I’m working on a longer research note on DVDs and CDs, but this excerpt suddenly became relevant, in light of a few WSJ and NYT articles yesterday.

Here’s an early look at (hopefully) next week’s release:

D R A F T

"It may be instructive to look at the pricing model of DVDs for insight into what has happened in the CD market. In case you were unaware, the film/TV industry uses a very different pricing strategy than the music biz.

Studios release far less product each year then the labels, with major film releases numbering in the 100s versus 25,000 or so annual CD releases.

Films have a model where they typically are released from the highest revenue generator down to the lowest. Another way to describe that progression is a dynamic pricing structure going from highest paying users to lowest.  Starting with theatrical release (movie theatres), moving next to pay-per-view, and than premium cable (i.e, HBO). After the premium cable run has begun (or ends) is when typically DVDs get released for sale (or rental) to the public. Eventually, movies make their way to basic cable, and lastly, to broadcast TV. (Somewhere in the middle is overseas release, but for our purposes, that’s more of a parallel track).

DVD sales do not rely on a static pricing model. They are initially released at a price point consistent with expected demand. After a short period of time, prices drop, and in some cases, significantly.

A few recent film and TV examples may be instructive. The Seinfeld Collection (Seasons 1&2, and Seasons 3&4) were originally released before Thanksgiving (November 29, 2004), and sold for $49.99 at retail. As the Christmas holidays approached, prices were no less than the $44.99 level. Shortly after the holidays, sales as low as $39.99 were seen. Towards the end of March, Amazon (AMZN), Target (TGT) and Circuit City (CC) all advertising both sets for $29.95 a piece.

Pricing is a combination of popularity (demand) and age (supply). The older a release is, the more its available on the secondary markets. Let’s look at a few recent animated films: Older movies, such as Shrek, Ice Age and Antz are all $10 today. More recent films, such as Finding Nemo or Shrek2 are $14.99 and $15.99 respectively. Films fresh out of the theatres, such as The Incredibles, are $20.

Traditional films (live action) are priced similarly. Older releases such as School of Rock, Titanic, or Forest Gump are $7.50. We see more recent features such as Kill Bill  1(and Kill Bill 2), Lord of the Rings, Bourne Identity, Gladiator, and Master & Commander sold for $10.

But its not  just a function of age:  Certain older titles never seem to drop below $10 — recently films of acclaim like Pulp Fiction, or Saving Private Ryan, or older classics like Ben Hur or Ten Commandments — despite their age. Its a function of popularity and hence, demand.

Ironically, many of the films mentiooned here now sell for less than their soundtracks. Two hours (or longer) of a movie, plus additional audio commentary, a documentary of the making of the film, outtakes, special features etc., all cost less than a mere 45 minute audio only songs from the film.

We’ve stated this before, but it bears repeating: Consumers have very quickly figured out that CDs are a peculiarly weak value propostion. Is it any surpise that CD sales have slid while DVDs have grown explosively? How is it that the widespread availability of films on Bit Torrent haven’t dented their sales? A simple possible explanation is pricing structure.

By pricing DVDs strategically, the film and television industry captures marginal sales and maximizes revenue. The only comparable pricing structure in the music industry are budget CDs. These are typically much older than the DVD price discounts (6 months versus many years). Even worse, they are packaged differently, specifically marketed as “budgetline” — with less desirable cover art and labelling. (There’s nothing quite like sending a message to your price sensitive clients that you are 2nd rate consumers, and we hardly value your business). 

Compare the differening approaches the two industries take. DVD sales are dynamically priced. Sellers are aware they have price sensitive consumers. They offer the exact same product — albeit on a less timely basis.

CD sales are static, maintaining the same price over the life of a disc. On those select discs when price discounts do occur (budget line), the industry purposefully makes changes to make the product less desirable.

DVD sales in the secondary market have grown dramatically, paralleling the explosive growth of DVDs themselves. But the ongoing discounting process continues, with prices sliding as low as $5 per DVD. This dramatically reduces the impact of the secondary market.

More on this, and an some interesting conclusions via our study of secondary markets, next week.

