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Sometimes, the Best Laid Plans Backfire

26 Aug, 2003 By: Holly J. Wagner

I can't help but be a little awed at the way this industry keeps mutating, and it's not lost on me that every time the studios and networks try to lock in a greater share of profits for themselves, they end up shooting themselves in the foot.

One example is the network bugs and graphics I wrote about in my last column. In their haste to recapture a few hundred thousand ad-skipping Digital Video Recorder (DVR) users, the networks are alienating the millions of the rest of us with their annoying clutter. In my case, and I'm sure many others, it fuels the defection.

Another example is the past five or six years of home video history. First, the chain rentailers got preferential terms — by design or default — under revenue-sharing agreements. The indies were on the ropes when the studios got scared of the big rental chains and pushed sellthrough-priced DVD into mass merchants. That put indies on a more comparable footing, with much less disparity in their cost of goods. Plus, they are no longer bound to keep product on the shelves for contractual periods of time; they can sell off pre-viewed copies as soon as they stop renting — even sooner, if they like.

Ted Engen, president of the Video Buying Group, recently told me he knows dealers who buy more copies of new releases on DVD than they used to on VHS, but only because they know they can sell them off after as few as five turns per copy.

I'm sure the high value consumers see in used DVD is also part of the motivation behind self-destructing discs; but they'll be a tough sell, since fully loaded used discs cost about the same as the expected price for expiring discs.

At the VSDA show, analyst Tom Adams said the studios make $2.5 billion a year on rental; when VHS dies its inevitable death, that figure will drop to $1.5 billion.

No wonder the studios are scrambling to come up with new revenue-sharing programs with terms attractive enough, they hope, to get the indies back on board. I predict the success of those new deals will hinge as much on the selloff date as the price.

There's a large segment of this industry that started to make real money again when it was released from the bonds of compulsory shelf life. And no matter how hard they try, the studios can no longer guarantee they can ever get that genie back into the bottle.

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