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DVDs Now So Cheap in Britain, They're Giving Them Away

British newspapers are now giving away free as many DVDs as are being purchased in stores, revealing a stealth contributing factor to the decline of Hollywood's cash cow format.

The cover-mounted DVD giveaways, which have included "Star Wars" and "Donnie Darko," devalue the format in the eyes of consumers, one-quarter of whom said they would have bought the same title if they had seen it in shops for a reasonable price, according to a report released on Thursday.

In the first quarter of 2006, about 54 million DVDs were given away to British consumers who bought newspapers and magazines, about the same number as were sold by retailers over the same span, market research firm Screen Digest said, using polling data supplied by TNS and Ipsos.

That compares with 130 million DVDs that were given away in 2005 by the country's national newspapers, including the Daily Telegraph, the Times, The Sun and the Daily Express, and 211 million that were sold in shops.

Although most of the freebies are old and sometimes forgotten films, Screen Digest estimated that had they been bought, the 2005 DVD giveaways would have represented 495 million pounds ($938.4 million) in retail sales.

In more realistic terms, if one-quarter of homes that received a free DVD each bought one additional disc a quarter at a deeply discounted 4 pounds ($7.50) each, additional U.K. spending on the format would have been about 50 million pounds ($90 million).

That would have boosted DVD sales by 2.3 percent to 2.3 billion pounds ($4.5 billion), Screen Digest said, instead of the market staying flat for the first time in the nine-year history of the format.

"It's clear that that kind of quantity of free discs circulating in the market cannot help but have a dampening effect on the purchase of DVDs," said Helen Davis Jayalath, Screen Digest's senior home entertainment analyst.

Newspapers in other European countries, including Italy, France and Spain, also give away DVDs, but they typically charge an extra euro (dollar) or two for the periodical when including one.

"Even though it's only a couple of euros, it helps maintain the value of the format in the eyes of consumers," Jayalath said.

There are other markets where DVD giveaways have caused controversy.

In Greece, for example, retailers have appealed to the government to ban cover-mounts after one Sunday newspaper distributed the hit "Lord of the Rings" trilogy and two discs with extra material over a five-week span.

DVD sales came to a screeching halt across Europe last year, where they flattened at about 11.3 billion euros ($14.52 billion), after experiencing 41 percent growth in 2004 compared with 2003 and even more explosive growth earlier in the decade.

Deep price cuts have been the main culprit. The average price of a DVD in Britain fell 30 percent between 2000 and 2005.

Small gains in the United States and Japan helped lift global DVD sales in 2005 3.5 percent to $36.7 billion.

Although most of the major Hollywood studios oppose the newspaper giveaways, the smaller local distributors who have licensed the films are opportunistically doing deals with publishers for short-term gains that can generate as much as 250,000 pounds ($450,000) for a film.

"The argument in favor of this is that the majority of these films have reached the end of their commercial cycle," Jayalath said. "In many cases, they're no longer stocked, because traditional retailers have a limited amount of space. For the rights holder, it can be the last bite of the cherry."

FOXNews.com is owned and operated by News Corporation, which also owns and operates The Sun and The Times newspapers in Britain.