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Old 08-16-00, 06:19 PM
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From Home Theater Forum, sorry but I think it belongs here in Bargains. http://www.hometheaterforum.com/uub/...ML/016257.html
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Ronald Epstein
Ocean, NJ, USA
Owner HT Forum
[4934 posts]

This is a very important message that
I hope all of you spread to other forums and
newsgroups.

This afternoon, I had an old friend call me.
This person owns one of the best DVD mail-order
sites currently in business. You won't guess
who it is, and because of the nature of this
post, I cannot reveal this individual's name.

I hope all of you who read this thread will
also realize that I am putting my reputation
on the line here so that you know what I am
writing you is absolutely truthful.

The reason this friend contacted me was because
there seems to be an outcry on many of the Internet
forums now that the DVD mail-order sites are no
longer offering 40% or even 30% discounts off of
DVD releases.

As a matter of fact, I just learned that one
outfit that used to offer 40% discounts, has just
dropped down to 25%. This information is just
coming in to me, and I have not had the chance
to validate it.

Nonetheless, it is becoming more apparent to
all of us that the days of 30-40% discounts from
the DVD mail-order companies are coming to an
abrupt end.

What is bothering the retailers is the reaction
from the Internet community. People are absolutely
going ballistic and posting very nasty messages
against some of these companies because the
discounts are no longer there.

I am going to sit down with all of you right
now and explain to you in explicit terms why
the DVD mail-order/retail industry is changing
so abruptly. I think by the end of this post,
all of you will come to terms with what has
happened over the past 2 years.

First of all, it is important to understand
that the studios are not charging any more to
the distributors than they have. That has nothing
to do with what has happened.

In the very early days of DVD, nobody was
offering 30-40% discounts on DVD product. It
wasn't until companies like REEL.COM
and other investor-backed mega companies came
to the scene, that the whole discount war began.

You must understand that companies like REEL
(now deceased) and a few remaining mega-giants came
to the scene for the sole purpose of putting sites
like Digital Eyes, Ken Cranes and DVD
Express out of business.

These "mega-companies" were backed with a lot
of investor money. You all saw how these companies
flooded the market with discounts as high as 50%
or more. The truth is, these "mega-companies"
were taking a huge loss to take business away from
everyone else, and they succeeded.

For the sole purpose of trying to compete with
these new giants, mail-order sites like EXPRESS,
DIGITAL EYES and KEN CRANES (to name a few) started
offering discounts in the 30-40% range. You can
bet your booty that these discounts were absolutely
killing these companies who could not afford to
take the losses that the "mega-companies" were taking.

Let me stop right here and ask all of you if
you know exactly how much a retailer makes
on a DVD sale? Today I learned exactly how much,
and I am going to share that information with you
by giving you three DVD titles at FULL PRICE, 30%
OFF, and ACTUAL COST to dealer. Please look at
these examples very carefully....

LEON: THE PROFESSIONAL
Retail Price: $29.95
30% discount: $20.99
Dealer cost: $19.17

TARZAN SE
Retail Price: $39.98
30% discount: $27.99
Dealer cost: $25.99

The Cider House Eules
Retail Price: $32.99
30% discount: $23.09
Dealer Cost: $21.44


On the average, when a mail-order/retailer sells
you a disc at 30% off, the profit is under $2 a disc.
Imagine what that was at 40% and 50% off.

Also take into account that these retailers
employ sometimes as high as 80-250 people to
work in the company. How far do you think that
under $2 profit per disc goes in paying those
employees and the company overhead?

Something else you may not be aware of....

REEL.COM is dead. They died because
all they did from day one was LOSE MONEY. They
flooded the market with these HUGE discounts and
they killed themselves.

I know of at least 2 other MAJOR retailers that
you deal with (and probably 2 more) that are very
close to going belly-up. I will not mention any
names, but trust me -- I have learned much today.

All of this is happening because for the past
two years, there has been a major struggle for
DVD mail-order companies to survive amongst
each other by handing out these huge 40%+ discounts.

Hey, I realize that all of us as consumers
have become spoiled rotten by the discounts.
However, it's time to face the fact that times
have changed and retailers are dying.

The retailers are quite upset that people are
posting all sorts of nasty messages all over the
internet about their company for cutting back
on their discounts.

I don't think it's fair. Actually, I don't think
the public really understands the business and the
history of the past 2 years involving the industry
as a whole.

