The Commoditization of Movies
There are two ways to price and sell products at market:
- One is the MARGIN method.
- The Margin method is usually based on a scarcity; either of product (even if artificial, like diamonds) or of consumers. The margin method is how Apple has typically pursued its business. Make the product at as high a level as you can, understand that your constituency will be a smaller and more loyal body of fans, and make money on the wide “margin” between costs of production and the price paid by consumers.
- The other is the VOLUME method.
- The Volume method, then, is usually based on a high availability, essentially, of both product and desiring consumers. When Blu-Ray players were introduced at $500 to $1,000, they were scarce, and only wealthy early-adopters could or would pay that much. But there was more margin in each sale. Now it is possible to acquire a Blu-Ray player for as low as $79.95, moving it into the reach of most. Many technology products enter the market this way, following a path through early-adopters to the wide consumption landscape. Under this volume method, the product is priced at about as low as it can get, intending to saturate the market at a level that is always aiming at “everybody.”
Until the advent of DVDs, motion pictures for home viewing used both of these methods. If a movie had a high potential to sell a lot of units (if it was for “everyone,” like E.T.), then the VHS cassette would be priced at something under $24.95, and often as low as $14.95, maybe after a MacDonald’s or Pepsi partner rebate or the like This pricing was called SELL-THROUGH (or Sell-Thru). Other titles would be priced from about $59.95 to as high as $112.95, with the average pricing for quality titles around $100 around the time that DVD was introduced. These titles were priced for RENTAL, and for the collector who had to have that title and was willing to pay up to own it.
So, some films were treated as Margin titles (Rental), and some as volume titles (Sell-Thru), according to the necessary and reasonable analysis of the size of the market for the movie itself. This pricing methodology brought a broad range of quality films of all types within the consumption grasp of a wide cross-section of the film-loving public. Sell-Thru blockbuster status was highly desirable, but everyone knew that every film was not a blockbuster, so many films used the margin method to maintain profitability.
Enter DVD
Now, when DVDs entered the marketplace…
If you would like to read more of this post, and our other posts, please go to: http://filmprofit.com/?page_id=16