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THE MORNING BUZZ: Wall Street Loves Video But Hates Music

16 Mar, 2002 By: Thomas K. Arnold

For years, we've been saying the video industry is going the way of the music industry.

The record business was the first to see mass consolidation in which power became concentrated in the hands of a few big chains, while independents all but vanished.

The record business was the first to encounter the digital downloading menace (and it reacted just about as badly as one could imagine, raising rather than lowering prices for CDs when demand went south).

And the record business was the first to see its convention turn from a huge, festive trade show into a "suites" show where the spotlight is on meetings and networking rather than free T-shirts and quasi-celebrity photo-signers.

We've always looked ahead to see what the guys in music were doing, but with the music biz in sorry shape, it wasn't surprising to see the music guys looking behind them to see how we're holding up.

At the just-concluded National Association of Recording Merchandisers (NARM) convention in San Francisco, the video industry was held up as an example of what to do - and what not to do.

As far as DVD is concerned, we've done everything right. The format was launched quickly and efficiently, with low software prices out of the gate and catalog prices tumbling to the point where even families on limited budgets are encouraged to collect DVDs and build their own movie libraries.

"We wish the record companies were as smart as the movie studios," many retailers said.

At the same time, the video industry was taken to task for allowing one retail customer - Blockbuster - to grow as big as it has. Blockbuster has a 40 percent share of the rental market, one analyst pointed out, "and that's dangerous for everyone else."

"We should be happy the record companies haven't let one customer get as big as the movie studios did," he said.

The record business certainly has its problems, and with DVD, the video industry has never looked better. One analyst even said, "Wall Street hates music but loves video." Buy ratings peppered across video-related stocks this week support that view.

And yet there's always a dark side, one we tend to overlook in this time of DVD-fueled euphoria. Thousands of independent rentailers have gone out of business over the last few years, and the top player in the rental industry is now a multi-faceted entertainment emporium that sells satellite dishes and services and is branching out into hardware.

On the dollar side, video may be looking up, but the heart and the soul of our business - the neighborhood rental store - has become homogenized and extended, the Starbucks of home video, if you will.

Food for thought.

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