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HIVE EXCLUSIVE: The Video Landscape Shifts... Again

21 Nov, 2001 By: Joan Villa

The video landscape shifted once again this week as distributor ETD exited home video and Valley Media filed for chapter 11 bankruptcy protection.

ETD abruptly stopped home video distribution after some studios tightened credit and delivery terms on new release product.

Chairman and c.e.o. Ron Eisenberg could not be reached for comment, but reliable sources say as many as 200 employees will lose their jobs and full-service distribution centers in Dallas, St. Louis and Canada will be closed, as the company focuses on its core magazine and book business.

With a steadily eroding stock price throughout the month that foreshadowed Valley Media's internal problems, the distributor finally filed a voluntary petition for bankruptcy protection Nov. 20. C.e.o. Peter Berger says the move was “not a surprise” after a proposed sale fell through and the company — which had defaulted under its credit agreement — simply ran out of options.

“We had hoped to put a transaction together that afforded us something, but when it didn't materialize two weeks ago, we've been working with our lender, and we felt it was best for all parties to get the protection of the court and go forward with that," Berger explains.

Some 200 employees were layed off earlier this month primarily in general administrative positions such as purchasing and billing, Berger says, leaving a staff of 590 to continue operations at the wholesaler's Woodland, Calif., headquarters. Valley previously furloughed substantially all of its employees in its Louisville, Ky., distribution facility.

The company will try to keep operations running with court approval as early as this week. Berger expects to “sit down with interested parties and come up with an accord we can all live with." He stresses relations with the company's creditors — 18 are owed $1 million or more, according to the filing — are "not adversarial.”

“We feel remiss we have to enter into this thing and we want to get the best value for all," he adds.

Valley and ETD, along other distributors, have struggled since Warner Home Video took rental product direct to retail accounts and Universal Studios Home Video consolidated rental titles with Ingram Entertainment, VPD and Pay-Per-Transaction distributor Rentrak. This made it difficult for most wholesalers to offer their retail customers a full selection of product.

“The studios are losing confidence in distribution,” confides one source, who says the final blow came for ETD when 20th Century Fox Home Entertainment wouldn't provide Planet of the Apes unless the wholesaler paid in advance. At that point, mounting concerns that the Fox situation “would have created a domino effect with other vendors” prompted ETD executives to decide to close down video operations, the source says.

Fox executives would not comment.

Analyst Michael Salerno of Adams Media Research says industry consolidation often increases following the introduction of a new format such as DVD that requires careful inventory management and enough finances to make the shift.

“Consolidation seems normal given the move by the two biggest players to go direct and anytime there's a transition to a new product, some companies will get left behind and some companies will step up,” he notes.

“I think it's another very sad event in the industry,” says Steve Scavelli, president of Flash Distributors and a board member of the National Association of Video Distributors (NAVD). “It's a continuation of sad events resulting in retailers having less distribution choices, which can only lead to increased costs and decreased service.”

Bill Burton, NAVD executive director, insists it is “unfair to place the blame” for ETD's and Valley's troubles on any one circumstance. He in part blames sideways selling, or the practice of pooling buys to get better terms.

“The market factors from the [copy depth] programs that have created a subdistributor network that has diluted the pool of customers that a distributor has to pick from, that has certainly been a factor,” he concedes.

Burton adds that the two distributors' retail accounts “will find their way somewhere because there's only five places left to go.”

The five remaining distributors, plus one Canadian wholesaler, will go ahead with plans for their annual gathering April 21-24 in Santa Monica, Calif., he says. He expects Jim Pollan of ETD, who has served as NAVD president, will be succeeded by NAVD v.p. Noel Clayton of WaxWorks.

Valley lists debts estimated at more than $100 million against assets of more than $100 million in its filing with the U.S. Bankruptcy Court in Delaware. The company anticipates funds will be available to pay unsecured creditors, who include Warner/Electra/Atlantic (WEA) music distributor, owed $22.8 million; Warner Home Video, $18.2 million; Universal Music and Video Distribution, $13.1 million; 20th Century Fox Home Entertainment, $12.7 million; Paramount Home Entertainment, $12.5 million; BMG Distribution, $10.9 million; Sony Music Entertainment, $10 million; and Columbia TriStar Home Entertainment, $6.8 million.

Some of the debts will be offset by credits owed from the studio and music suppliers, the filing states.

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