Just read this article on Ars Technica about how FOX plans to sell low-cost DVDs in China to combat piracy. According to the report, this move follows in the footsteps of Time Warner's attempt to undercut pirates by plunging the price of their original DVDs to 10 yuan (about S$2). This is close to the street price of bootleg DVDs out there. The rationale being that it would still be better to sell a couple hundred DVDs at low prices compared to none at all.
Without going into the feasibility of this strategy, a couple of interesting notions came to my mind:
1) Increased Downloads of Movies - Due to the increasing popularity of portable players that can now also play videos, the increasing trend seems to be a shift towards downloading of illegal movies rather buying physical CDs/DVDs. Other factors such as the increasingly fast network speeds, proliferation of downloading software and strong Chinese online communities also aid this trend (Could write a whole post on it, but some other time perhaps).
2) Retail Margins - Typically, consumer goods need to go through several levels from distribution from the manufacturer to distributor to retailer before it hits the consumer. Accordingly, each level does take a cut from the end price, which explains how consumer products are normally priced a tad higher with these considerations in mind. Now, I'm assuming that the street peddler of illegal movies in China either produces his own copies or is a mere 1 level away from the manufacturer, making the $2 street price feasible. But in FOX's case, it’s going to be hard to convince the stakeholders in their distribution chain they can still make good on margins from a $2 product. Perhaps FOX intends to sell direct?
2) Illegal Export - Now, I'm pretty sure that if discs do eventually get sold for $2 in China, there are going to be a lot of illegal exporting of these discs to countries in the region like Singapore where it could easily fetch higher prices. I believe that we are already seeing this happen with parallel imported music CDs in Singapore and naturally if the market here demands it, I don't think DVDs will be much of a difference. Indirectly, FOX would be cannibalizing sales in their other regional markets.
In any case, if they do go ahead with this, I'll be hopping on a plane there to grab some... Its cheaper than bootlegs back here!
[via : Ars Technica]
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