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Selloff Period Key to Revenue-Sharing

23 Mar, 2003 By: Kurt Indvik

A reader poll in this space last week asked retailers how long they wait before beginning to put out previously-viewed titles from the rental rack for sale.

The choices were two weeks, three weeks, four weeks or more than four weeks and the results showed that each received about a quarter of the total votes cast. In short, about half of the respondents said they put out videos for sale after two to three weeks on the rental shelf, while another quarter said they put out videos in week four and the remainder wait more than four weeks.

This serves to drive home the fact that the previously viewed business is, indeed, a key element of a retailer's business and increasingly so. It also, I think, indicates that the selloff period restriction may be the most important element in any DVD revenue-sharing deal studios craft with rentailers.

There is no doubt that DVD revenue-sharing is well on its way. Studios are faced with mass merchants' growing reluctance to buy significant quantities of second-tier titles, thus the rental component for these titles becomes ever more important. However, even at sellthrough pricing for DVDs, many rentailers are only going to pick up so many of some of these secondary titles and thus studios, looking to maximize their take on the rental business, must do all they can to sell as deeply as they can into the rental pipeline.

Revenue-sharing, that is reducing the upfront out-of-pocket investment, will be the only way studios can get rentailers big and small to expand their depth, especially in second-tier titles.

Yet, retailers report that, for the most part, current revenue-share deals have significantly long selloff period restrictions. MGM, always rated one of the most favorable in this category, reportedly has a 30-day restriction before selloff can begin. Other studios average 45 to 60 days! That, it would appear, is nowhere near the reality of previously viewed sales practice of the majority of rentailers.

Now some of this might be mitigated by what a studio requires for a buyout, but from what retailers are saying, current buyout rates do not come close to making a 45- to 60-day restriction attractive on DVD.

As shelf space for non “A” title product gets squeezed at the mass merchant level, and as studios return to a rental priced/revenue-sharing model for the second tier of their product line, it will be interesting to see if they can craft revenue-sharing deals that are attractive to rentailers, especially smaller chains. I don't see anything more than 30 days as a selloff restriction working.

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