Sony talks sense on UMD bundles, Blu-Ray pricing

Reuters has a very important article up on Sony’s Blu-Ray pricing and a plan to bundle UMD movies with DVDs — and possibly bundle other formats with Blu-Ray movies.

The article says that “Catalog Blu-ray disc titles will wholesale for $17.95, about the same as DVDs when that format hit the market in 1997. New-release Blu-ray discs will wholesale for $23.45, a premium of 15%-20% over what suppliers were charging for new theatrical DVDs.” Seems like the Blu-Ray discs will be pretty expensive initially, which you would expect and which could hurt the format, especially if HD-DVD movies are cheaper. But then we get this, from Benjamin Feingold, president of Sony Pictures Home Entertainment:

He added that Sony will not attach any suggested list prices to its Blu-ray discs, at least not at this time.”From the retail perspective, this is going to be a hot product, and retailers will no doubt determine their own margin structure,” he said. “We believe in a free market.”

This is a pretty good hint that Sony recognizes the dangers of pushing an expensive, unproven new movie format. And that can only be good for consumers. “Determine their own margin structure” is likely code for “Just as Best Buy doesn’t sell CDs for the suggested retail price of $18, they’re free to price Blu-Ray movies as they please.”

Best Buy and Circuit City sell their CDs and DVDs as loss leaders: they sell them cheap, theoretically taking a loss, to get people in the stores who are then more likely to buy high-profit-margin items like big-screen TVs. Feingold understands that this kind of pricing will be key to Blu-Ray winning the next-gen DVD war. Plus Sony will need Best Buy, Circuit City et al to promote the hell out of Blu-Ray, which means lots of promotional dollars changing hands for prominant space in stores and Sunday ad circulars. So maybe Best Buy sells Blu-Ray discs at a loss, but maybe the company doesn’t care because of both the usual loss leader strategy and a good bit of ad money coming in from Sony.

This is very smart on Sony’s part, but what may be even smarter and more forward-thinking is this: Starting at the end of March, Sony will be selling combo packs of DVDs and UMDs for $29 — $2 to $4 more than the list price of new DVD releases. Here’s Feingold talking more sense:

“With the launch of Blu-ray, we’re going to try to introduce the managed-copy concept, where if you buy Blu-ray you’ll be able to get additional versions (of the same title) to use in your home,” Feingold said. “Ultimately, we might even get to the point where we’ll offer consumers the ability to have different versions of the same movie on different devices in the home — that’s something we’re working on.”

This reflects an understanding of one of the great unanswered questions of the digital-entertainment revolution: When you buy a DVD, CD, game, what exactly are you buying? Are you buying the rights to view the movie in a certain way? Are you buying the physical CD object, the encoded music, or the coding itself? Put another way, if I buy the Strokes’ First Impression of Earth on CD, why should I have to pay iTunes again if I want to download it? That nobody has answered these questions (and few in the press have even asked, to my knowledge) is the primary reason why entertainment pricing is still so out of whack.

With the bundling decision, Sony seems to have recognized that the old rules can’t apply to an online-centric future. With digital/online distribution, the cost of producing an additional copy of a song or movie is effectively zero. This calls into question the pricing of online entertainment, but it also argues against charging people twice for the same work in multiple formats.

If the cost to Sony of offering digital songs on its Connect music service is zero (other than server upkeep and the like), there’s no reason to prevent people who have already bought a CD from downloading the same music. Once you’ve bought a movie or game in one physical format, you shouldn’t have to pay again to access the information in another format (unless it’s another physical object, in which case you should pay the extra dollar or whatever it costs for the materials — hence the slightly higher DVD/UMD bundle cost). If I buy Crouching Tiger, Hidden Dragon on DVD and Sony doesn’t want me ripping it to my computer, then they should let me download a copy-protected version for free that I can watch on my computer. And yes, once video game distribution moves online, I shouldn’t have to pay twice to play Madden on an Xbox 3 and PlayStation 4.

Rights-holders may complain that this shafts them — where are their royalties from the transaction of the DVD buyer downloading the same movie for free? — but it’s no different from allowing someone to make a personal copy of a CD. The information is just coming from a different place. (And anyway it’s not like that’s a lost sale; who in their right mind would buy a DVD and then pay again to watch it on the computer?)

People who only buy digital entertainment shouldn’t get a free ride, just as people who only buy UMD versions of movies should still have to pay. And the crackdown on Internet piracy shows that entertainment companies understand the changing reality — to a point. They justify the crackdown by saying it’s too easy for people to make perfect, cheap digital copies, but then continue to price their digital entertainment as though they weren’t benefitting from the very thing that makes piracy a danger.

But it’s time entertainment companies accept all the realities of digital distribution, not just the ones they want to recognize. It’s great to see Sony doing just that.

— February 8, 2006

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