>

Other Sources:
An Ever-Shorter Leap From Theater to DVD
By Jen Chaney
The Washington Post, Sunday, March 13, 2005; Page N03
http://www.washingtonpost.com/wp-dyn/articles/A26877-2005Mar11.html

For Those of You Who Wonder How That TV Show Began
By DAVID KOEPPEL
NYT: March 21, 2005
http://www.nytimes.com/2005/03/21/business/media/21dvd.html

What’s on the Flip Side Of That CD? Increasingly, a DVD
Ethan Smith
The Wall Street Journal, March 21, 2005; Page B1

http://online.wsj.com/article/0,,SB111135876878284547,00.html

The Music Goes on Side A and the Flip Side Is a DVD
By ROBERT LEVINE
NYT: March 21, 2005
http://www.nytimes.com/2005/03/21/business/media/21dual.html

Category: Film, Finance, Music

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “Dynamic Pricing: DVD versus CD Strategies”

  1. roto says:

    One quick comment – new releases, such as The Incredibles and Shrek, tend to sell at a lower price $15-17 when they come out first. I’ve noticed that they sell it at that price at Walmart, Target, etc. for a couple of weeks and then the price goes up to about $18-19. I’ve also seen a research report indicating this but I can’t remember where.

  2. Rob W says:

    I think a lot of it has to do with the fact that the recording industry wants everone to believe that the “shiny new-fangled” CD’s cost a lot to produce. They’ve always been priced more than the albums they replaced, despite lower production costs.

    What really killed them was recordable CDs. Not because people could record the album, but because people saw how really cheap the discs themselves were. When you realize that the disc itself costs 10 cents before markup and a small device that cost you $50 more when you bought the computer does the recording, people start to ask what they are paying for.

    With a film its much easier to see. They had to hire all of those actors, cameramen, and all of the other names at the end of the movie. With an album its five guys in a room.

  3. jimBOB says:

    Roto, you’re right. Big sellers have an initial budget price to kick off sales. Pretty smart since it means they’ll capture lots of initial sales that otherwise might have waited for the price to go down (knowing that it will). I for one am buying The Incredibles today in order to get the introductory price. Otherwise I might have waited till next year, or maybe never.

    Barry makes a great point I’ve often wondered about, that CD’s are overpriced compared to DVD’s. One additional wrinkle is that CD’s are way easier to copy than DVD’s, so the boneheaded static pricing model not only discourages sales, it also encourages piracy. Consider a legit CD release priced at $18, which consumer A kind of likes, but not if it’s going to cost $18. However, consumer A would be willing to go to the trouble of downloading or copying from a friend if he can save $18. OTOH if the legit release were $6 he’d be willing to just buy it.

  4. Steve says:

    Quick factual point: doesn’t the DVD release predate premium cable, pretty much running in parallel with the pay-per-view release? That’s been my observation, anyway. (Take a look at what’s new on HBO this month — it’s all stuff you can buy in the previously viewed bin.)

    Only this year have I finally gained the patience to wait until DVDs have been out for a while, then bought them on the cheap. It’s probably a product of the facts that I rarely find time to watch a whole movie at home, coupled with my continued annoyance at seeing titles that I paid 20 bucks for included in a big-box retailers 3-for-$20 sale.

  5. Thad says:

    Barry,

    This isn’t quite right. CDs are actually at their least expensive when they are new releases — because demand is so high in the first two weeks of release, retailers (and, to a lesser extent, labels) are willing to slash their margins, often considerably. Record stores like Tower and Virgin discount new releases by 20-40% off their “list” price, and retailers like Best Buy go even further, using new releases as loss leaders for other merchandise. After 4-8 weeks on the market, CD prices go up and stay up. In fact, when the record company raises their list prices, they do so across the board, for their entire catalogue, so older records will generally only increase in price over the years. Unless the album is reissued in a budget edition — and most aren’t — the best time to buy a CD is the day it’s released. It’s overwhelmingly likely that the price will only go up from there.

    As Roto says, you can see a mini version of that same dynamic in DVD sales. New releases are priced aggressively by the retailer for the first few weeks, but after that, they get marked back up to list price. The difference is that for DVDs, the curve starts to go down again after about six months, whereas for most CDs, the curve keeps going up.

  6. Steve F says:

    Actually the DVD release predates pay-per-view as well, as most studios have a 4-6 week “protection period” before a film released on dvd can be shown on pay-per-view.

  7. perianwyr says:

    Maybe they should put all the “extra names” needed to produce a CD onto the CD, too. It’s not like it’s *just* five guys in a room.

