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THE MORNING BUZZ: Tomfoolin' Around

1 Apr, 2002 By: Thomas K. Arnold

What a stunning series of announcements:

Best Buy is purchasing Blockbuster and making the bold decision of canning rentals completely, focusing solely on DVD and satellite dish sales!

Warner Home Video president Warren Lieberfarb has quit his job and is opening a mom-and-pop rental store.

Jeff Eves has returned to take over the Video Software Dealers Association after a series of private meetings with board members in which he convinced them his "close ties to the White House" would best serve the home video community.

Jeffrey Katzenberg has agreed to reprise his popular "almost eaten by the lion act," which played to thunderous applause in 1994, at this year's VSDA convention.

And three major studios have announced plans to immediately phase out the VHS cassette and release movies only on DVD, beginning June 1.

I'm kidding, of course. Today is April Fool's Day.


Now that we've gotten that out of the way, we can continue on a serious note. One of the more interesting trends that's emerging in this digital era of home entertainment is the bull market for used CDs and DVDs.

Now, there have always been used record stores—back in the Days of Vinyl, I remember trekking up to L.A. to buy the latest promos for 5 cents apiece at shop on Melrose Avenue.

But the deterioration of vinyl – as well as tape, both cassette and 8-track – kept a lid on the market and prevented it from growing as big as it could have. Indeed, the used VHS market never really took off until the advent of widescale revenue-sharing flooded the market with cassettes, prompting the big chains to begin aggressively selling off their tired inventory. Even then, however, it always seemed more of an afterthought than a conscious business decision; even the splashiest Blockbuster would typically relegate its used cassettes to a "dump bin" that would have looked more at home in a thrift store.

By then, however, the market for used CDs was already flourishing and, because CDs do not deteriorate with normal use, big chains like The Wherehouse got involved, selling used discs alongside new ones for a little less money. It was a new business model, and one that worked quite well, particularly given the escalating list prices the record companies were tacking onto new CDs.

With the arrival of DVD, used disc sellers have another line of merchandise – and from what I've heard at the recent National Association of Recording Merchandisers (NARM) convention in San Francisco, used CD and DVD sales are keeping many independent record stores alive.

This parallels what I've been hearing on the street from our own batch of surviving indies – used DVD sales have joined adult rentals as a lifeline of sorts, in the face of continued encroachment by the big national chains.

It's a lifeline that appears strong and sturdy. Some of the big rental chains might carry adult, but Blockbuster doesn't. Hedge No. 1 for the indies.

Similarly, all of the big rental chains, I think it's safe to say, sell used DVDs. But Wal-Mart and the other huge video sellers probably won't get into this market; video is only one of myriad product lines they carry and it simply isn't worth the hassle.

The other good thing about used product is that even if the Blockbuster down the street sells used DVDs, customers will check out both your stores because the inventories are so different. When you're dealing with used product, you never know what you'll find. And while spent rental product certainly accounts for a big chunk of the market, more and more used DVDs, I'm told, are being sold back to retailers by consumers – mirroring what's always been the case in music.

And when the consumer is also the supplier, no one has an advantage. Consumers will sell DVDs to any retailer who offers them a fair price – and who has a worthy inventory should they prefer to trade rather than sell.

All things being equal, it's a level playing field.

And that's no April Fool's joke!

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