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WORKING WEEKEND: Gate-crashing the Roundtable

1 Feb, 2002 By: Bruce Apar

The Exclusive Roundtable on Growth, Value and Balance Priorities for 2002 conducted online by Video Store Magazine's Thomas K. Arnold (star of page and screen) and conceived by editor-in-chief Kurt Indvik has the industry buzzing, and no wonder. It was an admirable effort to bring together a representative cross-section of suppliers, wholesalers and retailers to dig into the top-line issues of the day.



I say all of this with complete objectivity, which is another way of saying I was not invited to participate in the roundtable, and for good reason. Nobody else would've gotten a word in edgewise. But I have my ways, and this column is one of ‘em.



So, I have edited myself into the roundtable discussion, and present some excerpts herewith …



Are we seeing a change in consumer habits when it comes to home entertainment? Are consumers more likely to buy and collect movies now that almost everything is coming out on DVD at a sellthrough price, instead of being released first to the rental channel?



Joe Malugen, CEO, Movie Gallery: It is unclear if consumer habits are changing. We still are in the early adoption stage of DVD, and it is hard to predict if these buyers' habits will be reflected by later adopters.



Steven Scavelli, president, Flash Distributors: I don't believe we are seeing a change in consumer habits. I believe we are seeing the consumer take advantage of a new and better technology, at an affordable price.

Bruce Apar, roundtable busboy: I don't own a chain of rental stores like you do, Joe, or a rental-based wholesale business like my friend and fellow Yankees fan Steve, so all I know is what I learn with my own two eyes and ears. DVD home libraries are being much more rapidly built than was the case for VHS in its first five years of existence. Better technology at an affordable price has an uncanny way of influencing consumer shopping and usage patterns (Internet, anyone?) but don't get me right; it's not for me to say whether consumer habits are changing. I'll leave that brainteaser to those who have a vested interest in not seeing them change too much.



Are DVD sales to rental dealers cannibalizing sales of rental-priced cassettes and, if so, what are studios doing to even the score?



Mick Blanken, owner, SuperHitz Video, Delaware: At the point where DVD hardware penetration reaches or exceeds 50 percent, I believe the studios will more aggressively attempt to find ways to increase their revenue on a title. Historically, that means that either prices will go up or revenue-sharing will be more of a focus -- or both.

Apar: Well, Mick, I stubbornly hold to the belief that, even on DVD, prices will go down as volume goes up, and that revenue growth will come not from per-unit price hikes, but from tonnage per title due to increased market penetration of DVD drives. The studios can't ignore rental demand, but that doesn't mean they want to help stoke it. DVD rentals will have to compete with downward pricing pressure from mass merchants selling the same DVD titles day-and-date. That was never the case with new release VHS titles. But don't get me wrong; none of this will have any effect on consumer habits changing.



Scavelli: First, there are different levels and types of consumers, and, second, the DVD buyer and the VHS renter are often from different classes of consumers.



Apar: Compelling point, Steve, that begs for supporting statistics. (Maybe at the next roundtable.) Still, as market penetration of DVD, now at 25 percent of U.S. homes, continues to grow, it's plausible to assume the difference between VHS and DVD consumers will become less distinct.



John Thrasher, VP, Tower Records + Video: I see the rental segment of our business slowly declining over the next five years. … One only has to look at the audio business to see what mass resistance to higher prices could mean: declining sales and a business in constant turmoil from both the creative and financial sides of the ledger.

Apar: I don't work for a major sellthrough chain of movies and music that over the past few years has reduced its exposure to the video rental market, but I see John's point about the rental business declining, even if it's slowly. It'd be hard at this point for anybody to argue it's going to grow in the face of a proliferation of other entertainment and information options. As for the audio analogy, I have a strong sense that statement did not get printed the way John intended it.



Do you see any significant changes to the current DVD model in the way of special features and other programming?



Blanken: But the question is, will revenues increase enough to justify the additional cost of producing these additional features? The bonus features offered to date have been relatively easy to produce (albeit at an added cost). Anyone who dedicates dollars to creating additional features and capabilities should do so only after accepting the fact that it will likely take two or three years for interest to develop.



Apar: Mick, your first question is a key one I've yet to see any studio address, at least in public. We can only assume since the extras seem to be coming hot and heavy, the labels are wary of stopping them for fear the DVD consumer will feel cheated on the price/value ratio. I'd really love to hear the studios' reaction to your assumption that bonus features are easy to produce. In some cases, maybe, where the Special Features section on the menu contains trailers for other product. That's cheesy.



Malugen: We may see a plain vanilla DVD come out with the special feature DVD coming out weeks later at a lower price. That would seem to make sense for studios.

Will 2002 be the year video-on-demand establishes itself as a viable alternative to video rental?



Apar: Like Joe, I also see plain vanilla digital video as a viable release configuration, as in VOD: vanilla on demand. When it comes to VOD, it's like Butch Cassidy screenwriter William Goldman famously wrote in a book about Hollywood: "Nobody knows anything."





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