  8. Gringcorp says:

    So movies have several shots and several formats in which they can capture revenue, and thus several ways in which they can adjust pricing. They also have several ways to determine likely demand for a product.

    CDs don’t, and there are many more of them released. So, yes, record companies release a few at an absurdly low price (we remember the first Vines album selling for $6), and are then jacked up as/if demand materialises.

    Since the singles market has imploded, and live music doesn’t really offer an equivalent to the theatrical release of a film, pricing turns into a part of marketing in much less of way than it does for films.

    which isn’t to say that record companies aren’t greedy tinkers, just that their options are much fewer.

  9. foo says:

    One of the best parts about this comparison, is how it puts the lie to what is known during your MBA as “value pricing”.

    With Value Pricing, you determine the price you sell your product at as a function of the amount of value your product sales. The classic example at Berkeley was a tractor manufacturer selling a tractor not for it’s cost plus some markup, but for the price of all the labor it would save you.

    Yet the CD will be listened to many many more times than the DVD is viewed. And the CD can be listened to in your home, in the car, at the gym, at work, at the doctor’s office, …. The DVD for the most part will be viewed once or twice at home. So arguably, the CD adds more value to you than the DVD and SHOULD be priced higher.

    I thought Value Pricing was an interesting alternative, but basically a rationalization for extortion. Thank god the entire distribution chain isn’t value pricing. In competitive markets, no one can value price, and yet that’s the preferred business school strategy.

    And consumers, ala CDs vs DVDs just ain’t having it.

  10. X-Tra Rant says:

    CDs, DVDs & DualDiscs

    An excellent excerpt from Barry L. Ritholtz’s ongoing research on CD vs. DVD pricing and how the music industry is d. u. m. DUM. Also, NYT article on an interesting ‘new’ format: DualDisc…

  11. The Big Picture: Dynamic Pricing: DVD versus CD Strategies

    Consumers have very quickly figured out that CDs are a peculiarly weak value propostion. Is it any surpise that CD sales have slid while DVDs have grown explosively? How is it that the widespread availability of films on Bit Torrent ahven’t dented th…

  12. jimBOB says:

    It’s not like it’s *just* five guys in a room.

    “Five guys” is a bit of an exaggeration, but only a bit. It’s nothing like the armies of people it takes to make a movie.

    Why is $6 “an absurdly low price?” I think that’s about where they ought to be. Lots of back-catalogue DVD’s sell for that.

  13. Gringcorp says:

    Back catalogue DVDs sell for that after several previous attempts to make money on a film. that $6 was the first shot the Vines record had. Not that the Vines, as opposed to their label, likely made any money from their record at that price.

  14. When CDs first came out in the 1980s, the recording industry assured the public that CDs would eventually cost as little as LPs.

    Of course, that never happened.

    Anytime you see a comparison, there’s always an “adjustment for inflation” in order to convince people CDs are now cheaper than LPs.

    CDs remain 2X as expensive as LPs

  15. Steve says:

    I thought there was a change in CD pricing occurring when several of the recording companies announced they were going to lower the list price of CDs by about $3 or $4 a couple of years ago. What happened? This never seemed to get passed on to the consumer?

  16. Karmakin says:

    While the pricing angle is very interesting, one thing that you havn’t mentioned, and needs to be included, is the vast number of used CD shops that are around. Most college towns, which traditionally are the strongest for music retail, have several.

    Because the price of older music usually only goes up, there’s no incentive to buy shrinkwrapped, which creates a huge secondary market, and to the producers that’s a huge chunk of change out of their pocket.

    Mind you, when it comes to CD sales, I actually think P2P has more than a signifigant effect on things. And it’s the music industries own fault. By not fighting back for activly against standardized playlists and consolidation, they’ve really shot themselves in the foot. There’s no more local acts that hit it big in say the West Coast, then slowly gain exposure over the whole country. It’s an all or nothing thing.

    The musicphile, who in the past would sit listening to the radio for hours on end looking for the next great experience, instead is forced into the shady world of P2P, and once they have it, they can take their time and look at it at a price point that is acceptable to them. Generally speaking that’s meaning used, if the work is good enough to keep and hold the interest.

    DVDs, on the other hand are cool. They are priced at an acceptable price point to keep people interested, and for the most part sales reflect that.

