Within hours of the Supreme Court decision striking down an almost 100-year-old law against MAP pricing last week, several of us at VB received a reader e-mail asking us what it means for the home entertainment industry.
Our initial thought was “not much,” but the question prompted me to give it more thought.
The 5-4 ruling found that it is not automatically (or “per se”) unlawful for manufacturers and distributors to agree on minimum retail prices and does give suppliers more, but not unlimited, power to dictate retail prices and limit discounting by retailers. Such pricing matters will now be considered by judges on a case-by-case basis, known as “rule of reason,” to determine their impact on marketplace competition.
The case that led to this decision was brought by a leather goods manufacturer that objected to a store selling its products much more cheaply than the manufacturer wanted. This is a legitimate problem for suppliers of high-end products, whose brands get some of their cachet from their very priciness, and for marketers of new and technologically advanced products who count on stores to help educate consumers and provide service.
The Consumer Electronics Assn., in fact, issued a statement in support of the decision, noting that “in the consumer electronics industry, where sales training, industry marketing and after-sales service are highly valued by manufacturers and reputable retailers, it makes perfect sense to consider these factors when evaluating a manufacturer’s requirement that threshold prices be maintained.”
The court majority agreed with this position, while the dissenting justices believe that the change would more likely result in higher prices and less competition.
If the studios were to try to stop retail deep discounting of DVD, the effect would undoubtedly be what the dissenters predict—higher disc prices, less competition and no enhanced service or benefits to the customer, since it’s simply not necessary to sell the product.
This isn’t going to happen, however, because home entertainment is a mass-market, high-volume business, and, for the most part, three to five large retailers—not the studios—call the shots.
The studios are way too dependent on Wal-Mart, Best Buy, Target and a few others to risk trying to dictate DVD retail prices.
These retailers have pricing down to a science, and if studios try to call the shots, the retailers might very well stock fewer units. Or worse—find something other than DVD to pull customers into stores.
The studios might not like sub-$15 pricing on theatrical hits in their first week of release, but they can live with it.
It’s not like they have other, higher-end retail channels to turn to, and they want more retailers, not fewer, to carry their movies.
