Engaging in a race to the pricing bottom - a NO WIN situation for producer and retailer
An excerpt from Hastings Entertainment, Inc. 3rd quarter report for fiscal 2009:
“The recession continued to negatively impact consumer spending; however, our total comparable revenues increased in September and merchandise and rental comparable revenues increased 2.0% and 4.1%, respectively, for the month of October,” said John Marmaduke, Chief Executive Officer and Chairman. “Our core customer base remains stable; however, customer purchase behavior has shifted toward value priced merchandise which is evidenced by the fact that the sale of total units increased 6.9% for the quarter compared to the same period for the prior year. Our movie rental business was negatively impacted by the de-valuing of the price of a rental movie primarily as a result of the growth of rental kiosks that rent movies for a dollar per day.”
Mr. Marmaduke continues to explain Hastings’ response to the impact of the de-valuing kiosks:
“In response, we have implemented a promotion where thousands of movie titles in our stores now rent for $0.99 per week. This has lowered our rental revenue in the short-term; however, we are seeing a significant increase in units rented along with growth in new customer membership sign-ups.”
A clever and resourceful response, without question. But it’s also desperate and bodes poorly for the future. This is one rabbit we collectively should NOT chase down the hole.
Isn’t this a suicidal ploy? How can producers and retailers recover the margins when the content is distributed at astonishingly (and diminishingly) low price points?
The entire Q3 2009 report can be read here.