  17. BubbaGUMP says:

    One thing I don’t see taken into consideration: downloading complexity of a movie vs music.

    A movie is 4.3GB of data, and many times requires a certain amount of computer skill for the end user to process it all into a viewable movie.

    An album converted to MP3 can be less than 100MB, and the songs are generally ready to play as soon as they are on your drive.

    I don’t mention this to discount anything said above. Just thought it should be pointed out.. the easier something is to do, the more people will be inclined to do it.

  18. David Bennett says:

    Barry:

    I’d be interested in getting some sense of the structure in the music industry. To me it doesn’t behave like a few corporations rationally competing and organizing themselve as such, nor like a large number of truly competive small enterprises; but like a set of intertwined interests in which the various players behave in the manner of established professions (eg. real estate, law) with all sorts of independant entities sucking the various cross benefits of the status quo. I get this sense of all sorts of specialized players (musicians, producers, marketers, various fiefdoms in the companies) and relationships all tangled up in these specialized relationships. I think the film industry consists of similar niches, but when home and rental sales were added they were developed more rationally while music just tried to graft the new technologies onto the old chaotic set of relationships. I think the result is somewhat mercentile in terms of economic forms, protected guilds, protected relationships and rather rigid protocals of interaction. Also a blindness which is reflected in the quality of product. I think this is an area for detailed management study.

  19. dafaer says:

    It is interesting to note that this media person completely missed the difference in how the talent is paid on CD vs DVD, which is a major factor in why the price stays higher. It makes this complex issue even more frustrating when ignorant reporters try to compare the two. What he didn’t mention at all is that the theatrical release of a movie, even a modestly successful one, generates millions of dollars of revenue in those 4-8 weeks. This huge initial income pays off the cost of production so that subsequent sales are profit. This enables a film studio to implement a different price structure.

    The author completely missed the very important fact that in a film, the actors rarely have any rights to the content/IP. They are paid a fee for their services (“work for hire”) and subsequently paid residuals by the networks (not the studio!) via SAG for cable and network usage of the film. Despite there being residuals from DVD sales they are, in the “big picture”, relatively minimal. Although they are paid a marginal residual by their Guild, the scriptwriters essentially sell the rights to their work to the studio for a fee. In a nutshell, the Film Studios pay for everything in advance and are then at liberty to sell the product in whatever way they see fit.

    The talent involved in the making of music CDs are paid much differently. The authors of the music are paid a mechanical license fee of a few cents per song for each disc sold. They are also paid a performance fee via BMI and ASCAP for “broadcast performances” i.e. radio, discos, etc. Note that MTV, VH-1, etc. do not pay these fees. The “artist” (who may or may not be the author of the music) is given a production budget (which occaisionally includes an advance for them to live on) with which the record is made. Whatever royalties they are to receive from sales of the record are not paid untill the money the label gave them to make the record is paid back. THE ARTIST ULTIMATELY PAYS FOR THE PRODUCTION OF THE RECORD, NOT THE LABEL. The reason discounted product has sub-standard packaging is that most record contracts have a clause that allows the label to pay a smaller royalty rate for product released in “alternative markets”. Most contracts also only pay half of the normal royalty for new technologies, so it behooves Sony to develop new playback methods because they sell the product to the consumer multiple times and get a favorable discount for doing so.

    Compare the “revenue timeline” of CDs versus Film/DVD. An actor/director/producer is paid a very large sum of money before a film is released. Even though they will be paid additional money when the film goes to its SECONDARY delivery modes such as DVD, they make most of their money up front. A recording artist doesn’t get paid anything untill the CD is produced, manufactured, distrubuted, sold and the revenue is collected. This process averages eighteen months from the release date. Since it takes that long for recording artists to be paid for the PRIMARY delivery mode, it is not economically feasible for CDs to be discounted as rapidly as DVDs.

    The one bright side to this issue is Apple’s iTunes. Consumers are provided a convenient, risk-free and legal way to obtain and enjoy music via the Internet and the artists are paid for the use of their intellectual property in a much more timely fashion. Everybody wins.

    If the media would stop comparing apples to oranges on this issue, then the public might begin to understand my the music industry is struggling and why there is still such an active campaign against Peer-to-Peer filesharing of music.

