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TK's MORNING BUZZ: Next Year It's the Studios' Turn to Suffer

14 Dec, 2000 By: Thomas K. Arnold

Video rentailers have suffered--a lot--these last few years.

Next year, I'm afraid, it's going to be the studios' turn.

Already, studio executives are complaining that they are having an increasingly tough time meeting goal on their rental titles. That isn't surprising. Blockbuster has used direct revenue-sharing deals to gobble up market share and put thousands of independent retailers out of business--retailers who used to buy product.

Two public video chains have filed for Chapter 11 bankruptcy--two public video chains that used to buy product.

And now Blockbuster, which for awhile was making up for this loss of customers by buying well above the minimum guarantee contained in its revenue-sharing deals, is cutting back to more moderate (reasonable?) levels, having found that flooding the market with hits isn't always the best strategy to build profits.

Next year promises to be even worse. Consolidation among rentailers may have slowed, but it's still continuing. Meanwhile, it is unlikely that Blockbuster will step up its buys again to last year's levels. Been there, done that--and it didn't work. Add to that the fact that Hollywood Entertainment, which has been opening up hundreds of new stores a year for the last few years, is undergoing a tough financial time and, even if it survives, won't be opening up nearly as many new stores as it used to, and you have a recipe for disaster.

The baffling thing for studios is that there's no way out. They desperately need to make up the slack somewhere, but the video channel is pretty much exhausted, and my guess is that total unit buys will continue to decline.

That leaves studios with no choice but to look elsewhere, at other channels of delivery. But where? Pay-per-view, despite all the hype, has yet to grow into a viable business. Satellite growth, after a rocket-like start, has slowed dramatically. And video-on-demand over the Internet is still years away from becoming reality. Guys like me, with just a regular 56K modem, have a tough time downloading three-minute songs, which doesn't bode well for feature-length movies.

For once, Hollywood doesn't have any answers--and retailers, at least the ones I've spoken with, have very little sympathy.

I can't blame them. Reap what you sow.

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

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