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TK's MORNING BUZZ: Talk of New Methods to Deliver Movies Into the Home Reinforces Wall Street Analysts' Inherent Bias Against Traditional Video Retailers

31 Aug, 2001 By: Thomas K. Arnold

What a way to end the month.

Yesterday the Dow fell below 10,000 for the first time in nearly five months, after a string of gloomy economic reports of sagging corporate earnings and more job cuts.

This follows the grand announcement that five major studios are gearing up for the digital delivery of their movies over the Internet through a joint-venture video-on-demand service.

Video stocks took an expected beating, and I don't think we've seen the worst of it yet. A southbound economy and talk of new methods to deliver movies into the home has a way of reinforcing Wall Street analysts' inherent biasagainst traditional video retailers, and I fully expect, in the coming weeks,to find at least one analyst referring to video retailers as "dinosaurs" on the path to extinction.

We've been through it all before, haven't we? I remember in the fall of 1993,when Video Store Magazine had just transitioned into a tabloid-size newsweekly, there was a flurry of news about telco mergers and grand schemesof an information superhighway driving movies into consumer homes.

The press smelled blood and we saw a rash of stories about how video was doomed -- this, despite the fact that video retailing was on a decided upswing, finally emerging from a deadly recession that triggered the first real wave of retail consolidation.

Then, in 1996, we saw another "scare." By this time, the telcos' visions ofvideo-on-demand had crumbled apart, but there was a new catalyst: the Internet was now available to the masses.

Another round of video-bashing by the financial community, including Forbes,which ran a series of negative articles about the video trade. Stocks fell;independent retailers found it harder and harder to get bank loans because bankers felt certain the video industry was doomed.

Ironically, the industry was just poised to recover when, a year later, a weak slate of theatrical product did lead to a decline in video's fortunes, at least on the rental side of the business. This time it was the studiosthat panicked, and the rest, as they, say, is history, with copy-depth and revenue-sharing and all the other "lifesavers" Hollywood tossed retailers leading to the biggest retail shakeout in history.

The big guys were affected as well, and it was only in the beginning of this year that retail stocks began to recover. Thanks in large part to DVD, video retail's financial reports were good, and stocks of such big chains like Blockbuster and Hollywood soared to their highest levels in years.

Now this. Where will it lead? Only time will tell.

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

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