  20. perianwyr sez Maybe they should put all the “extra names” needed to produce a CD onto the CD, too. It’s not like it’s *just* five guys in a room.

    Take that number and multiply it by ten, and you get the typical staff size for a major motion picture. Movies are (usually) vastly more expensive to produce than an album of Britney Spears’ latest piece of crap, no matter how much they have to tweak the output to compensate for her lack of talent.

  21. dafader says:

    That army of SAG and IATSE members get paid on Friday. Those pretty faces they film got paid a fortune before they showed up. Those “five guys” might get paid late next year if, and only if, the record sells and their manager is tough enough to get the money out of the label.

  22. dafader says:

    @David Bennet:

    The film insustry is comprised of considerably more “specialized players tangled up in specialized relationships” than the music industry. The difference is that in film, the players all have a Union or a Guild to look out for their interests and see to it that they all get paid. Once a musician signs a recording contract, he or she becomes a “royalty artist” and is no longer under the jurisdiction of that glorified mailing list known as the Musician’s Union. The sidemen who accompany them are under the Union’s jurisdiction but unlike the extras in a movie, they will only get paid for the time they spend at the studio and will not receive residuals. Note that if that same sideman plays on a film or TV score, he will get residual income. The Musician’s Union has two entirely different payment schedules for “Phonorecords” and “Screen”.

    Another important consideration we all must make is that before the advent of the DVD the “Apple and Orange” comparisons were not made because the two media didn’t play in the same machine. Only recently have they been sold in the same stores. These days consumers and critics see that the media look the same and thus forget or never know that the underlying content is created, recorded and paid for in very different ways. The perception that CDs are over-priced is due is large part to this size comparison. Relative to the value of the dollar, the reality is that recording artists are given less money to make records and receive less money for the sales of them than they did in the ’70s and ’80s.

    It actually is much more accurate to conduct a comparative market analysis of apples and oranges because the economics of how they are produced and sold is much more similar that the economics of the Music and Film industries…

  23. David Bennett says:

    Thanks dafader:

    I’m not just concerned about the artists. To me there seems to me (in both music and film) a whole bunch of independant fiefdoms (even if technically within the same company) tied into all sorts of traditional relationships which to some extent freeze the methods of pricing and distribution. This is only a vague sense I have but in a traditional corporation there is some directed discipline while I get the sense that the entertainment industry is filled with lots of players with real independance, at the same time they are tied into a self benefiting system so it doesn’t necessarily have the corrections that a truly competitive situation would have. I suspect you are possibly right that film is worse. I think it’s relative superioriy in the DVD market is that this distribution was grafted onto the old system. As for the old system one pays twice as much in real dollars to go to one movie rather than a double feature in a stripped down theatre which makes it’s money from selling refreshments.

  24. Isaac Segal says:

    If pop music CDs are dying, then classical music CDs should be six feet under. Yet one classical music company seems to be not just surviving, but thriving. It’s called Naxos, and the scope and quality of their releases keeps getting better, covering not just standard repertoire, but hitherto neglected composers and works.

    Their secret? $7.99 CDs (and right now, on sale for $5.99 at my local Tower).

    While I have drastically cut back on my purchases of $15-$20 pop & classic CDs, I’m buying more Naxos than ever—even stuff I’ve never heard before.

    At that price, why not? I’m not breaking the bank, and for every dud, I make a dozen enjoyable discoveries.

    Think there’s a lesson here for the big labels?

  25. A possible explanation is that DVD’s have become commodified, but music albums have not. If some one is going to purchase a DVD, they are not interested in any specific DVD, just a film that they would enjoy. If we make some heroic assumptions about the DVD market, this creates price competition that drives down retail costs for most films. That new releases and certain classics command a premium would confirm this: people want those films explicitly, so would not be wooed by lower prices into purchasing another DVD.

    Contrast that with music, where (under this hypothesis) consumers want to purchase a specific album. Even though (say) Britney and Christina may produce similar albums, consumers have specific preferences at time of purchase for one over the other. Thus, there is little potential for price competition. Some markets, such as the orchestral music arena where any symphony can release its own Beethoven recording, do not have this feature. They behave more like Barry’s DVD market, with new releases and headliners capturing higher rents, but most settling into the bargain bin.