The bottom line is that retailers are dying.
The only way to survive is to make a profit.
It doesn't matter if a company buys 1 DVD or
12,000 DVDs -- the price is the same to the
distributor (or at least this is what I was told
this afternoon).

While you may walk into a COSTCO/SAM'S CLUB, etc.
and find DVDs at an extremely low price, you
should know that these are not DVD-only retailers,
and that these retailers can afford to lose money
on their DVD titles to bring you into the store.

I am not sticking up for any one retailer.
I happen to know the owners of 2 or 3 of the
most popular on-line retail sites, and I have
known about the struggle these guys have gone
through over the past 2 years.

In fact, veterans of this forum will clearly
remember Robert George and I warning all of you
that one day the well would run dry on these
discounts, and that your MOM&POP (so to say)
retailers with the BEST customer service would
go belly-up thanks to the giants like REEL.COM.

So, please spread this message over the Internet
on our behalf. I don't have the opportunity to
post on other sites. I'd really like to get the
word out to those individuals who are cursing at
their favorite retailer for cutting back on the
discounts. Those days are over, and I think that
this message clearly indicates why.

Ronald Epstein
Home Theater Forum Administrator
All forum questions & to get on our private forum mailing list (new members)... Email: [email protected]
Problems with the webpage or site? Contact WEBMASTER
Email Packy [email protected]

------------------
EC
The Entertainment Cave

[This message has been edited by M O V I E F A N (edited August 16, 2000).]
Old 08-16-00, 06:30 PM
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Well, blame it on the consumers. I think we all should ask the industries if 30-40 for a disc is justified. It just doesn't cut it for me. Cost to make a CD; a buck. Retail market 14-18 bucks. Unless the industires lower the prices, in the coming years another version of Napster(DVD related) will form.

------------------
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"Why don't you pull the trigger and find out."

From Young Guns II
Old 08-16-00, 06:32 PM
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Thanks for that info Ronald. I don't find any of it surprising. Reel was trying to buy customers at the expense of their investors and Hollywood. You can't do this in todays environment because with the internet, those who seek out bargains will find them ("Good business is where you find it"). They were crazy to bleed themselves that way. I personally don't complain about them cutting prices back. But I tell you this, my purchasing goes way down when the prices go up. These items cost a couple of bucks to produce. And they charge an arm and a leg for them. And they will so long as people pay it. Sure, it's the producers, the big companies, not the retailers who are charging all the bucks. I don't care who it is or why. I care about a quality product for a decent price. And $30 for a dvd is not a decent price. If we don't buy them at that price, the price will come down. It won't be the retailers who bring the price down, but the companies who make the movies and print the discs. It's just like the cd thing. People figure out that this is price fixing and they're being raped, so they don't feel bad about doing what they can to get the bargain. The dvd market will change too. I'll be patient through the dry times, as I have many a dvd still in the wrapper, and netflix is always there.

Thanks anyway.

(added) DVD-Man, you just beat me to it....

[This message has been edited by strusinsk (edited August 16, 2000).]
Old 08-16-00, 06:38 PM
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quote:<HR>Originally posted by dvd-man:
It just doesn't cut it for me. Cost to make a CD; a buck. Retail market 14-18 bucks. <HR>


There are a lot more costs associated with a cd than the simple manufacturing costs.
Old 08-16-00, 06:40 PM
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Long live Reel.com,Value America,CDNow er um
what is that you say?Internet companies must now try to not sell below cost?I guess those
$5 off $500 coupon purchases will start looking good...
Old 08-16-00, 06:44 PM
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H'mmm

Interesting post, still if internet and mail order don't provide competitive discounting below the prices that B&M's such as Best Buy and Circuit City offer, they will die. Basically as you also have to pay shipping and wait on the item etc. I guess clicking for GC's will be the only reason to use these sites.

You can't tell me it costs $20 to produce a DVD! I agree that price gouging and fixings such as practiced in the CD AND DVD industry will lead to increased internet piracy especially as internet connection speeds increase and the price of DVD burners come down from $5000.

