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Copy Depth May Put Pressure on Other Areas of Business

24 Aug, 2003 By: Kurt Indvik

A couple of weeks back at the VSDA show, I was moderating a panel on how retailers are managing the transition from VHS to DVD. One of the interesting points made during the discussion was the fact that, while DVD had surpassed VHS as the leading platform for new-release rentals, VHS still held significant command of the catalog rental business.

The home video business has always been a hits-driven business, made even moreso as copy depth increased during the era of VHS revenue-share deals and then, on a broader scale, with DVD sellthrough pricing.

Studios have doubled their output into the rental pipeline in recent years as both large and small retailers upped their buys on new-release DVDs, many of which eventually find their way onto the previously viewed sales shelves.

As Melinda Saccone, Video Store Magazine's senior market research manager, indicates in her analysis of this trend, this copy-depth nirvana also has meant a faster turn on the rental shelves as turns per copy have dropped by half as volume has increased.

Not only has this meant that second-tier titles get less attention from retailers, it also means that the growing population of DVD customers, often guaranteed their fill of any new releases, are not finding their way into the catalog area.

As DVD penetration continues into 50 million domestic households and upwards, what can we expect for the catalog rental business? If we're getting our fill of new releases at rental and or at retail (either new or previously viewed), and we can buy much of our old favorites at bargain prices at the mass merchants, it would seem that the catalog business at rental could be a real challenge in the future, and also for the second-tier product on the supply side.

Studios such as Warner, in conjunction with Rentrak, are developing aggressive revenue-sharing programs geared to ensure that retailers pick up some of their second-tier product after they have stopped feasting on new releases. But that might eventually lock out suppliers that can't be as competitive.

Retailers should be thinking creatively in terms of luring people into the catalog sections, looking for themes and current theatrical hits that can make for interesting endcap displays of related catalog product. The indicators seem to point to a struggle ahead for this area of the business.

I'd like to take this opportunity to welcome the newest member of our editorial team, Erik Gruenwedel, who joins us as a senior reporter. Erik was most recently a reporter at Billboard, and before that he wrote for Adweek. He has experience in entertainment and business journalism and an MBA to boot. We look forward to Erik's contributions.

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