Monday, October 07, 2002


There's a nice article on how DVDs are not only outselling VHS tapes, but they're grossing more than movies. This is changing the how movies are made -- stuff is now being filmed for the express purpose of it ending up on the DVD.

The economics of all of this are pretty neat. Tapes cost about $25 to make, degrade with use, and cannot store much. DVDs cost about $1 to make, don't degrade, and can store lots. Given that demand for movies seems to be pretty elastic, lowering their cost greatly increases the amount people consume. This, combined with the fact that DVDs don't degrade, means that not only is consumption higher, but it also shifts from renting to owning. The article ends by suggesting DVD prices may fall to $10 a pop, making them impulse buys. The most efficient distribution network for video may end up being supermarket checkout lines.


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