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DVD: A New Coin of the Realm

6 Nov, 2003 By: Holly J. Wagner

Video rentailers have always sold off old copies — previously viewed titles (PVT) — at the end of their rental cycle. But unlike tape, an increasing number of dealers, even large chains, are buying used discs, either to supplement their rental inventory or, more often, to resell to consumers.The easy conversion from DVD to cash has created an underground economy at retailers and pawn shops across the country and the Web.

“We see people pawning DVDs. Some bring in 15 or 20 a month. A lot of times it's the same people over and over. They're selling their collections,” said Dave Adelman, owner of Jerry's Pawn Shop in Atlanta and a board member of the National Pawnbrokers Association. “A lot of them are just pawning them. I'd say a majority of the loans at a pawn shop are picked up within 30 days. For some people, it's a way of life. They run out of money in the middle of the month, pawn their DVDs and come back for it at the end of the month or when their check comes in.”

Pawn shops loan an average of $5 to $8 per disc, depending on title and popularity, Adelman said, although some brokers deliberately lowball: “If we loan too much on something, there is no incentive for them to come and pick them up. We don't want 'em, because when we put them out for sale, they may sit there for a month or six months.”

High-Margin Business
Video dealers, and even more, struggling music merchants, do want them. The industry has done an amazing job of selling the durability of DVD, so consumers perceive “used” as just as good as new.

Meanwhile, dealers can buy low and resell high, creating a high-margin book of business.

Wherehouse stores accept any three used discs in good condition for one new disc (up to $25 value). Or the chain pays about 20 percent of the new price in cash or 25 percent in store credit. Used DVDs sell for $7.99 and up. Calls to Wherehouse and Trans World Entertainment, which is buying the chain, were not returned.

In an analyst presentation last week, Blockbuster CFO Larry Zine estimated that 25 percent of discs sold in the United States are used. The Movie Trading Co., a 12-store Texas chain launched in 1998 and recently sold to Blockbuster, is not an outlet for PVT. The chain also buys, resells and rents used discs.

A Blockbuster spokeswoman refused to discuss pricing or anticrime policies at Movie Trading Co. stores, but a store employee said Movie Trading Co. pays an average of $3 to $10 for discs it buys from consumers, then sells them for $5.99 to as much as $40 each, for some rare discs.

“We get driver's license number and their names and write in a log. We refuse to buy from people who try to sell too often. We don't buy anything that's wrapped because it's against the law,” he said.

Indies, too, are wise to the strategy.

“A lot of retailers now say they can't get enough previewed,” said Ted Engen, president of the Video Buying Group. “We have retailers that have changed their entire purchasing patterns because of previewed. I know one dealer, she doesn't wait until the rental cycle is over. While the movie is still popular, she sells it off. In some cases she's selling this stuff off 10 days after street date and competing with Wal-Mart.”

Dozens of Web sites such as SecondSpin.com, CashForCDs.com and Princeton Record Exchange aggressively promote DVDs as a ready source of cash. Typically, the seller gets title-by-title quotes from a Web site, prints out an invoice to send in with the discs, and receives a check in a week or two. Most sites also let sellers take their payout in merchandise.

The Black Market
The cash value for used DVD has a dark side: It makes discs a fluid, compact, generally untraceable target for thieves — and not just petty thieves slipping a disc under their coats here and there. Retailers, rental stores and even public libraries are getting hit.

In Redlands, Calif., police nabbed a ring of thieves that was targeting Hollywood Video stores across at least two counties.“A couple of guys would come to every store and take 10, 15, 20 at a time. They would take them out and leave broken packages around the store,” said store assistant manager Erie Tan. “Most of the time, if we find a lot of broken DVD cases in a night, we call other stores to warn them. Sometimes they have already been there.”

Denver area librarians compared notes and found that one couple had checked out 985 DVDs from 20 libraries over several months, then sold the discs to pawnbrokers for $3,450 in cash. Prosecutors valued the booty at $29,000. A Grand Jury indicted the pair in July; they were later apprehended and are scheduled for arraignment Nov. 17. Libraries in Bristol, Va., and Block Island, R.I., have also been hit.

Several reports of two-digit heists indicate that would-be thieves planned to use their profits to support drug habits.In Detroit, police and prosecutors found that many thieves and shoplifters were reselling DVDs using the same channels — often pawnshops and secondhand stores.

“If we are going into a secondhand store or a pawnshop, it seems to be DVDs and tools” that are popular, said Wayne County assistant prosecutor Dennis Doherty, who heads the department's recently formed Stolen Property Undercover Reduction Section (SPURS). “I would have never thought that these [DVDs] would be such a big deal.”

The task force was formed to offer reductions of criminal penalties to shoplifters and petty thieves in exchange for their wearing a wire to gather evidence at stores where they sell their booty.

“If you're buying under $1,000 worth of stuff, it's a misdemeanor,” Doherty said, so the SPURS task force tries to shut the front businesses down with prosecutions.

Laws vary by community as to whether or not dealers can be prosecuted for unknowingly receiving stolen goods.

The SPURS team recently busted the theft prevention manager of the Northland Mall Target store, who was allegedly pilfering goods from the store and, along with his wife and two alleged partners who own a Game Station store, selling the stolen merchandise at the Game Station and a local flea market. Among the booty recovered were 5,500 DVDs, video game consoles and game software. All four have been charged with three counts each of receiving and concealing stolen property in excess of $20,000 value.

“What I'm seeing is, stolen DVDs seems to be what keeps a lot of secondhand dealers in business any more,” Doherty said.One industry observer said employee theft is a barrier to putting large DVD sections in drug stores.

“If you're making $5 or $6 an hour,” he said, “taking a DVD and selling it for $6 doubles your hourly wage.”

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