Online Price War Spreads From Books To DVDs

Bargain hunters, rejoice.

The price war that recently broke out over online pricing for best-selling books has now spread to DVDs. As the Wall Street Journal notes this morning, Wal-Mart (WMT) has cut the price for 10 highly anticipated new titles - including the most recent Harry Potter and Star Trek movies - to $10. Amazon.com (AMZN) and Target (TGT) have matched the move, prompting Wal-Mart to snip prices another penny to $9.99.

As Pali Research analyst Richard Greenfield notes in a blog post this morning, the cut-rate DVD pricing for hot titles comes at a time when the movie business is struggling to cope with the rising popularity of $1-a-day rentals from kiosk operator Redbox, a unit of Coinstar (CSTR). Greenfield says at a $10 price the retailers are absorbing a hit on every sale; he says average wholesale pricing is around $18 apiece.

Greenfield says the lower prices will likely drive higher volumes for Viacom (VIA), with the Star Trek movie, Time Warner (TWX), for the Harry Potter movie, and News Corp. (NWS), for Night at the Museum 2. But he adds that moving prices down to $10 will make it harder to persuade consumers to spend $15-plus on new releases in 2010 - let along $20 for Blu-Ray titles.

“While the economy is recovering and certain DVD titles have performed well in the early part of Q4 2009, we believe consumer spending on DVDs will almost certainly decline again in 2010, with (less-profitable) rental continuing to grow its market share at the expense of retail DVD sales,” Greenfield writes.