    While I haven’t thrown down any algebra for a more complex oligopolistic market, I’m guessing that the DVD market still stays competitive even if there are only a handful of players for any given submarket.

  26. Ron says:

    I’m curious whether the difference is that DVD’s are an incidental revenue stream for the movie business. In other words, the marginal cost of making a DVD from a movie that’s already been paid for is small and inconsequential. On the other hand, the marginal cost of cutting a record (OK, a CD) is the full cost of recording, producing and promoting a record. When Pixar releases The Incredibles on DVD, it’s already made money, and the DVD is gravy. So selling it for $20 is great. If anybody buys it, wonderful. If not, maybe they’ll buy it for less when it moves on down the pricing structure. At worst, if the film bombed in both domestic and international releases, the movie studio/distribution company might be down 10% of the cost. (Unless it’s Gigli…) Remember, movie studios make money on cable and premium showings of a movie. With Clear Channel effectively demanding payola to play, music companies really don’t.

    But when BMI releases the next CD, they start from a negative position of 100%. Sure, they can be fairly certain that half a million americans will buy something by Elvis Costello, but they have no money in yet.

    Given that, are the two media even remotely comparable? Can you really hold to your amazement that you will spend more for the soundtrack of a movie than the movie itself? (That leaves alone the issue that I’ve seen Pulp Fiction maybe 5 or 6 times, but probably listened to the soundtrack forty or 50 over the years.)

    Just wondering…

  27. Andy says:

    What perhaps is overlooked in this discussion is royalties. When a film comes out on DVD, everything is already paid for. IE they’ve already got a license for the music and the actors, director, producer, whatever, are already paid. This means that there are NO extra payments. It’s all basically profit.

    On a CD you have to realize that songwriters, producers, and artists get paid for EVERY album sold despite age as long as the CD is on the market. Even though the record company does continue to make money (signifigantly more than the artist, songwriters, and producers combined), they’re still losing a large percentage. Especially on albums with songwriters who retain their own publishing, high-paid producers, and super-star artists. Chances are the record label has spent quite a bit of money on advertising as well – whereas when a film comes out on DVD, people already know about it, so they don’t have to do nearly as much to promote their film.

    Just my 2 cents.

  28. Dennis says:

    Let me see if I can knock down some of your arguments:
    #1 – The people involved in making a CD are paid much differently than for DVD’s
    Is the method music people are paid chiseled in stone somewhere? The problems caused by the static pricing of music have probably been around since the 50′s, consumer piracy has been around since cassettes achieved decent sound quality, yet the music industry has done nothing to address these problems.

    #2 – DVD’s are different because they recover the costs in the theaters
    Revenue is revenue is revenue. When the talent starts setting their price, it is based upon what the revenue their talents can earn from ALL sources.

    #3 – CD’s should cost more because they are used more than DVD’s
    What matters is substitution. I can buy a CD or I can listen to the radio. The radio is incrementally free. With a radio, I can switch stations when a commercial comes on, so I almost continuously listening to music. I can buy a DVD or I can watch cable, which is damn expensive. Or I can watch network TV, which pales in comparison to movies and I can’t just switch channels when a commercial comes on.

  29. Glowie says:

    I’m old enough (35) to have grown up buying LPs. They were $7 brand new. When CDs were released, we all had to buy players, and we were all amazed by the audio quality. The story of the CD – what we learned on TV, in newspapers, etc. – was more. They were cheaper to produce, we were told, meaning the cost of CDs would fall below that of albums. I remember the difference being: LPs $7 new, $2.50 to make. CDs less than $1 to make … but they came out at $12. There were “R & D” costs to recoup. I remember promises that CDs would eventually be half the price of LPs — that’s part of why we all went out and bought CD players in the mid-80s. Did that happen? No. Did I forget? No. I stopped purchasing CDs in 1992 and have hated them, mainly for their cost, ever since. Sure profit margins have shot up since 1980 in just about every business except pizza delivery, but like a lot of people my age, I have always harbored no small animosity toward the CD companies for the bait-and-switch they pulled on us twenty years ago.

  30. Dr. Metal says:

    Why exactly am I reading this “article”? This is all coming from an “expert” who doesn’t know that DVDs come out way before those movies are shown on HBO and a good month or two before PPV?

    By the way, if you check out the sale ads for Best Buy when they do their 3-for-$20 deals and such, you’ll notice that often those are the DVDs that will be released in new special editions within a year or two.

