Brusselsregulators are to investigate why European customers tend to pay more for thesame recent Hollywood movies on DVD than their counterparts do in the US andCanada. They are also opening a potential hornets' nest by questioning thepractice of charging full price for DVD re-issues of old catalogue titles.
The EuropeanUnion probe, which follows a similar investigation into musical compact discprices that was launched in February, comes at a time when the studios arealready arguing among themselves over precisely how much they should charge forhit movie titles in this fast-growing format.
The European Commission, the executive body of the 15-nation EU, revealed on Mondaythat it had sent letters of complaint to the major distributing studios: WaltDisney, AOL Time Warner, 20th Century Fox, Vivendi Universal,Paramount, MGM and Sony Pictures. So far, only Disney has confirmed plans toco-operate with the investigation.
At theheart of the complaint is the process of embedding each DVD with worldwide regionalcopyright codes so that the same disc that is released in the US cannot beimmediately played on European DVD players. In theory, such coding preventsEuropeans from seeing a DVD title well before its local video release; inpractice, argues the Commission, such mechanical anti-piracy restrictions arediscriminatory against EU as the tags also give the studios free rein to overchargetheir overseas customers.
Consumergroups say Europeans pay anywhere from $17-$27 per title, while prices range inthe US from $15-$25. "We have received a significant number of complaintsfrom private citizens on this matter. In each case the complaint is virtuallythe same - namely, that DVD prices are significantly higher in the EU than inthe US," Mario Monti, the EU's competition commissioner, said in a textprepared for delivery in Stockholm.
"Itis important that, if the complaints are confirmed on the facts, we do notpermit a system which provides greater protection than the intellectualproperty rights themselves, where such a system could be used as a smoke-screento allow firms to maintain artificially high prices or to deny choice toconsumers," said Monti.
He addedthat the Australian Competition and Consumer Commission had already concludedthat the regional coding system as it applied to its geographical segment ofthe global marketplace was imposing a "severe restriction of choice"on consumers down under.
AlthoughMonti noted that his Commission's probe into questionable pricing methods formusic CDs led to the quick end of those practices, tackling DVD pricing policymay prove trickier than he and his Commission colleagues imagine. For onething, there is no such thing as a uniform cost even in the US. Warner Brosveers towards the bargain prices, charging $18.89 for a hit title such as MissCongeniality, inthe hope of stimulating mass market penetration. But Paramount Pictures, thecorporate sibling of Blockbuster Entertainment, tends towards the higher pricebracket, listing a film such as Double Jeopardy for as much as $29.99. Disney, too,is an advocate of charging at the top end for such family-friendly collectiblesas Toy Story.
Otherstudios can fall anywhere between these two poles: Columbia TriStar HomeEntertainment, for example, is launching the special DVD edition of CrouchingTiger, Hidden Dragon at a suggested retail price of $27.96 - which is still higher than thetop European price quoted by the EC.
Even at thelowest prices, however, the major studios still enjoy fat profit margins onevery DVD sold around the world since manufacturing costs are a little lowerthan with VHS and revenues that much higher. Remove the costs and complicationsof the regional coding process, as the European Association of ConsumerElectronics Manufacturers is urging, and the DVD manufacturing cost would dropeven further.
Accordingto recently published figures from Adams Media Research, the studios'gross profit per DVD disc currently works out at around $14.02, compared withjust $6.51 for each VHS videocassette sold in the US. Overseas, that studio profitfigure is undoubtedly even higher because DVDs can still be marketed as luxuryitems aimed at international enthusiasts and early adopters willing to pay topdollar for superior sound and image quality.