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From: mag@whuxlm.UUCP (Gray Michael A)
Newsgroups: net.video
Subject: Re: Why are prerecorded tapes so ?!$# expensive ?
Message-ID: <765@whuxlm.UUCP>
Date: Tue, 14-May-85 19:55:44 EDT
Article-I.D.: whuxlm.765
Posted: Tue May 14 19:55:44 1985
Date-Received: Wed, 15-May-85 02:18:59 EDT
References: <5260@cbscc.UUCP>
Organization: AT&T Bell Laboratories, Whippany
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> Why are prerecorded tapes (specifically movies) so expensive?
>  . . . . 
> Many movies I would like to own cost over $60.00 to purchase.
> If I want it I'd have to tape it off of t.v., or be dishonest and
> copy a rental tape.  If they cost, say $20.00 I'd consider buying.
> 
> Is Hollywood just stupid or is there a sound economic reason that I
> missed ?  Are Americans so honest that piracy will never force the
> prices down ?
> 
> Larry Cipriani
> cbscc!lvc

There is a *logical* economic reason, and in some cases, it is also
a sound economic reason.

Very simply, the producers of videotapes attempt to price their products
in such a way that their profit is maximized.  For example, if I can sell
1000 copies of a videotape at, say, $70, $30 of which is profit, or 2000
copies at $25, $10 of which is profit, I will price at $70, since that will
give me $30,000.  At the $25 price, I would only make $20,000.  Therefore,
I'd have to be stupid to price the film low.

The problem is in guessing the shape of the supply-demand curve for a given
film.  If demand is inelastic, then a high price is desirable. Otherwise,
a lower price is desirable.  Paramount was the first major producer to
experiment with low prices.  Several major features were released at
$39.95 initially (e.g. "Terms of Endearment") instead of the more
customary $69.95.  A Paramount executive stated in an interview that
their cost structure was such that a sales at $40 must be three or more
times greater than sales at $70 in order for Paramount to make more
profit at the lower price.  Other companies have been slow to follow,
since they are not convinced that Paramount's guesses are correct.
After all, we can never be sure how many copies of "Terms of Endearment"
would have been sold at $70.

However, as the companies gain marketing experience and data, we will
probably see more makers jump on the low price bandwagon.  I personally
have purchased about 10 films at $25 or less that I would not have
paid more for, and most people I know say they would buy more films if the
prices were low.  I do know of one film that I would pay $300 for,
even if I had to abide by an agreement to never show it to anyone.
There are a few that I would gladly pay $100 for, but they aren't
in release.  I keep hoping.

Mike Gray, BTL, WH