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HIVE UPDATE: 'Hannibal' -- Feast or Table Scraps...

5 May, 2001 By: Joan Villa

MGM Home Entertainment will release Hannibal at a flat $45 VHS price Aug. 21 in a move that takes a big bite out of traditional rentalpricing, but unleashes fresh concerns that the studio will pare back its distribution network as early as this week.

MGM becomes the first studio to release a huge box office hit at a significantly lower rental price, eliminating complicated copy-depthprograms and buying goals that for three years have drawn the ire of retailers and distributors. Hannibal grossed $165 million in theaters.

However, the news was bittersweet for distributors who were summoned to Los Angeles late this past week for private meetings with MGM, which wants "more focus, and access to merchants, both in the way of sales calls andinformation," according to a phone message left with one wholesaler by MGM executive sales v.p. Robert Wittenberg.

Specifically, the studio wants distributors to come up with a plan that would give MGM product more shelf space at retail, particularly insupermarkets and other mass accounts.

The bottom line is MGM is "looking to make a change" in its distribution network and will likely cut one or more wholesalers this week, distributor sources say. Or, according to Wittenberg’s message, "We’re going to use these meetings to make some determination of our future in regard to distribution."

One distributor, contacted after his meeting with MGM executives, said he was placed in an untenable position. "Rightly or wrongly, they don’t feel that distribution is focusing enough on their product, with‘enough’ meaning more on theirs than on anyone else’s, and that’s a difficult thing to respond to," he said. "How bad do you want to prostitute yourself with one studio? While politically you don’t want to lose another line, realistically you’ve got to say you’re going to treateveryone equally and let them decide."

The distributor said it was intimated to him that should any distributors be cut, MGM "won’t police whoever sells their product [sideways] in quite the same way Universal is trying to."

Wittenberg won’t confirm that any changes to distribution are in the works. However, he says the flat $45 price comes as a response to retail and distribution feedback.

"It’s about focusing on the product rather than focusing on the programs," Wittenberg says. "This is what the marketplace has told us they want and it becomes incumbent upon each merchant, as it should have been and should be going forward, to determine the amount of product they need to maximize their business."

The studio has not yet decided whether the pricing plan will extend to the supplier’s next big box office title, Heartbreakers, which will be announced before Hannibal’s July 31 prebook date. "We’ll have to make a decision in the middle of selling Hannibal and it will be rooted in howthe market responds to this," Wittenberg says.

While Wittenberg wouldn’t provide details on Hannibal’s DVD release, a source familiar with the studio’s plans says the Hannibal DVD will be day-and-date with VHS, priced at $29.98 retail with a July 10 pre-order deadline.

The move to flat pricing will also reduce the probability that there will be much "sideways" demand for the product, which Wittenbergacknowledges will be an "outgrowth" of the pricing change but did not "drive" the studio’s decision.

"Hopefully this will start a trend with other studios," says a wholesaler. "Obviously for distribution, we lose a lot of business when retailers buy [sideways] from someone else."

Although MGM is positioning the move as one favoring retailers and distributors by no longer basing purchases on a complicated buying matrix, early retailer reaction was overwhelmingly negative.

Many retailers posting on the Video Software Dealers Association (VSDA) discussion board were critical that the lower price in practicerepresents a $10 increase over average per-unit costs under MGM’s "Simple Solutions" copy-depth program. Some also noted that $45 is not a "fair" price for independent retailers who believe they are paying farmore for product through distribution than are the large chains that buydirectly from studios.

One distributor executive points out that whether retailers believe the plan is favorable depends on whether their MGM "Simple Solutions" goals were reasonable. If the move is perceived as a price increase, they’ll likely respond with lower order numbers, he says, while those who had problems with goals in the past would probably order more heavily.

Some retailers hope other studios will follow suit. "Hopefully this isthe end of those years of toiling over numbers and programs and goals," says David Bleiler, buyer for six-store TLA Video of Philadelphia. The new flat pricing makes ordering a "no-brainer," since TLA would not have been able to purchase the required 300 to 350 pieces under MGM’s "SimpleSolutions" plan.

"I can buy exactly what my budget will allow and not give it a second thought," he says. "$45 is about what we would have paid for anextremely high profile title like this. Besides, this is going to be one of the big titles of 2001, so if it’s a couple dollars more, it’s worth it."

Dan Jenks, owner of 13-store All the Best Video in Chico, Calif., says he will "buy big" to support MGM. "I like not having any goals — just let me buy whatever I want," he says. "Finally somebody’s put a decent title out there at a decent price."

At six-store Instant Replay in Pittsburgh, owner Russ Homer says he is relieved that MGM is letting "the free market sell their product"instead of copy-depth requirements. While he understands other retailers’ criticism of the $45 price, Homer insists the flat price is a fair trade-off for eliminating buying goals.

"We would all love to haveproduct at a lower price," he says. "We would all love 90-day windows before the movie goes to pay-per-view. There’s a lot of things we wouldlove to have, but what we’re going to get is a trial and error type thing. And time will tell."

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