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The New Indie: Wholesalers Find Market in Small Sellers on the Internet

17 Apr, 2009 By: Chris Tribbey

As close-outs increase and buyers decrease, wholesalers are struggling to stay alive through traditional channels.

Home entertainment industry veteran Bill Perrault — now president of marketing firm Media Blue — still keeps a close eye on the world of wholesale DVD, and what’s happening today has never happened before, he said.

“I’ve never seen it like this,” said the former Columbia TriStar Home Video and Goldhil Entertainment marketing VP. “It’s so quiet out there with retailers. The feedback I get from buyers is they just don’t have the money to spend on inventory.”

Perrault notes that the last time there was a recession even similar to this, VHS was still rental-priced and sellthrough had not yet taken off. Circuit City and Tower Records and Video are gone, Virgin Megastores outlets are shuttering, and the decline of overall consumer spending on DVD has led many brick-and-mortar retailers to spend less on bargain-bin DVDs.

“Everybody across the board is suffering,” said Ryan Kugler, president of Digital Video & Audio in Burbank, Calif. “Even the bargain chains are folding, and it’s been step-for-step with this recession.”

Kugler and DV&A have made a living out of closeouts, buying excess inventory from studios and their wholesalers, and then turning around and selling the product to a couple of thousand smaller retailers.

“There are a lot of closeouts going on,” he said. “But there are fewer buyers as well.”

The one place not in line with the rest of the wholesale DVD market: the Internet.

“Internet retailers have done very well in this recession,” Perrault said. “The consumer still wants the product, and the eBay-type retailers are the ones doing well.”

Brad Kugler, who runs DV&A’s warehouse operations in Tampa, Fla., said that in the past six months or so, Internet resellers have represented a 40% jump in the company’s business. “It’s these small wholesalers buying up DVD, who have their own Web site or sell on sites like eBay,” he said.

Phil Divens, with wholesale company BB’s Warehouse in Fulton, Ky., said his company puts lots of DVDs up for sale on eBay and finds that the lower prices make for attractive bidding. “DVD does very well for us because we can get it at a deep-discounted price,” he said. “Everybody’s looking for a bargain nowadays.”

Online retailers have reported positive news during this recession. Overstock.com reported in January that its fourth-quarter revenue and profit were down slightly, but for the year, its gross profits were up 15% to $142.9 million. And while the company would not share specifics on how DVD was performing, president and CEO Patrick M. Byrne told investors, “We are preparing for a glut of supply as companies and stores around the country go out of business or close over the near term.”

“Our biggest outlet now is Internet resellers,” Ryan Kugler said.

eBay reported 2008 earnings of $2.24 billion and dedicates an entire area of its site to DVD wholesalers, while Amazon.com posted profits of $255 million for the fourth quarter of 2008, with sales of DVDs, Blu-ray Discs and other media up 9% year-over-year, to $3.64 billion worldwide.

Both Kuglers said that they’re seeing more product available, which is both good and bad — good because they have better quality discs, bad because excess inventory may not find enough buyers.

“As all these different retailers close, they’ve got to move all this excess inventory out,” said Rob Enderle, senior analyst with the Enderle Group. “It’s going to cause a glut in the market for a while.” 


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