  31. Anarch says:

    As Roto says, you can see a mini version of that same dynamic in DVD sales. New releases are priced aggressively by the retailer for the first few weeks, but after that, they get marked back up to list price.

    For a particularly amusing — or irritating, if you’re actually planning buying these things — example of this, fill an Amazon shopping cart with new releases (pre-releases work well too) then check back every day for about a month. After about two weeks the prices on these things will start going crazy, usually in the upwards direction.

  32. dafader says:

    @Dennis:

    Your statements make sense in an ideal world, but if things were that simple the entire Global economy would be better. Sadly it is not. Sure “Revenue is Revenue is Revenue” but the real issue is how it is generated, how much it costs to generate and how it is collected.

    In my own experience, my Wife and I left BMG a few years ago after being with them for four years. We decided it would work better for us to make the music in our private studio and release it through independant and alternative channels. Given the fact that I don’t pay royalties or recording costs, I’m just like any other small business that manufactures and sells a product. By the time I pay for all the things any other business deals with, including manufacturing, distribution, marketing, accounting, legal, and of course, taxes, my cost per CD is in the neighborhood of $7.50 – $10.00. I then sell them to the public for $12.50 to $15.00 depending on how many they buy. That adds up to at best a 50% return on investment – not too bad, but nowhere near as high as other products that are sold at retail. If you take into account the 60+ hours a week we spend making and selling the music, we make about a %25 return, double what BMG paid us. If I were doing other people’s music and paying other people to record and produce it, my bottom line would be so low I’d be considered a poor investment by any reasonable standards.

    Remember folks, when you spend $6, $12, $24 or $48 on a DVD, Computer Game or Music CD, you aren’t paying for the piece of polymer plastic – as you all know that only costs a quarter. What you’re paying for is the Intellectual Property it contains. I don’t even charge you for that and I can’t afford to sell CDs to you for less than $10.00. When New Line or Sony release a DVD for $6, they can afford to because a million people paid $15 to spend 2 hours in a theater watching it.

    If you don’t want to spend $12 on a CD, then do the positive (and legal) thing and buy the songs you want for 99 cents on iTunes. Feel free to make all the comparative analyses of CDs versus DVDs and publish them in print or online. For the 90+ percent of us in the music industry who, like our audience, are just hard-working folks that don’t make millions of dollars, don’t live in Beverly Hills and don’t drive expensive sports cars, NWA described the situation most eloquently:

    “It ai’nt about a Salary, it’s all about REALITY!!!”

    ;)

  33. Machine says:

    I’d be *VERY* interested in seeing what the functional lifespan of a DVD compared to the old VHS format is. It may well be that ownership truly has its privileges in this respect. From my experience, DVD rentals are more likely to be rendered inoperable much faster than VHS tapes. This is especially true for childrens titles. Consider that on DVD’s the medium is exposed, and while there are technologies that permit ‘cleaning’, it’s incredibly difficult for any rental store to perform this procedure on the thousands of titles they carry over and over again…

    I’d be very thankful if anyone could point to studies on this, as the ramifications to the rental market would be severe.

  34. Karmakin says:

    I’ve actually been looking into DVD pressing lately (I’m currently involved in pre-production for a no/low-budget horror/zombie flick), and really, even for relativly small batches it’s not that expensive. It runs about a dollar a DVD+Case, and that’s for a dual-layer. (Canadian funds btw). I suspect the actual materials are fairly cheap in mass amounts. So the labels would probably have their own presses just sitting around…

    So pumping out a decades old-movie for 6 bucks just to make a few dollars on each sale actually makes some sort of sense.

    The equivilent of the theatre is the musical live show. So it’s not so much of an apples to oranges comparioson as what you might think.

    One final thing. For DVD sales there’s actually an interesting curve. The movie comes out, and is usually bargained for the attract sales. Then it goes up a bit. Then you can find pre-owned copies at any big video store for relativly cheap. Then it pretty much disappears, and you’re going to be paid a premium. Evetually, some titles come back for cheap, some don’t. Depends on the title.

