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HIVE EXCLUSIVE: Movie Gallery Muscles Warner

17 Aug, 2001 By: Joan Villa

From Maine to Florida, 1,045-store Movie Gallery has been passing on Warner Home Video VHS rental titles and carrying only the DVD versionsinstead.

The pattern has been reported by at least a half dozen retailers who compete against the growing rental chain, the third largest in thecountry. Five stores in Georgia and Alabama, for example, aren’t carrying cassettes of 15 Minutes, the Robert De Niro vehicle released last week that generated $24 million at the box office, although there were up to nine DVDs of the title in the same locations. And stores inMaine, Alabama and Florida also received no cassette copies of Sweet November, a $25 million box office title that streeted July 24, whileDVD versions were in ample supply.

A Warner Home Video executive confirmed that Movie Gallery “is passingcompletely” on some VHS rental titles. The studio hasn’t had a direct revenue-sharing deal with Movie Gallery since the previous contract expired, he says, and a new agreement is doubtful.

“Movie Gallery wants to buy on a basis different than other retailers,” he adds. “They want a better deal. They want better margins, they want to sell off used cassettes, they don’t want to pay guarantees and they don’t want to beon an output basis. So they are buying our titles as any normal retailer. They are buying some through Rental Direct, and passingcompletely on others.”

While stopping short of confirming his Dothan, Ala.-based chain is buying fewer Warner titles, Movie Gallery chairman and c.e.o. JoeMalugen insists the buying decision is dictated by economics: “We havedifferent agreements with all the studios. We buy what we think we need to satisfy our customers. That is affected by the availability of movietitles and the price of the various titles. We buy all the Warner titles we can.”

The studios are most concerned with working around Blockbuster and not No. 3 Movie Gallery, with small-market locations, contends Bob DeLean, analyst for Morgan Keegan. “Do they have the power to have the studioover a barrel? I think not.”

DeLean believes Movie Gallery may be making a strategic financial decision to pass on some under-$30 million boxoffice titles, while at the same time quietly focusing on building its DVD library in order to be well-positioned if that format goes to two-tiered pricing and a revenue-sharing model.

Steve Cowan, owner of Movieland Video in Lisbon Falls, Maine, who competes with Movie Gallery-owned store Home Vision, says the move is a boon for him: “One of the people who works there called me to see if we had Sweet November on cassette because they just got it in on DVD. What they’re telling customers is that the video is too expensive.”

The story is repeated in other markets. “They’ll pick up the top [box office] and let the rest go by the wayside,” reports Ted Engen,president of Video Buyers Group, whose stores stock up on Warner VHS because Movie Gallery passes.

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