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Canadian Video Stores Cry Foul on Disney’s 28-Day Embargo

21 Sep, 2012 By: Erik Gruenwedel

When Walt Disney Studios Home Entertainment implemented a 28-day delay on all new-release rental discs earlier this year, it underscored the reality that the studio’s strong sellthrough legacy had finally reacted to encroaching low-margin rental driven by Redbox.

In Canada, where less than a few hundred rental kiosks operate, the video store continues to thrive, notably in the rural areas inhabited by consumers still engrained with the concept of going to the store to rent a movie.

So when Disney applied the embargo throughout North America, Canadian rentailers saw it not only as bad policy imposed by a corporate goliath, they viewed it as the meddling of a foreign national in local economics.

With Redbox relatively new in Canada and Netflix offering streaming-only rental options, video store owners say the embargo threatens about 10,000 jobs across 2,000 independent retail locations, according to Movie Experts, a Toronto-based marketing company with more than 1,000 retail and video store client members.

Movie Experts in July began a grassroots campaign asking consumers to stop buying Disney DVD and Blu-ray Disc titles (www.boycottdisney.ca). To date it has generated more than 128,000 signatures of support, according to the website.  

Dave Henriques, chief strategist with Movie Experts, said the goal is to get the message out to consumers considering Disney’s significant brand and value at the retail level.

“They are the studio that provides family entertainment,” Henriques said, adding that the ultimate goal is not to undermine Disney’s business but, instead, receive acknowledgement that applying street date embargoes should take into account national and regional economics.

“Not only are our markets materially different between the U.S. and Canada, but the [Canadian] rental market is dominated by video stores that rent and sell movies,” he said.

Henriques said Disney would be wise to work with video stores in an effort to promote physical sellthrough. Instead, he said the studio is treating Canada like America’s 51st state with scant communication offered in explanation.

“We used to meet our Disney reps every month,” Henriques said. “I would have lunch or dinner with their senior executives a few times a year. And now they won’t take our calls or respond to our emails. That’s seriously disappointing.”

Disney said in a statement the 28-day embargo applies throughout North America and is “not directed at Canada, nor are Canadian businesses in any way disadvantaged relative to their U.S. counterparts.” The studio was also last to impose an embargo, a tact taken by Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment on physical rentals to Redbox. Warner earlier this doubled the delay of new release discs to 56 days for Netflix. 

Interestingly, Henriques said Disney allows cable operators Rogers and Shaw to offer transactional VOD of new releases on street date — a strategy he said undermines the studio’s resolve to promote sellthrough.

“Wouldn’t offering their movies for rent via VOD undermine Disney’s sales too?” Henriques asked. “This makes no sense.”

Of course, the margin on a transactional VOD rental is significantly higher than a physical rental. Indeed, a transactional VOD rental is seven times more profitable to Warner Home Video than a kiosk or rental subscription; and a sellthrough transaction is 20 to 30 times more profitable than a kiosk or rental subscription, Kevin Tsujihara, president of Warner Home Entertainment Group, told an investor group earlier this year.

The boycott has attracted national media attention in Canada, including a segment on CBC’s business news show, “Lange & O’Leary Exchange,” featuring liberal commentator Amanda Lang trading barbs with conservative Kevin O’Leary. In the piece, O’Leary, who said he is a Disney shareholder, questioned Henriques why the media giant shouldn’t be allowed to sell its product the way it sees fit. He said video stores represent a bygone business model soon to be replaced by digital distribution and streaming.

Henriques responded that just because a traditional distribution system is changing doesn’t mean Disney should try and accelerate its death. He said there still remain thousands of video stores that are a vibrant part of their local community in Canada.

“Well, cry me a river,” O’Leary said. “[Disney has] to maximize their profits. I want them to do whatever it takes to make me more money.”

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