Question:

     Why do new movies come out in video stores before they’re available on Pay-Per-View?

 Answer:

Wal-Mart.

     The giant retailer, which accounts for over one-third of the studios' video (including DVD) revenues, depends on consumers coming into its stores to rent movies to build traffic for its more profitable merchandise.  The studios help maintain this traffic by delaying the release of movies on Pay-Per-View (and other forms of video-on-demand) for at least 45 days.  If the studios were to change their policy and begin releasing their movies on Pay-Per-View at the same time as they release them on video, a large number of consumers would order them at home at the same price and save themselves a trip to Wal-Mart (and other stores). The big winners from such a change would be the studios. Instead of getting just 40 percent of the take, as they do from video rentals, they would get 70 percent of it from Pay-Per-View rentals. The big loser would be Wal-Mart.

       Consequently, Wal-Mart has quietly warned studios that if they advance their Pay-Per-View release date, Wal-Mart will retaliate against them. As one top studio executive put it, "They told us, 'Don't bother to call us.' "  The message was clear: Wal-Mart might not put a studio's video and DVDs on their prime shelves if it made Pay-Per-View competitive with video rentals via a simultaneous release.

     Not surprisingly, since Wal-Mart is a "monopsony," or a single buyer that dominates the market, the studios have, so far, gone along with its request, even though it has stifled their more profitable video-on demand option.

Corollary Question

How is Rupert Murdock proposing to deal with Wal-Mart on this issue?              Answer To Corollary Question