DVD Price War

With the DVD-Video format just nearly two-years old, privately owned brick-and-mortar home video and Internet retailers are struggling to maintain profitability as they find themselves in the midst of a cutthroat online retail price war to which there appears to be no end. The price war was sparked by Buy.com and followed by Amazon.com and Reel.com, a division of Hollywood Entertainment (Hollywood Video). The price war has resulted in DVD software for sale online at up to 60 percent off suggested retail price, with Buy.com selling all 2,500-plus existing DVD titles at $5 or more below cost. Reel.com is offering Valentineís Day promotion of DreamWorksí Antz on DVD for $9.99, though the offer is good only for customers accessing Reel.comís site via America On Line (AOL). Customers who non-AOL access to Reel.comís site will find Antz listed at $16.99, still $10 below suggested retail price. How non-publicly traded retailers without deep pockets can continue to withstand the ongoing price war is becoming a growing concern and is the biggest threat to DVD-Videoís continued expansion into traditional retail markets. The question is, even with deep pockets, how long will investors, including venture-capital firms, be willing to inject millions of dollars in cash hoping to capture sizable Internet DVD retail market share without a return on investment? With industry sales statistics estimating that one in three DVDs are sold online, what impact will online at-cost or below-cost discount pricing and promotions have on traditional home video retailers who canít compete on price? How should brick-and-motar retailers respond? What is the long-term impact of deep discounting on the DVD-Video market?