Wal-Mart and the Shanghai Pirates.
Edward Jay Epstein at Slate says that Wal-Mart has put a new proposal to the studios. Allow them to burn DVD's to order at the stores, the same way that the pirates do in Shanghai. Not only will this drive down DVD prices, but it will lead to you and I doing the same thing though someone like ITunes.
"Wal-Mart, which recognizes the same virtue in price elasticity as the Shanghai pirates do, is moving to further reduce the price of DVDs with a plan to burn its own copies of DVDs in kiosks in its stores. Like the Shanghai pirates, the retail giant would buy huge quantities of blanks discs and cheap boxes (probably made in China) at a cost of pennies, but, unlike the pirates, pay a licensing fee to the studios for each copy it burns. The advantage to the customer would be that he could choose a title from among the tens of thousands of movies in the studios' libraries, and also possibly have it in the language and rated-version (G, PG, R, or NC-17) he prefers, while the studios would save the cost of manufacturing, packaging warehousing, and returns.
When executives from Warner Bros. heard Wal-Mart's DVD-to-order proposal in Bentonville, Ark., last year, one of its home entertainment executives pointed out that, with present technology, the delay for the customer might be as long as a half hour before he could pick up the DVD. "Great. Could you make it an hour?" the Wal-Mart executive shot back. From the point of view of Wal-Mart, the DVD need not make money itself, as long as it serves to draw—and keep—potential customers in its stores. The remaining issue is the amount of the licensing fee per copy that the studios will charge. The current proposal under discussion of $3 to $4 for older movies is not much below what the studios are now getting (after manufacturing costs) for the DVDs they sell to Wal-Mart. But once the studios agree to the scheme, they would be hard-pressed to resist pressure from Wal-Mart to reduce the licensing fee, since this costless stream of revenue could not be easily replaced. As one savvy Paramount executive points out, "There would be nothing to stop Wal-Mart from playing studios off against each other and drive the license fee down and down on titles until it's just pocket change." If Wal-Mart succeeds in this enterprise—and it rarely fails—it will close much of the gap with the Shanghai pirates."
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