European Union Investigates High Prices For Dvd Videos

Hollywood studios may face a hefty fine if an investigation by the competition commission of the European Union (EU) concludes that they are pricing DVD videos higher for European consumers than for American ones.

Citing "a significant number" of complaints from the public, EU Competition Commissioner Mario Monti has launched an investigation into the high price of DVDs in the EU, compared with those in the U.S.

Consumer groups allege that Europeans pay from $17 to $27 per title, while prices in the U.S range from $15 to $25. Wal-Mart has offered product for as little as $7.99.

According to the Screen Digest DVD Video European Market Assessment and Forecast, the average DVD price in Europe currently ranges from $20 to $23 this year. Prices in such regions as the U.K., however, range from $13.99 to $34.99 for single releases, according to the report.

The EU has written to AOL Time Warner, Sony Pictures, 20th Century Fox, Walt Disney Studios, Vivendi Universal, Paramount Pictures, and MGM, asking for their cooperation in the investigation.

If the studios are found guilty of pricing collusion, they could face fines of 10% of their revenue from EU countries.

"We have received a significant number of complaints from private citizens on this matter," Monti told consumers at a June 11 meeting in Stockholm. "In each case, the complaint is virtually the same—namely, that DVD prices are significantly higher in the EU than in the USA."

While Monti and the EU accuse the studios of price gauging, other industry observers cite other market conditions.

"Many video labels have the same retail price for DVDs across Europe," says Lavinia Carey, director general of distributor trade lobby the British Video Assn. "DVD Videos are more expensive in the U.K. than in the U.S., but then so is everything, because [the U.S.] is a larger market, and there are economies of scale. Look at anything from [sneakers] to cars, and they will be cheaper in the U.S."

U.K. distributors point out that the DVD format was launched in the U.S. 18 months earlier than in Europe, allowing for price reductions as more product moves into the pipeline.

Although prices are higher in the U.K., distributors say the trend is moving toward lower prices. As an example, DVDs are increasingly being used as discounted promotional items by such generalist stores as Woolworth's and by supermarkets that have identified entertainment products as a key growth area.

Additionally, distributors explain that the investigation comes at a time when retailers have begun offering such deals as three DVDs for the price of two. Intense competition from online retailers both within the territory and from the U.S. has resulted in lower prices.

Regardless of the merits of the investigation, studios say they will supply the commission with the required information. A Disney spokeswoman says, "We fully intend to cooperate with the preliminary stages of the commission's inquiry."

One studio executive, who asked not to be identified, says that while the studio will comply, assembling the information will take time. "They're asking for a lot of information. We're still working out who is going to handle it internally and whether we should get outside counsel."

The investigation of DVD pricing follows a European Commission (EC) probe in February into the price of music CDs.

In addition to the pricing probe, the EC, an internal executive board of the EU, said it would seek an explanation about regional coding on DVDs.

Set up by the studios, regional coding divides the world into six regions that determine DVD releases dates in different territories. It was implemented to protect local rights holders from gray market imports and to prevent DVDs from being sold in a region before the accompanying film had played in theaters there.

The issue of regional coding has been difficult for local distributors and retailers alike because it has failed to meet those objectives. For example, multi-region DVD players that will play imported U.S. discs are widely available throughout Europe at bargain prices. In addition, any European consumers can buy U.S. discs online with ease from a host of online retailers.

The failure of regional coding has resulted in a flood of U.S discs into Europe and other territories where the films have not been released theatrically.

Monti says, "The thrust of the complaints that we have been receiving is that such a system allows the film production companies to charge higher DVD prices in the EU because EU consumers are artificially prevented from purchasing DVDs from overseas."

Monti also says that the EC has contacted the Australian Competition and Consumer Commission, which had also investigated DVD regional coding. "I have noted with great interest the Australian Competition and Consumer Commission's conclusion that the regional coding system imposes a 'severe restriction of choice' on consumers."