Gavstar

Old 08-16-00, 06:44 PM
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quote:<HR>The retailers are quite upset that people are posting all sorts of nasty messages all over the internet about their company for cutting back on their discounts.<HR>


That is all well and good, but I don't see how online consumers complaining is hurting the small to mid-size dvd retailers. They have generally offered a minimal discount if any, and now that the big boys are dropping their discounts every week it seems, then the effect would, and will be, a trend towards the companies with the best service. I know of alot of e-tailers that still have 40% discounts, but they have not proven themselves to be worthy of my business. On the other hand, I have always used a mixture of retailers to suit my particular needs. I think the fact that the major players are lowering their discounts will ultimately be a plus for the smaller companies. Just imagine if Wal-mart started charging prices like your local market/drugstore/harware store. People would just stop going to Wal-mart, and strt shopping where it's more personal.

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Old 08-16-00, 06:45 PM
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Moving to online store forum

Geoff

[This message has been edited by gkleinman (edited August 16, 2000).]
Old 08-16-00, 06:50 PM
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LEON: THE PROFESSIONAL
Retail Price: $29.95
30% discount: $20.99
Dealer cost: $19.17

TARZAN SE
Retail Price: $39.98
30% discount: $27.99
Dealer cost: $25.99

The Cider House Eules
Retail Price: $32.99
30% discount: $23.09
Dealer Cost: $21.44

Very interesting, i never knew how much amazon paid for their dvds. My only solace is to look to the future: ultra-broadband and the napsterization of mpeg2s until the dvd cartel starts normalizing prices.
Old 08-16-00, 07:12 PM
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I couldn't agree more with some of the above posts. I guess we should be really angry with the distributors. They are definately gouging the stores that sell DVDs.

All I know is that economics says that DVDs (or anything) is only worth what the customer is willing to pay. In my case, I'm spoiled (by this forum) to think that unless I can get a DVD for less than 8 or 9 dollars, that it isn't worth it to me.

Unfortunately, my message isn't getting back to the distributors, as I am getting DVDs inexpensively through coupons, clubs, and clicking, yet sites like amazon, columbia house, and buy.com are still paying the distributor full price.

Hmmm, we've all been sticking it to the stores and clubs. Now how can we get our message to the distributors?
Old 08-16-00, 07:58 PM
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I'm surprised Ron can type so well while holding a crackpipe.

First off, anyone who wants to rant about anything is more than entitled. No one has to read it. Don't tell the consumers not to rock the boat - it's our f_____g boat.

Secondly, I doubt anyone has a gun to his friend's head forcing him to be in the DVD business. Ron, tell him to go live off his trust fund if he doesn't like it.

The annoying thing with most CD's (except new albums) and all DVD's is that the marketing has already been done - I'm buying a product that I already want. I like Billy Joel's Piano Man and I buy it. I enjoyed Get Shorty in the theatre and I buy it. No previews, no Burger King tie ins - just put it in your real or virtual store at a reasonable price and I'll buy it.

If all the 'deals' go away and we're forced to buy DVD's at the 'real' price, DVD player sales will tank faster than Betamax. And there could be an equally negative (for us consumers) effect on DVD rental prices. As people stop buying because they can't justify the high price, demand for rentals go up and the price will follow.

Old 08-16-00, 08:13 PM
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Anyone who has taken a beginners course in micro economics at college can see what's going on. It's simply competition! On the Internet, how ever, the competition seems to be stronger than ever beacuse of the low search costs. Customer is king on the Internet!

------------------
I'm sick of sleeping with all these insipid Manhattan debutantes. Nothing shocks them anymore.
Old 08-16-00, 08:15 PM
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quote:<HR>Originally posted by msharkm:
If all the 'deals' go away and we're forced to buy DVD's at the 'real' price, DVD player sales will tank faster than Betamax. And there could be an equally negative (for us consumers) effect on DVD rental prices. As people stop buying because they can't justify the high price, demand for rentals go up and the price will follow. <HR>


You're kidding yourself.

As the online DVD buying community, "we" probably make up less than 5% of the total DVD-buying community. The other 95% have seemed perfectly happy paying full retail price for DVDs at stores such as Suncoast and CompUSA. Most people are blissfully unaware of the "deals" available on the internet. I doubt that if we were to curtail our DVD buying habits, it would make any kind of significant dent in the overall DVD market.
Old 08-16-00, 08:41 PM
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I seem to remember way, way back when DVD was first introduced that titles were promised to cost less then $20 and eventually go down to under $10. Prices have only gone UP. Just like CD's, DVD's are way overpriced to begin with. Every single CD and DVD should be $9.99 or less. Period. Until that happens, I'm going to be watching the discounts very carefully. So, my problem is with the Film Companies and not the retailers.
Old 08-16-00, 09:24 PM
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LEON: THE PROFESSIONAL
Retail Price: $29.95
30% discount: $20.99
Dealer cost: $19.17

