It seems to me that if this was a profitable venture for Walmart, then it couldn't be that difficult to upgrade to another technology, right? My gut says that they weren't making any money and this was as good a time as any to shut it down and the HP story is to help them save face.
My question then is, is variable pricing as important to the consumer as it is to the creator? If the reality is that consumers will prefer a consistent technology over a cheaper one, then why are the studios so bent out of shape about the Itunes pricing? They argue that it prevents them from competing - but as the Walmart model demonstrates, lower pricing doesn't necessarily translate into better competition. It may be more accurate for the studios to complain that Itunes's ostensible monopoly over digital distribution and their control of the pricing structure in fact prevents the studios from extracting rents on their own monopolies (i.e. charging much higher prices for new releases of very popular titles/artists.) The success of Itunes, (whether currently a monopoly or not) may have less to do with their use of their monopoly power and more to do with consumer preference and a successful business model. Studios that petulantly refuse to license titles for sale this way expose their own desire to use their copyright monopolies to extract greater rents.
1 comment:
Interesting questions. One thing to keep in mind about Walmart's service is that it really, really sucked:
To avoid running afoul of studios that want to protect their DVD business, Wal-Mart said prices for a digital movie would be comparable to those of the same movie on DVD at its stores.
A DVD in a Walmart store comes with physical packaging and bonus features, plays at full resolution, plays on any DVD player or computer, and can be easily transferred to any video iPod.
A download from the Walmart store could be bought and played on Windows computers only, came in a lower resolution, and couldn't be put on an iPod, Zune, or, most importantly, a normal DVD player.
In other words, someone paid a lot of money (Walmart? HP? Microsoft? The studios?) to develop a DRM system that made their online downloads dramatically less valuable than their regular DVDs, and then tried to sell the damaged goods at full price.
My first instinct is to taunt the movie studios at length, but if we restrain ourselves, I think there might be an important lesson about the way the producers in this market make their decisions.
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