollywood studios for a "level playing field" in the fast-changing home video business.

In a letter to studios, Target President Gregg Steinhafel warned that the Minneapolis-based company expected wholesale prices it paid for DVDs to be comparable to those charged downloading services.

The dispute stems from a deal between Apple Computer Inc. and Walt Disney Co. that enables Apple to sell downloads of new releases for as low as $12.99 -- several dollars less than retailers charge for new DVDs.

Apple pays Disney wholesale prices of about $14.50 per movie, or about $3 less than retailers typically pay for DVDs, which include packaging and in many cases extra features. Apple Chief Executive Steve Jobs is a Disney director and the company's largest shareholder.

Target might reduce shelf space and promotional efforts on behalf of new DVD releases, Steinhafel wrote late last month, if the studios undercut retail sales by making cheaper downloads available.

The Wall Street Journal first reported details of Target's letter. In a follow-up statement released to the media, the retail chain said its position was not anti-competitive.

"It is Target's position that there should be equity between the alternative means of delivering movies to consumers," it said. "Target does not object to competition, but we do expect a level playing field upon which to compete with the online services."

Although Target declined to discuss the specifics of the letter, a spokeswoman for the company said it was sent to all of the major Hollywood studios.

"The letter is pretty clear and the statement follows the letter," said Carolyn Brookter, Target's head of communications.

Wal-Mart Stores Inc., which controls about 40% of the DVD sales market, is said to be in talks with several major studios about starting a downloading service of its own, according to Hollywood executives who declined to be named for fear of irking the retail giant.

Wal-Mart is expected to announce a downloading service before the end of the year. The company declined to comment on its plans.

"There's been a lot of speculation and people have tried to second-guess our reaction to market developments," Wal-Mart spokesman Nick Agarwal said. "Customers want to be able to make a choice where they view movies and we'll do that in partnership, not in conflict, with others in the industry."

The company has reportedly been in talks to work with Apple.

"Habits do change and the test of a good, nimble retailer is how it reacts to changes in customer habits," Agarwal said.

Wal-Mart, more quietly than Target, has made clear its discomfort with cheaper-than-DVD movie downloads.

The company has denied that it sought to dissuade studios from offering movies and TV shows to other providers. But Wal-Mart reportedly has asked Hollywood for partnerships to promote its download service and for a rollback in the $17 wholesale price it pays for DVDs.

Best Buy Co., the nation's second largest DVD seller, said it wouldn't comment on online movie pricing. But a spokesman added that some people wanted to buy entertainment on discs.

"People have been predicting the death of the CD for a long time and yet people still buy a lot of CDs," Best Buy spokesman Brian Lucas said.

Still, the company last week unveiled the Best Buy Digital Music Store, which sells music downloads and a subscription music download service.

"We believe if something energizes people around entertainment, that's a good thing," Lucas said. "It's not our job to worry if people are going to stop buying physical product and start buying online. If that's what they want to do and the market is dictating that, we need to listen to them and deliver that for them."

One Hollywood executive said Best Buy also was in talks with all the major studios, and could launch a downloading service by early next year.

As DVD sales have plateaued, companies such as Apple have dived into the download business, sensing the next growth phase in film distribution.

DVD sales, which grew rapidly from their introduction in 1997 before peaking at $16.6 billion in 2004, according to Adams Media Research, are expected to be essentially flat this year.

Downloading services have been launched by Movielink, which is a joint venture of five major studios; CinemaNow Inc.; and Inc.

Movie downloads are expected to grow to a $2.7-billion business by 2010, Adams said.

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