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Columbia Backpedals

9 Aug, 2002 By: Thomas A., Joan V.

Columbia TriStar Home Entertainment's move to streamline distribution of its product has taken an unusual twist.

Facing a particularly busy fourth quarter, the studio has delayed completion of its limited distribution strategy until January or February of next year, sources said. Distributors and one-stops will be able to buy the studio's videos at or near wholesale prices through the end of this year, with the stipulation that they bring their accounts current and place their orders through the studio's two designated “agents” -- VPD and Ingram Entertainment -- which in return would get a small processing fee.

Ingram president David Ingram's only comment was, “Yes, we are selling Columbia product to other distributors.”

Not all distributors are biting, however, citing concerns that VPD and Ingram are still paying less for Columbia TriStar product than they are and fearing that confidential customer data may wind up in their competitors' hands.

“We're still in a noncompetitive position,” said Flash Distributors president Steve Scavelli.Columbia TriStar executives aren't talking on the record, but insiders said the reprieve is temporary -- and is a result of the busy release schedule the studio has coming up, including such big hits as Spider-Man, Men in Black II and Mr. Deeds.

“There's just too much going on, so we decided we would help out the market,” said one insider.

All distributors and one-stops except for VPD and Ingram were cut off from buying product directly from Columbia TriStar in late June, effective with product streeting after July 16.

At the time the change was announced, in late April, sources said the studio wanted to go direct with the bigger chains and major independents and felt two distributors were sufficient to handle the rest.

Columbia TriStar later relented and added Baker & Taylor back into the distribution mix to service just e-commerce and institutional markets, reportedly after a handful of key retailers, including Amazon.com, aggressively lobbied on the wholesaler's behalf. The studio also has agreed to supply specialty distributors such as Eurpac and Aafe, which service the military.

The 10 or 12 wholesalers shut out by the arrangement weren't left completely in the cold. They could still buy Columbia TriStar product through VPD and Ingram, negotiating prices and setting up accounts just like retailers.

The only difference now is that Columbia TriStar, and not VPD or Ingram, is setting the price.

“Just like before, if you're Alliance or one of those other guys who got cut off, you can still go to Ingram or VPD and buy product,” the insider said. “The only difference is that now there's nothing to negotiate -- the price has been predetermined.”

In some cases, Columbia has intervened by offering to ship product and merchandising materials directly to the distributor accounts and even pay them their usual wholesaler rebates, sources said. But as prebook dates on such high-profile product as Spider-Man approach and the eliminated distributors prepare to down-sell that and other Columbia titles, wholesalers hope “a time of reckoning” will force the studio to restore competitive terms.

“As that [prebook date] comes closer and closer and [there is] the realization of what they can lose, I think the deals will get better,” said one source who believes Columbia won't be able to make up the nearly 20 percent of sales that could disappear by cutting about a dozen distributors who supply grocery, drug and department stores, as well as discounters and mass merchants. “Disney, Fox and Universal are all vying for the space that we have,” the source added.

Even with studio intervention, “you're at the mercy” of Ingram or VPD, he insisted. “If you're competing with them, you're not going to get favorable deals.”

Noel Clayton, VP of WaxWorks, said he has continued to buy Columbia TriStar product through one of the studio's two designated agents at a premium (how much, he didn't say). “We're probably making half of what we normally would be making” on Columbia TriStar product, he said. Clayton said he expects to realize some savings under the new plan, but not a significant amount.

“It's still going to hurt,” he said, “because we're still not going to have the same terms and conditions we had before when we were buying directly [from Columbia TriStar].” As a result, Clayton said, “we're going to focus on products that the vendors who are supporting us are selling, and only sell the Columbia product we absolutely feel our customers have to have -- mostly new releases. I don't feel there's much catalog, if any, our customers need from their line.”

Another distributor, Flash Distributors of New York, won't participate at all. Flash president Scavelli said Columbia TriStar is putting him in an awkward position. Even with the more favorable terms, he said he still has to buy product through VPD and Ingram, both of which he's suing -- along with Universal Studios Home Video -- for alleged breach of contract, price-fixing and other charges. The lawsuit stems from Universal's October 2000 move to limit distribution of its product to VPD and Ingram.

Scavelli maintains that while wholesalers since the June cutoff have been free to buy Columbia TriStar product through VPD and Ingram, not all have done so. Some have simply stopped carrying the studio's videos, while others, including Flash, have been acquiring Columbia TriStar product “through other means,” he said, “while minimizing sales [to retailers] at every opportunity.”

“The bottom line is Columbia TriStar has come back to us and said, ‘For the next four months, we'll deal with you the same way we always have, but we're going to ask you to pay one of your competitors rather than make a profit on every piece of product you sell,’ Scavelli said.

“This puts us in a noncompetitive position because we still pay higher prices than the competition and we would also be required to give our competition confidential customer information, which is necessary as part of this agreement.”

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