    The big difference is marketing. I truly believe that. Sites like Apple’s Trailer site allow people to send people to see a bit of an upcoming movie. There’s generally more advertising for things of all tastes. In a nutshell, while the movie industry has been trying to expand its quality base, to the point where even most blockbusters have good acting/stories/scripts whatever, the music industry has been trying to consolidate the quality base, so more people buy a more focused # of albums. The music industry believes that they could dictate people’s tastes.

    And they lost.

  35. Umair Haque says:

    one thing i have been trying to understand, but not really succeeding in, is *why* marketing costs have spiralled out of control across creative industries – films, music, games, even some publishing segments. most analysts take this for granted, and i havent read a good explanation yet, even though its the real heart of hit-driven dynamics.

    my gut tells me its a function of rapid product obsolescence/short lifetimes + limited shelf/screen space. combined, this means that more and more marketing $$ must be thrown at a good in order to earn some kind of return fast.

    but this implies that marketing costs should have fallen as shelf/screen space went up, and product lifecycles have lengthened. in fact, marketing costs are still rising.

    the flipside of dynamic pricing/price discrimination a la the film industry, where costs are slowly ratcheted downwards over time/distribution channel…creates a natural dynamic for marketing cost spirals (obsolescence in each channel creates an artificially limited window to realize a return).

    so in a sense, the industry’s painted itself into a corner.

    anyways, maybe some food 4 thought for further research!

  36. Off the Kuff says:

    CD versus DVD

    Atrios points to this interesting post about the differences in pricing models for CDs and DVDs, and how that may…

  37. Dynamic Pricing

    Barry Ritholtz’s post on dynamic pricing strategies comparing CDs and DVDs has received a lot of comments. If you haven’t read it yet, check it out. It’s part of a longer research piece he is working on….

  38. Ed Mays says:

    Shiny Silver Discs

    Yesterday the Supreme Court heard arguments in a case about who may be liable for movies and music illegally downloaded using peer-to-peer networks.

  39. Ed Mays says:

    Shiny Silver Discs

    Yesterday the Supreme Court heard arguments in a case about who may be liable for movies and music illegally downloaded using peer-to-peer networks.

  40. theQview says:

    DVD Pricing

    Russ Crupnick, president of The NPD Group’s Music and Movies division, outlined video acquisition trends for the video/DVD industry during a presentation at VSDA (see press release).According to NPD mass merchandisers increased their share of the overa…

  41. SadDamnYouAll says:

    This website is so cool. Thanks for making it!!!

    http://www.therealnez.blogspot.com

  42. Oz says:

    One thing that Steve’s first post brought up. I wouldn’t be surprised if the record companies allow that initial price drop on an album because it forces consumers to buy albums without ever hearing them. Albums are now one or two good songs and a bunch of filler. By making them cheapest at initial release, companies can capture sales that might not have been made once consumers have a better idea of what they’re getting.

  43. belg4mit says:

    Re: Rob W

    Yeah, because consumers never bought blank tapes…

  44. contrarian says:

    I actually believe CD’s are undervalued right now.

    I don’t think they will ever go away. I think they will stay viable as a format longer than vinyl did.

    These are the features that I like about them:

    1. They are more portable (for my particular technological setup) than mp3′s. (I tend to change machines often and my hard drives burn out.)

    2. They are often a complete “work” in the sense that the songs were written, recorded and arranged to be heard together. This aspect is usually lost in mp3s.

    3. They can provide artwork, historical or poetic text and lyrics that can be enjoyed while listening to the compilation. Not so with mp3s.

    4. Pretty much all of the CD stores are growing.

    5. They can be given as gifts.

    6. They can last a long time if taken care of.

    7. They contain a lot of inputs of oil and energy to produce and distribute.

    8. The price increases noted here are probably the manifestation of inflation which isn’t showing up in the official stats. If so, then perhaps they are a hedge against inflation.

    In fact, I buy multiple copies of the best and most enduring music that I listen to. They make up a part of my investment portfolio. (It used to be baseball cards.)

    Anyway, call me crazy . . .

  45. tim strange says:

    I definitely favor CDs over DVDs when it comes to LISTENING to classical music. The CD provides precise tracks which one can quickly isolate and enjoy. Plus the ability to formulate isolated tracks on separate recording devices. I rented a 3 disc DVD opera the other day. The enclosed brochure was very cursory, and I was unable to isolate the favorite sections of the DVDs in order to preserve them in the same manner that I can with CDs.