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Evolution in Buying Strategies

23 Sep, 2005 By: Kurt Indvik

Home Media Retailing is in the midst of a series, “Rental Revolution,” that is looking at issues affecting the rental business.

The recent article in this series on revenue-sharing highlighted some interesting evolution that's taken place in rev-sharing over the past several years, as inexpensive DVD has brought costs down for the independent retailer: specifically the differing buying strategies for ‘A' titles versus ‘B' or catalog titles.

The ‘A' titles are a must-have for rentailers, both from a competitive rental standpoint and from the profitable previously-viewed title sales standpoint. Current rev-share deals that restrict PVT sales until 30 days from street date are widely regarded as too onerous, which means many rentailers get their copies through traditional distribution. Many use Wal-Mart and other big box retailers to fill in inventory if they buy too few copies. In some cases, they'll buy the bulk of their copies from a Wal-Mart and throw a few dollars to their distributors.

There has been quite a tussle on the iDEA's discussion board lately over the Wal-Mart issue, both from a practical financial matter and as a “moral” issue involving supporting one's distributor as opposed to putting dollars in the mass merchant's pocket. There are good reasons for both sides of the argument, but the fact remains it's a widely used industry practice.

In light of this, perhaps where rev-sharing may be more attractive is on the non-hit titles rentailers may not be comfortable enough to load up on (and likely won't find at Wal-Mart, either). In a letter to the editor in this week's issue, Tom Hannah, owner of VideoQuest in Joliet, Ill., suggests that instead of output deals tying a rentailer with a commitment to both ‘A' and ‘B' titles, studios offer output deals for just DTV and ‘B' titles. It might spur buying (good for suppliers), expose more relatively unknown good movies to customers (good for renters), and drive up rental transactions (good for rentailers).

No one is going to accuse the studios of falling in love with the rental business again (if they ever did). But if suppliers want to maximize the rental channel, then perhaps programs that move more diverse product into that channel make sense.

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