Issue: Target Warns Studios not to give movie downloads a price advantage
Commentary by: David

This advertising blog has been a big fan of most of the advertising and brand positioning work from Target Stores over the past two years. The Minneapolis retailer has great marketing instincts and a keen sense of how to bring moderately priced home products with a sense of style and expert design to U.S. consumers (along with the industrial-sized packs of Bounty and multi-gallon jugs of detergent that we expect from a mass merchandiser).

Today the Wall Street Journal reported that target had warned movie studios about discounting to online players. The ‘sharply worded letter from Target President Gregg Steinhafel’ said that Target had heard that some studios were planning to make new-release movies available to online services for less than they were selling the DVD versions to target.

This revelation comes on the heels of similar warnings to studios from Wal-Mart.

We thought Target knew better, however.

A great brand always acts in the best interests of its consumers, even if that means sending them elsewhere for some things. Why? Because the brand relationship is based on trust, and once that trust is violated it is incredibly difficult to regain. Target President Gregg Steinhafel was thinking about the topline when he wrote this letter. He was concerned about losing revenue as consumers begin to migrate from direct DVD sales to online purchase. He should have been thinking about the bottom line, instead. The bottom line is the strong margins and same-store revenue growth that Target enjoys because consumers trust that Target is looking out for their best interest.

It is absurd to think that movies downloaded online should cost either retailers or consumers the same as DVDs. Why? Not only is the product cost lower (with no DVD and no jewel case or DVD box surrounding the DVD) but movies downloaded over the Internet don’t come with all of the extras that DVDs do. In addition the quality is currently below DVD quality, the files are enormous and the download times very slow.

What online video downloads need now is lower prices and patient consumers as the technology evolves. They don’t pose a short-term threat to retailers because few people have either bandwidth or the disk space to keep a library of films on a hard drive. And until the films are available at DVD quality (or HD quality), this format will have limited appeal to videophiles.

All of which means that Target, Wal-Mart and others have plenty of time to prepare for the inevitable. For between video-on-demand and downloadable movies it is certain that the physical sale of DVDs will not be a longterm business for any mass merchandiser.

Target has many more important things to offer consumers. One thing is its unique vision of the future of the American household, designed by folks like Robert Graves. Another is trust. Mr. Steinhafel’s ill-advised strongarm tactics will take their place with the HP investigation of board members on the list of things that high-ranking corporate executives who should have known better did to hurt their brands this year.