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Games Slow Out of the Rev-Share Gate

31 Jan, 2003 By: Joan Villa

More than three months after Pay-Per-Transaction distributor Rentrak shipped its first revenue-sharing games, retailers say the program has launched slowly but may pick up steam in the next two months with the release of key games.

So far, continuous negotiations with most of the 50 or so game manufacturers have netted revenue-sharing contracts with about 10, up from the original four in September, with at least one major player and a handful more due to sign this month, retailers say. Rentrak executives declined to confirm the deals or discuss the program, citing confidentiality clauses demanded by the game companies.

But retailers say games introduced into revenue-sharing so far have produced lackluster results, primarily because many were not the “AA” or “AAA” titles that generate consumer rentals. Other games were “grandfathered” into the program two or three months after release as each game company signed on, but were not the day-and-date new releases customers crave. As a result, retailers say they have only sporadically supported the program and cannot effectively measure returns against traditional purchases.

“It's really difficult at this point to draw any real conclusion as to whether it's going to work out or not work out,” observed Mick Blanken, owner of Superhitz Moviez & Gamez in Delaware, Ohio. “The key is they have to get some significant titles, not just the ‘B' stuff, and they've got to get them day-and-date.”

However, as Rentrak's roster of game suppliers grows, more “AA” and “AAA” titles will gradually flow into the program, noted Todd Zaganiacz, owner of Video Zone in South Deerfield, Mass., and president of 55-store New England Buying Group. This snowballing effect is critical, he said, because the majority of game companies go months without a new release and are lucky to strike one big hit a season. For example, 3DO's High Heat Baseball 2004, due in March, is one of those rare titles he hopes will hit a home run at rental and boost revenue-sharing's profile.

“That will be the biggest title they've been able to offer so far,” agreed Blanken. “It's a title most retailers will carry for rent.”

So far, Blanken said Rentrak's program has not supplied enough big hits to combat Blockbuster's “Freedom Pass” on games, which impacted his store “dramatically.” “Some of our best customers were avid movie-watchers and played games semi-frequently, but we lost them to Blockbuster because of the games equation,” he explained.

Since most games are five-day rentals and continue to turn for several months, retailer Eric Smith said he, too, can't yet analyze Rentrak returns in 13 Video King stores based in St. Cloud, Fla. Nonetheless, he would like to boost depth, particularly on the “A” or “AA” titles he may have passed over in a crowded month in favor of “AAA” games. “For the titles that we're not positive about and titles we weren't going to bring in to begin with, the Rentrak terms are livable, but for the future they're not the terms we're really going to need,” he said.

But traditional purchasing, at a cost of about $42 per copy, can be an expensive gamble on games that may not perform up to expectations, compared to current Rentrak terms of about $11.50 up-front and a 50-50 revenue split, retailers agree. “From a retail standpoint, you can't spend those dollars on video games and take 100 percent of the risk,” Zaganiacz said. “The perception is that a title like Grand Theft Auto is a natural winner for retailers to buy outright [and not rev-share], but that isn't always true. In this business, the one thing you learn is there's no such thing as a guarantee.”

However, Doug Aita, owner of Tape King in Bozeman, Mont., believes Rentrak's additional restriction against selling off games before 120 days hurts potential profits. On Grand Theft Auto: Vice City, which was not available through Rentrak, Aita said he bought 16 copies at $43 apiece and sold half after 30 days for $39.99, at a net per-unit cost of $3, not counting rental revenue. “The challenge Rentrak faces with games and DVD as well is getting competitive sell-off terms,” he said. “This has become far more important than the revenue split.”

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