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millions of people with the widest variety of new and innovative programming. To enter the home video marketplace, a company simply needs a product, which can be sold to wholesalers, and through them to the retailers. Vestron has benefited from easy entry, and from the evolving, competitive environment of home video. Our success, we believe, is tied directly to the flux and dynamism in distribution arrangements that are characteristic of our industry.

By contrast, the studios that have pushed for repeal of the first sale doctrine are far more rigid in their philosophy. Over the years, they have become ac

customed to

fixed distribution

and grown to rely on patterns. They benefit from the very limited access to markets that these patterns offer. For example, it is more difficult, by and large, to distribute a film to movie theaters unless one is a MPAA company.



Home video, however, is different, but the studios, tied to their pasts, are either unable or simply refuse to recognize that difference. As the production, distribution, and marketing of home video is so unlike that for theatrical exhibition it would, at best, be regressive public policy to change the copyright law to

suit the convenience of a few companies now dominant in

the traditional sector of the industry.

What frustrates the MPAA members is their inability to "have their cake and eat it, too." They want to set low prices and generate a viable consumer sale business while also being able to charge high prices for copies that would be available for rental. Changing the law to enable MPAA companies to separate the market would cause great disruption and cause real harm to a wonderful new medium of consumer entertainment. It is perfectly clear, however, that the marketplace now affords the MPAA all the flexibility that it could want in accomplishing its goal.


Marketplace Solutions: A Lesson
From History and a View of the Future

The MPAA-member studios, because they dislike the fluidity of present distribution arrangements, claim that the first sale doctrine is an anachronism, an outmoded vestige of an age before the development of modern electronic technology. What they do not realize is that the distribution system they would have Congress bless is equally anachronistic. If the MPAA would pay careful attention to the history of the first sale doctrine, and not dismiss it, it could learn to achieve its objectives without legislation.

At the turn of the century, the book publishing industry confronted nearly the same "problems" now facing the MPAA companies. When books first began to be distributed broadly to the middle and upper middle classes, the per copy prices for hardbacks was quite high. Most potential customers could not afford to purchase books. The marketplace, however, developed a logical response: rental libraries. At one time, every town in America had two or three such libraries where people could rent the latest best seller and pay for the privilege of doing so. Rental libraries enabled people to enjoy a book for a week without having to purchase it.

Early book publishers had virtually the identical marketing dilemma that perplexes some of today's distributors of home video. The book industry ultimately found its own solution by creating the paperback and, with it, a mass-market for people who began to buy books. With the advent of the paperback, the demand for rental libraries diminished and, though they survived World War II, by the late 1950's many were no longer economically


The solution for the book publishing industry was and is sequential distribution: first, the hardback at a high price and then the release of the paperback at

a price much lower, much more affordable, and aimed at

large-scale distribution.

The parallel of book publishing to home video is striking. Like those publishers of yore, the MPAA will find that the marketplace can best resolve the difficulties of creating a mass sale market. Moreover, if the movie industry lets it happen, that process will take only four or five years, not the four or five decades that it took publishing.

Vestron's view of the home video future is that producers and distributors will enjoy maximum return through sequential distribution, by taking advantage of the interplay of price, release date, and the intensity of consumer demand for a particular title. Cassettes will be released initially at very high prices, close to the same time as the theatrical release, to benefit from the heavy promotion associated with exhibition in the cinemas. Those consumers who both want to and can afford to own the film will buy it then. The many more who will want to see the movie only once will either go to the theater or will rent the videocassette from retailers who purchase it.

Subsequently, perhaps close to the release of the film on pay television, cassettes of these feature

films will become available for sale to the consumer at a

dramatically lower price. Such sequential distribution

based on the relationship between price and intensity

of consumer demand has worked successfully in the distribution of feature films. Often movies are first released at exclusive theaters, at premium box office


They may then move to suburban or other theaters with lower ticket prices, and then on to home video, pay At each stage,

television, and free network television.

the price paid by the consumer to view the movie decreases as its release date recedes into "ancient" history. This has worked before, and we believe that there is no reason why such sequential distribution could not be just as effective in the distribution of movies in the home video market.

Why do home video distributors not adopt this marketplace solution if it is available to them? They undoubtedly will do so when the technology of duplication becomes less expensive than it is now. Current blank tape and duplicating costs mean that $39.95 or, perhaps, $29.95 are about the lowest retail prices that can be charged and still return a profit to the distributor. There is not a doubt in my mind, however, that when technology delivers prerecorded videocassettes to distributors at lower prices, then retail prices of $15.00 would



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