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Monday, October 09, 2006, 08:00 am PT (11:00 am ET)

Target warns studios over digital movie pricing

Target has sent a sharply worded letter to movie studios expressing concern that new movie download services like Apple Computer's iTunes are getting better deals from studios on digital copies of movies than retailer gets on DVDs, according to the Wall Street Journal.

In the letter (subscription required), Target President Gregg Steinhafel said that the retailer had become aware that "some movie studios have made new-release movies available to download service providers at lower cost" than DVDs, allowing the downloaded movies to be sold to the public at lower prices.

Steinhafel said the retailer, which accounts for about 15 percent of the big studios' DVD sales in the U.S., did not object to competition but wanted "a level playing field." He went on to say that if Target didn't receive what it considers to be equitable pricing from the studios it would reconsider its investment in the DVD business, suggesting the retailer might cut back on shelf space, promotional programs, signage and other aspects of marketing discs.

The letter followed similar complaints from Wal-Mart, which in August expressed its own share of concerns about Apple's iTunes movie initiative and demanded studios offer it the same pricing granted to Apple.

However, the Journal reports that Wal-Mart has since softened its stance after Apple chief executive Steve Jobs complained in a telephone call to Wal-Mart chief executive Lee Scott about what he considered to be Wal-Mart's anticompetitive behavior. The retailer presently commands around 40 percent of DVD sales in the U.S.

"Fearful of possible legal ramifications, Wal-Mart executives called studio executives and told them Wal-Mart recognized the studios could pursue whatever sales channels they wished, these people say," the report states.

Citing people familiar with the ongoing movie pricing battle, the Journal also reported that studios are eager to put off any escalation of the pricing battle until after the important holiday sales season for DVDs.

"People familiar with the situation say that Apple, too, believes it probably will have to wait until after the holiday season to bring other studios behind Disney into the iTunes fold."

Retailers like Target and Wal-Mart typically pay $17 or $18 wholesale for new-release DVDs. But under Apple's recent deal with Disney, electronic copies of new Disney movies cost consumers as little as $12.99 if preordered or purchased in the first week of release, or $14.99 after the first week of release.

"People familiar with the matter say Apple pays Disney a wholesale price of about $14.50 per movie," the Journal said.