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Indies on Distributor Turf

18 Nov, 2005 By: Erik Gruenwedel

The Unauthorized Life of Johnny Cash is being distributed by Ventura.

If the success of Wal-Mart and Best Buy has an underlying theme, studio elimination of the wholesale middleman would be near the top.

Now, the same thing is happening with independent studios, which are aggregating and distributing third-party product while quietly eschewing traditional wholesaler channels.

Ventura Entertainment, Koch Entertainment, Image Entertainment, MTI Home Video and Ardustry Home Entertainment are DVD suppliers that double as product consolidators for direct distribution to retail. That puts them in direct competition with traditional one-stop wholesalers such as Baker & Taylor, Ingram, WaxWorks, Ryko and VPD, among others.

As DVD prices continue to drop, retail shelf space tightens and margins shrink. Studio self-distribution at the expense of wholesalers is on the rise. No doubt a sensitive issue, some wholesalers are crying foul, while others argue the merits of market forces benefiting consumers.

But indie suppliers say it's a new and necessary way of doing business.

“There are very few hard and fast rules to how our business works,” said Ventura Entertainment COO Eric Doctorow. “You have to be good at many different things.”

One wholesaler, who wished to remain anonymous, said concerns about the shift in distribution cannot be overlooked and are generally considered “suspicious.”

“It is OK to [deal direct] if you are supporting two-step distribution,” the wholesaler said. “It is not OK if you are learning from your distribution partners and using that to gain access to customers directly.”Ralph Tribbey, editor of The DVD Release Report, characterized the shift between studios and wholesalers as watching “little medieval fiefdoms being formed.”

“You've seen consolidation among DVD wholesalers over the years,” Tribbey said.

“Why on earth would you buy Ventura, Koch or Image product from Baker & Taylor when you could go directly to [them]? Of course [wholesalers] are getting squeezed.”

Too much product, limited channels

Of the 11,500 home video titles released this year, The DVD Release Report noted that about 22 percent (mostly theatrical fare) originated from the major studios, while the rest emanated from a myriad of sources.

“When you have 900 vendor sources, the buyer at Best Buy doesn't want to hear from them,” Tribbey said. “He wants to hear from 30 voices.”

The need to get onto mass merchant shelves led David McKenzie, president of Highland Entertainment, to go with Ventura to distribute the titles Exposing the DaVinci Code, Acts of God and the upcoming The Unauthorized Life of Johnny Cash, among others.

“Absolutely, they get us in the door [at Wal-Mart],” McKenzie said.

Ditto for Freestyle Home Entertainment. Its Nov. 1 release, The Rockville Slayer, is being distributed by Universal Music Group's video unit, Visual Entertainment.

“I wanted to go with a company that had the clout to get into all of the major chains,” said CEO Susan Jackson. “And I wanted to control my own marketing.”

Cheryl Freeman, CEO of Ardustry, said smaller studios distribute third-party product because many film producers are going independent, leading to a burgeoning market for feature films, special interest titles or documentaries.

At the same time, she said, Ardustry, which has product agreements with Moonstone and The Film Group, among others, maintains strong ties with wholesalers and determines whether to sell direct depending on the customer. For example, the studio sells directly to Tower Records and Video but fulfills orders through VPD. Ditto for Best Buy, which Ingram fulfills.

Order fulfillment, which amounts to picking and packing titles, also can involve marketing, advertising, mailings, screeners and sales, depending on the agreement.

“It depends what kind of financial arrangement you have and if you want to take the account direct or let a distributor take it on and assume that responsibility,” Freeman said. “A lot of the retail chains would rather go through a distributor because they take care of the fulfillment end.”

Koch Entertainment Distribution considers itself a hybrid consolidator attempting to bring vendors and content suppliers under one roof. It also channels product from business units Koch Lorber Films and Koch Vision, among other brands.

Commingling direct selling, third-party distribution and wholesale distribution can meld myriad titles, vendors and retailers into a more cost-effective business, according to Koch VP Dan Gurlitz.

“If someone orders one unit of 50 different titles, they will get two boxes, as opposed to getting those 50 titles from six studios in six shipments, which isn't cost-effective for anybody,” Gurlitz said.

Co-op world

Visual Entertainment distributes titles for Palm Pictures, Xenon Pictures, Bauer Martinez and others. It sells to Baker & Taylor, Ingram and VPD, as well as direct to retail.

Visual sales personnel avoid calling on retail accounts tracked by Ingram, but if there is overlap they make retailers aware of additional information about select titles.

“When Ingram calls on Walgreens and tells them about the new releases, we already have greased the wheel a bit,” said Visual GM Tom O'Malley. “It is basically an efficient marketplace. Everybody ends up covering a certain segment of the market.”

Kirk Kirkpatrick, president of wholesaler Wax Works, doesn't see the smaller suppliers as competition. He says the widespread appeal of DVD at retail accounts outside the video store has created a demand requiring cooperation between wholesalers and studios. He said third-party distributors recognize they may have accounts that require product they don't carry. Putting them together with a wholesaler that does works well for all parties involved.

“I don't know of a single account we have lost because they started buying direct from a third-party studio,” Kirkpatrick said. “I'm sure it happens on occasion. And I'm sure they have put together some programs that I would have loved to know about. But actually, I think it has helped us more than it has hurt us.”

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