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TK's MORNING BUZZ: There Were No Warning Signs That ETD Was the Next Distributor to Fall, but Fall It Did -- and Others May Fall by the Wayside

20 Nov, 2001 By: Thomas K. Arnold

Yesterday was another sad day for the home video industry, with word thatlongtime wholesaler ETD was exiting the video business after a 21-year run because it could no longer continue to buy new releases from the studios.

About 200 people are losing their jobs, many of them, no doubt, colleagues of ours as well as familiar faces at VSDA conventions and other industry events.

The shuttering of ETD's video business -- and the precarious financial tightrope another wholesaler, Valley Media, appears to be walking on -- isparticularly disconcerting in light of reports that home entertainment tends to weather recessions better than most industries.

Indeed, rental is faring quite well and sellthrough is soaring, thanks in large part to DVD and the new "cocooning" trend among Americans in the wakeof the 9/11 terrorist attacks.

Of course, none of this matters much to ETD, which like most other distributors has been hit with a bevy of bad breaks over the last few years. For ETD, the first big blow came in the early 1990s, when Blockbuster began dealing directly with the studios. Blockbuster had been one of ETD's biggest clients.

In 1998, studios bowed a variety of copy-depth programs designed to put morecopies of hot new releases on store shelves. Processing these programs fell into the distributors' laps, at significant cost. At the same time, the move among studios to ink direct revenue-sharing deals with the big rentalchains -- again, in the hopes of boosting copy-depth -- led to a massive shakeout among the ranks of independent retailers who continued to get the bulk of their product from third-party distributors like ETD.

As the market share of indie retailers eroded, so -- in the eyes of the studios -- did the perceived importance of distribution. Warner was the first to pull back, announcing last year that it would only sell its rental product directly to retailers. Then came Universal, which yanked its full line from all but three distributors.

By then, the casualties had already begun to pile up: Sight & Sound and M.S.disappeared in the first part of 2000, then Major was snapped up by Ingram inthe second.

The handful of survivors hung in there, in varying states of being. Valley Media, mortally wounded, ditched video rental this past spring and recently announced its intent to refocus on selling DVDs to music stores.

There were no warning signs that ETD was the next to fall, but fall it did -- and one wonders how long some of the others can hang in there. If there's a bright spot, it is this: revenue-sharing appears to be going away,and, with it, the output deals that allowed studios to make their numbers with the big guys.

More than one observer has noted that studios are starting to need independent retailers again -- the little independents not big enough to buy direct, who still buy their product through traditional distribution and have come to rely on the service and personal attention on which these third-party wholesalers pride themselves.

Maybe there's hope yet.

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

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