RETAILERS WARY OF TWO-TIER DVD PRICING

It hasn't taken supermarket retailers long to catch on. Rentals and sales of DVDs are extremely lucrative, as their low wholesale price allows for a quick return on investment. Many buyers are expressing excitement at being able to buy so deeply on DVD titles, saying they believe a bright future may exist after all for supermarkets weary of stringent VHS buying programs.Well, let the buyer beware.

It hasn't taken supermarket retailers long to catch on. Rentals and sales of DVDs are extremely lucrative, as their low wholesale price allows for a quick return on investment. Many buyers are expressing excitement at being able to buy so deeply on DVD titles, saying they believe a bright future may exist after all for supermarkets weary of stringent VHS buying programs.

Well, let the buyer beware. The window for low DVD pricing may be a short one, as there are rumblings that studios may soon switch to rental pricing of DVDs. That means they'd raise the price on titles people don't want to own but want to see, and keep the prices in the $24.99 range for sell-though.

The idea has so irked the Independent Retailers Council of the Video Software Dealers Association, Encino, Calif., that it has drafted a statement taking a firm position against two-tiered pricing, saying that such a move would not only slow down DVD's momentum, but also hurt independents as the new pricing would likely mean a shift toward revenue-sharing programs.

The VSDA board is expected to approve the statement in the coming weeks. What are the repercussions for supermarkets looking to build a DVD section?

Jason Hoyle, video buyer at Hilander Foods, Rockford, Ill., said he's currently "doing real well" with DVD sales and rentals, stocking a hefty 350 titles. "I don't think DVD is going to take over VHS anytime soon," he said, "but since the price of DVD hardware has come down, our DVD sales and rentals have tripled. For every one VHS tape I bring in, I can bring in four or five DVDs."

He sees a move to two-tiered pricing as "ridiculous" and dangerous to the fledgling format. "It would certainly affect how many copies I'd buy," he said. "I certainly wouldn't buy four or five -- maybe two."

Tom Bendry, video buyer at Angeli Foods Co., Iron River, Mich., agreed. "We're doing a great rental DVD business right now," he said, "because of [DVD's] cheaper price. But if the price goes up, I would purchase less."

This could spell trouble for a format that, while gaining popularity, is still new. Industry observers are wary that should rental-pricing of DVD happen too quickly, the format's push into retail could slow down and perhaps pave the way for competing formats -- such as cable's video-on-demand -- to gain more of a foothold.

"Two-tiered pricing may happen," said Kirk Kirkpatrick, vice president of marketing at WaxWorks/VideoWorks, Owensboro, Ky., "but there's a lot of pressure for it not to happen. It's hard to put that genie back in the bottle. It's much easier to lower a price than to raise it."

Kirkpatrick agreed that the format's growth could slow down significantly with rental pricing. "It would only confuse people further," he said. "You'd have 'Star Wars' selling for $24, and 'Strip Girls in the Hospital' selling for $100."