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THE MORNING BUZZ: Sellthrough dealers stumble on shorter legs

1 Aug, 2002 By: Thomas K. Arnold

The big sellers of DVD are experiencing a problem that hitherto affected primarily rental dealers: shorter legs on hit titles.

Any rental retailer will tell you the flood of hit product triggered by widespread studio-direct revenue-sharing killed the shelf life of videos. It used to be that demand for a new release lasted two or three months; now, the big chains are selling off previously viewed copies of new releases within two or three weeks of street date.

As consumer habits, fueled by infatuation with DVD, have shifted to buying – a record 1.1 billion sellthrough units were shipped into the market last year, an all-time record, analyst Tom Adams recently told me – the shelf life of hit product at the big sellthrough stores is also growing shorter. Every Tuesday, a flood of people comes in to buy the latest hot property; then demand quickly dies down until The Next Big Thing comes out the following Tuesday, and so on.

Now, you'd think for sellthrough dealers this wouldn't be a bad thing. After all, what dealer wouldn't want to turn most of his or her inventory immediately, rather than waiting a few weeks or even months? Bring it in, move it out and then on to the next big seller.

But wait. It's not that simple. In the old days, retailers frequently reordered product, something I'm told hardly ever happens these days. Because such a high percentage of sales occurs in the first few days, retailers have to be dead-on in their ordering unless they want to be stuck with a huge overage that doesn't sell after the first week.

Oh, sure, studios accept returns, but think of all the time and money spent in processing, packaging and shipping product back. And then there's the question of how much to send back. More and more DVD households are coming online every month, every week – shouldn't you keep some copies of the big hits around to take care of future demand? But how much is enough, and how much is too much? Will buy rates remain the same when DVD penetration hits 40 percent, which it is expected to do by the end of the year? What's more, when penetration hits 40 percent, expect studios to crank out a lot more catalog product they have been holding back until the DVD player base bulks up.

As a result, buyers for the big DVD retail sellers readily concede there's no real strategy, going forward, other than trial and error, wait and see, live and learn.

Some retailers who bought loads of DVDs of Harry Potter and the Sorcerer's Stone say they're already stuck with excess inventory, but Warner Home Video won't accept returns until the end of September, 120 days after street date. By that time, will demand for the title have been rekindled, with the holiday gift-buying season getting under way and a new Harry about to break theatrically? Or will the title get lost in the shuffle among all the high-profile new stuff coming out around that time, like Disney's Monsters, Inc.?

And rental dealers thought they had it hard!

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