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NAVD: Warner Floats New VHS–DVD Rev-Share Plan

14 Apr, 2003 By: Joan Villa

Independent retailers will soon be able to sign on to a combined VHS-DVD revenue-sharing output deal from Warner Home Video under terms similar to those offered to the large rental chains earlier this year. The plan was presented to three distributors — Ingram Entertainment, Baker & Taylor and Flash Distributors — at the National Association of Video Distributors confab held in Los Angeles April 6 to 8. Ingram, along with Sacramento, Calif.-based VPD, which did not attend the NAVD event, are reportedly interested in offering the program, confirmed a Warner source.The revenue-sharing plan is being termed a “modified” output deal because it allows shorter terms of “quarters rather than years,” according to the executive. The terms will vary based on a film's box office gross, but the total cost of upfront fees and guarantees will be “significantly less” than the DVD's wholesale price if purchased outright.“It has to be,” said the source, if Warner is to realize its objective of signing up “in excess of 1,000 independent retailers.” The studio will use Rentrak to audit the revenue-sharing component, but not to administer the program, he added.Warner is aggressively pushing output revenue-sharing as a way to boost sales of its secondary product. “We don't want retailers passing on our smaller titles,” the Warner source said.As an added incentive, Warner is proposing liberal sell-off terms, something that in the past has been a sticking point for retailers considering revenue-sharing. Retailers can sell previously viewed Warner product after 28 days or when more than 50 percent of their inventory is sitting on rental shelves, the source said.Wholesalers like New York-based Flash will likely pass on the agreement because customers haven't expressed interest in revenue-sharing DVD, which they can own outright for $17 or $18 apiece, according to Flash president Steven Scavelli.But Todd Zaganiacz, president of 55-store New England Buying Group and owner of Video Zone in South Deerfield, Mass., said he expects to pursue the program based on the details he's received so far.“For a store that's only 20 percent to 30 percent DVD, it's a great deal because it's going to drop VHS costs,” he said. “In my case, part of my concern is if I sign a 1-year output deal for DVD and VHS, I don't know what my VHS numbers are going to be in six months. What if I'm at 80 percent or 90 percent DVD? What do I do with the VHS I'm required to bring in? That's something I'm going to have to assess.”While Zaganiacz appreciates the 28-day sell-off terms and the added flexibility of selling off excess copies when 50 percent of his rental inventory remains on the shelf, he wonders how quickly that determination will be made through the Rentrak monitoring system and then authorized by Warner.“The key right now with DVD is, previously viewed sales are a huge part of the business and for every day you miss a potential sale, it's a potential sale lost for the store,” he said.Whether other independent retailers, like Doug Aita of Bozeman, Mont.-based Tape King, jump at the Warner deal may very well come down to whether a closer examination of the sell-off terms passes muster.“We sell used immediately, and the rev-share deals don't come close to meeting my needs,” Aita said. “MGM is the best of the bunch, and we have to wait for 30 days. Fox wants 60 days, [but] the title's dead in 60 days. If those are the kind of sell-off terms we're going to get with rev-share, it doesn't interest me.”

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