TARZAN SE
Retail Price: $39.98
30% discount: $27.99
Dealer cost: $25.99

The Cider House Eules
Retail Price: $32.99
30% discount: $23.09
Dealer Cost: $21.44

I have trouble believing these numbers. If a retailer paiys so much for a DVD why would a person get into the business. They didn't think they would actually get people to pay retail? Hell, Bestbuy doesn't even charge retail on a TV. If that is dealer cost where is the money going? I read in a thread not to long ago. That the studio only makes around $3 per disc.

If those numbers were true a retailer giving %30 discounts would be out of business in a few weeks with the cost of overhead, employees, advertising, insurance, hosting.

I will believe these numbers when a retailer scans an invoice and posts it on the web.

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Old 08-16-00, 09:29 PM
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Take all the #amn SE crap and just give me a good picture and good sound. Then bring the #amn price down. That's why we are paying out the @ss for our favorite movies. Yeah, a documentary is cool, but I'm never going to watch it more than once, if at all (still have plenty sitting up there where I haven't gotten around to checking out the extras).

I can see them doing the SE stuff to draw people to DVD, but hopefully after the market settles down and everybody has a DVD player they will just start putting out the MOVIES.

Bo.

[This message has been edited by BoBoish (edited August 16, 2000).]
Old 08-16-00, 11:59 PM
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I guess its back to Best Buy, Circuit City or whatever then. Atleast when I buy at a B&M I have it in my hand when I walk out and I can check to make sure its not loose. Plus, when you come down to it, atleast these people who work at my local B&M stores live in my community, I think, sometimes I'am not sure.

If anyone is to blame for E-Commerce failers it is THEM, not the buying public, with their really bad plan of loose alot of money now and make it back later, it just doesnt work.
Old 08-17-00, 12:04 AM
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I guess my take on the whole price situation is that I will usually buy from the vendor with the best price and most convienence.

This might also involve a minimal effort in using coupons or promotions. Recently that has lead me to online vendors. If the DVD price is the same or close at convienent B&M store I will probably shop there.

I do not fault vendors (on or offline) who opt not to sell at a loss. If a vendor is willing to do so (and possibly run themselves out of business) and I have some level of trust that my order will be shipped (hopefully before they do go out of business) and I will be billed correctly I will go for the lower price.

No one if forcing me to buy dvd's or choose particular vendors. It's all a matter of price, convienence, and speed of getting the product. If the price is the same and Io have to choose between vendors then my personal opinion of that vendor and thier staff will make my decision.

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Old 08-17-00, 12:06 AM
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quote:<HR>Originally posted by rickwalz:
LEON: THE PROFESSIONAL
Retail Price: $29.95
30% discount: $20.99
Dealer cost: $19.17
<HR>


Employee of Sony cost: $15 + tax

How about getting some real numbers about the cost of making a DVD (which if like that of a CD should be under $5 to press...)
Old 08-17-00, 12:41 AM
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quote:
"It doesn't matter if a company buys 1 DVD or 12,000 DVDs -- the price is the same to the distributor"

That's the biggest load of bull$hit!!!



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Old 08-17-00, 01:54 AM
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In the end, the e-tailers will have to offer something that B&M stores cannot. Reality tells me they can't. With high shipping costs, the incentive for me to wait a couple days for a purchase is a much more likely scenerio then for me to pay high shipping and high prices.

I remember when stores like Jcrew and Pottery Barn were hard to get to and really, the only way to purchase was from a catalog. Those kinds of purchases were worth the shipping costs. Now, I have five stores within five miles that sell DVD's. If I wait for a sale AD then I can still beat some of these on-line deals.

I was anxiously waiting for stores like Homegrocer.com to deliver to my area. Finally, service was available. Then I saw the prices! I couldn't beleive the food prices. Think, 1 warehouse and maybe 100 employees, if that, and the prices are still almost higher then a B&M grocery store. How can you justify the costs?

I cannot understand how one website, a warehouse, maybe 200 employees, with the whole world as a customer costs more for product and maintenance than Sam Goody record stores with over 2500 stores, 2500 managers, 2500 asst. managers, 2500 Third Key employees, and God knows how many employees, maybe 50,000 part-time and full-time employees!!

