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THE MORNING BUZZ: Control Freakin' In Hollywood

13 May, 2002 By: Thomas K. Arnold

It's all about control.

I'm speaking, of course, about the studios' ongoing efforts to retool distribution – and their renewed push to foist revenue-sharing upon retailers at a time when many thought the beast was dying.

When the video industry was born just months shy of a quarter-century ago, studios fought like mad to stifle the burgeoning rental business. They implemented rental programs, issued different cassettes for sale and for rent and poured huge wads of dough into Congress in an attempt to repeal the First Sale Doctrine.

Ultimately they lost and the retailers – and arguably, the consumers – won. Retailers could buy cassettes from the studios and do with them pretty much what they pleased – with the studios powerless to tap into the flow of rental revenue.

The studios have never gotten over this, and they've been trying to regain control over what they perceive as their “intellectual property” ever since.

That's why when Blockbuster first approached the studios in the summer of 1997 for ideas on how it could front-load more product on the cheap, they said, “Revenue-sharing, of course.”

With that “in,” the studios then tried to get everyone to revenue share. This attempt failed miserably, but in the meantime something else happened to divert their attention: DVD.

DVD was envisioned to be a sellthrough item only, with the studios controlling the kitty.

But once again, the studios had the proverbial rug pulled out from under them, with a boom market in DVD rentals developing even though the studios had thought the low price would keep the retail spotlight on direct sales to the consumer.

As if to add insult to injury, rental dealers began subbing cheaper DVDs they bought outright for higher-priced VHS cassettes, causing the studios to not only lose control, but also to lose money.

This brings us to the flurry of distribution and pricing changes we're witnessing – and believe me, this is only the beginning.

The end goal, I believe, is to kill off rental VHS completely – which shouldn't be hard, giving the mass transition to DVD that's got pundits proclaiming parity should be a year away, at the most – and price DVDs so low that consumers will gladly shell out a few bucks more to own a movie rather than make two trips to a video store to rent one.

Then, for any retailers who still want to rent movies, DVDs will be available through revenue-sharing only – very likely, differentiated in some fashion from sellthrough DVDs.

Retailers who rent sellthrough DVDs will be punished – probably through a mechanism that involves consumers, much like the piracy warnings on VHS screeners (“If you rented this movie, please call our hotline – anonymity assured”). Shipments of future titles may be withheld, ad dollars may get yanked – you get the picture (but the retailers won't).

And the control issue will at long last be resolved.

What do you think will be the studios' next step in getting control of video product? Tell us here.

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