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THE MORNING BUZZ: Whose industry is it, anyway?

27 Jan, 2002 By: Thomas K. Arnold

In the aftermath of the Kmart bankruptcy filing, it is ironic to note that home video was one of the beleaguered retail chain's all-too-few success stories. Kmart last year saw double-digit gains in video sales, thanks in large part to DVD and, like other discounters, was hoping to grab an even bigger share of the market by setting up merchandisers of budget-priced product (both VHS and DVD) in high-traffic areas of its stores. Kmart this past holiday season also put video on the front-burner in terms of promotions, staging huge "event" campaigns around Shrek and Dr. Seuss' How the Grinch Stole Christmas.

Kmart is not alone in placing a lot of faith in video. Wal-Mart and Target are also true "power sellers" when it comes to DVD and VHS product, a fact made perfectly clear in Video Store Magazine's recent mass merchant study-and underscored in private conversations with studio executives, who consistently cite those three chains as their biggest customers.

Is this a good thing for our business? Yes and no. On the "yeah" side, the mass merchants have done a lot to expand DVD's popularity with middle America -- a demographic without which the format simply could not succeed -- and they're also helping to prop up the VHS market and save it from a premature death.

And yet there are several noteworthy negatives as well. Observers say that in their never-ending push for cheaper product, the mass merchants are devaluing video. Several studios recently lowered their prices on catalog DVDs expressly for the benefit of their mass merchant customers, while cassettes are being practically given away at the store level (hundreds of titles are available at my local Wal-Mart for less than $6.50).

Rentailers, meanwhile, are foaming at the mouth over Wal-Mart's fourth-quarter campaign to push budget video. New signs began popping up on merchandisers, promising customers, "No more late charges. You own it!"

But perhaps the most onerous thing about mass merchants and video, critics say, is that the big chains are flexing their muscle with the studios. Specifically, the big discounters are strongly encouraging studios to issue more DVD movies in full-screen rather than widescreen -- against the wishes of the creative community.

You can't blame the studios for trying to satisfy their biggest customers. Hollywood has always followed the money and, just as home video executives did Blockbuster's bidding a few years ago, they are now just as ready and willing to please the mass merchants in any way they can.

But there's always a risk of landing in hot water, of having something backfire. After all, had the studios not caved in to Blockbuster's demand for more hits on the cheap back in 1997, they wouldn't be giving depositions and filing legal papers in the FAIR lawsuit today. Nor would they be pondering ways to phase out rental cassettes because so many of their other, smaller customers -- you know, the ones who used to pay full price for videocassettes -- are now out of business.

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