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Walmart, Target slash online prices of popular DVDs

The retailers will charge $10 for top-selling new releases. The moves come as Redbox, which operates $1-a-night DVD rental kiosks, reported soaring revenue and profit.

November 06, 2009|Ben Fritz

An unprecedented round of online price cutting for DVDs started Thursday that could provide a much needed boost for the beleaguered home entertainment industry.

Walmart on Thursday slashed the price of its 10 most popular DVDs that will be released soon, including "Star Trek," "Night at the Museum: Battle of the Smithsonian" and "Harry Potter and the Half-Blood Prince" to $10, less than it has charged for highly anticipated new movies in recent years.

Target immediately announced that it would match Walmart's price. Amazon.com has yet to respond, but it typically matches or beats prices of its competitors.

The price cuts are welcome news for movie studios because it could spur demand in a year of flagging DVD sales. The wholesale price paid by Walmart and its competitors remains unchanged at about $18, meaning studios will make the same profit despite the discounting.

It's normal for retailers like Walmart to price DVDs below their wholesale cost at stores and online to draw customers who often spend more money on other items.

Although discounting is not unusual for Walmart and Target, the new $10 price means the retailers will incur a big loss on each sale.

It comes as the two companies and Amazon engage in a price war over books that has driven down the price of some hardcovers to $9.

"This is consistent with what has been going on in books as Walmart is making a concerted effort to take on the core categories that are typically Amazon's bread and butter," said Sucharita Mulpuru, a retail analyst at Forrester Research.

Any increase in sales driven by the online price cuts would be a boon to the studios because such transactions are significantly more profitable than rentals, which have become more popular with consumers recently.

The trend was evident Thursday as Redbox, operator of the increasingly popular $1-a-night DVD kiosks that are controversial among studios, reported that revenue grew 90% in the third quarter to $198.1 million and operating income nearly doubled to $34.5 million.

In the same period, DVD and Blu-ray sales declined 13.9% and overall home entertainment revenue fell 3.2%.

Much of Redbox's growth was attributable to its rapidly growing retail presence. The company added 2,700 kiosks in the quarter, bringing its total to 20,600 as of Sept. 30, close to its year-end goal of 21,000 to 22,000.

In a conference call with analysts after the company's earnings report, Paul Davis, chief executive of Redbox's parent company Coinstar, suggested that Redbox could easily grow to between 40,000 and 60,000 kiosks.

At existing Redbox locations, growth is substantial but slowing. Last quarter, so-called same-store sales were up 26%. That figure was 33% in the second quarter and 35% in the first

Warner Bros., 20th Century Fox and Universal Pictures have been sued by Redbox over their efforts to forbid the kiosk company to offer their movies for several weeks after they go on sale.

The three studios believe that $1-a-night rentals undervalue their products and undermine more lucrative disc sales and video-on-demand.

Lions Gate Entertainment, Sony Pictures and Summit Entertainment have signed multiyear distribution deals to place their movies in Redbox kiosks. Paramount is in the midst of a test of Redbox through the end of the year.

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ben.fritz@latimes.com

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