If the numbers above are correct, lets say the e-company makes $2.00 per product on average plus the shipping/handeling charge brings in maybe another $1.00. So, per transaction the cost is approx $3.00 profit. Now, lets say that 1.5 million people visit e-company. Now, lets say 1% of them buy something each day, thats $45,000 each day!!! Or, even better, $1.35 million per month, or $16.2 million per year! Thats just 1% of visitors each day. Does anyone actually have hard numbers?

All this to support one website, one warhouse, and maybe 200 employees with the world as your customer.

Economy on the internet is still changing. There will not be the big bucks investors are hoping for.

Old 08-17-00, 01:57 AM
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quote:<HR>I have trouble believing these numbers. If a retailer paiys so much for a DVD why would a person get into the business. They didn't think they would actually get people to pay retail? Hell, Bestbuy doesn't even charge retail on a TV. If that is dealer cost where is the money going? I read in a thread not to long ago. That the studio only makes around $3 per disc.

If those numbers were true a retailer giving %30 discounts would be out of business in a few weeks with the cost of overhead, employees, advertising, insurance, hosting.

I will believe these numbers when a retailer scans an invoice and posts it on the web.

[/B]<HR>



Well when I used to own a video store, the cost of a VHS tape for me to rent was as follows....

VHS 99.95 retail
my cost 72.99
wholesaler 55.99

and a sell through was

VHS 19.99 retail
my cost 14.99
wholesaler 11.99

and this number would be closer to a DVD

VHS 29.99
my cost 21.99
wholesaler 16.99

of course the local wholesalers had about 20 staff, so I too always wondered how they made money.

So if business is still the same then I guess those numbers might be accurate, but you would think if buying a BULK of these DVD, you would think they would get a DISCOUNT of some kind.
Old 08-17-00, 05:11 AM
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The main message in this thread seems as if it's telling us something we didn't already know. I don't know about you all, but I realized from day 1 that these etailers were losing money on every sale to me. So what?

The bottom line is, there is a certain price above which I will not pay for a DVD. If it is selling above that price, I won't buy it. This either perpetuates DVD sales at a loss, or it shuts down DVD sales until manufacturers have to lower their prices to sell DVDs to retailers. Moreover, an etailer's main competitive advantage is that it can keep overhead low. If it does not do so, that's not my problem.

The import of this message to me is that, when DVD prices are too high (like they are at most stores now), I should look for DVD bargains in diversified stores, because those are the stores most likely to sell DVDs at a loss.

Like I said, I currently have enough DVDs that I can watch what I have and rent until DVD Recorders become more reasonably priced and I can record DVD movies for cheap or free off TV and the Internet.
Old 08-17-00, 05:18 AM
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Big talk + naive venture capital + "the sky's the limit" business plans + studio gouging (with some exceptions) + an immature product market + whining = online DVD retailer. The previous posts made their points so well, it's hardly necessary to add my view.

Except for one thing; just what were the extremely negative postings? Were they all about pricing, or could it have been...

1. Non-existent customer service,

2. Failure to ship anytime near what is expected or promised,

3. Short shipping then treating the customer like he/she is lying,

4. Improper charges, then delaying the crediting process, or

5. Satan?!

I promise to bad-mouth etailers for stuff like that.

------------------
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Old 08-17-00, 05:41 AM
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All of this has proved one thing to me. The business model for Internet sales of mass market goods is faulty. For a person to buy an item on the net (or through mail order catalog), they must get something that isn't offered in the store down the street. They aren't going to be able to deliver faster, obviously, so the only thing that can be better is price...and to achieve that the net store selling price + shipping + tax (if applicable) MUST be less than the local store selling price + tax. I don't think that this is possible and still profitable. The only retailers that have a viable chance on the net are those that sell a unique product that is not readily available in a local establishment.

As far as the cost of a DVD goes, you can't just take into account the cost of the disk. There is also the packaging (box, multi-colored insert/cover, book or insert inside, shrinkwrap), costs associated with distribution (packaging, order process, accounts receivable from retailers/distributors), the basic costs of doing business (rent, power, heat, A/C, etc.), the cost of returns on un-sold goods (usually limited to a percentage of copies sold) and, the big one, the cost of royalties to the director, stars, musicians and other craftsmen. It all adds up.

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