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TK's MORNING BUZZ: Indies Should Keep a Careful Watch on Hollywood Happenings

15 Dec, 2000 By: Thomas K. Arnold

With the recent fall of Video Update and Video City (along with its disintegrated merger partner, West Coast Entertainment), only three national public video chains remain, Blockbuster, Hollywood Entertainment and Movie Gallery.

Movie Gallery seems to be on the soundest footing, posting modest gains in revenues and profits and staying in small markets where Blockbuster andHollywood, for the most part, have yet to tread.

But in the escalating war for metro markets, Hollywood is emerging as less and less as a player, with chairman Mark Wattles conceding that the chain will no longer borrow money to open stores, its stock price hovering slightlyabove $1, and a leading financial house, Standard & Poor's, lowering its ratings on Hollywood stock "based on near-term financial pressures resulting from the company's heavy debt reduction requirements and limited financial flexibility."

All of a sudden, there's a very real chance that Hollywood could blow, and that would spell real trouble for the studios.

It could also be the trigger that fires the revenue-sharing gun back into oblivion, and here's why: With Hollywood out of the way, the pressure on Blockbuster would be a lotless. Big Blue has already put most of the indies in big metro areas out of business, and in some markets is competing only against Hollywood.

Blockbuster would probably take over some of the Hollywood locations, either opening a new store or moving in from somewhere else (in cases that the Hollywood store had the better location).

But overall, there would be fewer video stores than there are now, giving Blockbuster a bigger share of the market by default.

That means Blockbuster could start buying videos at a more realistic level, because its various marketing ploys--extended rentals, guaranteedavailability--have been, for the most part, to crush the competition rather than turn a profit.

If Blockbuster thus repudiates revenue-sharing--perhaps by refusing to renewdeals, perhaps by insisting on lower minimums--the whole model is shot. Figure it out--studios say 50% of rental product is channeled throughrevenue-sharing, and Blockbuster says it commands 40% of the rental market. The remaining 10%? Most of that, my friends, is Hollywood.

Will such a scenario happen? Don't bet on it. But the idea alone that it CAN happen--well, that's enough for indies to keep a careful watch on Hollywood happenings.

Comments? Contact TK directly at:TKArnold@aol.com

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