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Is There Dough In Dollar Discs?

16 Sep, 2005 By: Holly J. Wagner

Can anybody really make money selling $1 DVDs? Yes and no. Companies that provide the lowest-priced DVDs on the market say it can be done, but it takes some creative strategies. And competition is fierce.

“You can do it by putting out a quality product, high volume and putting it in as many places as the target consumer shops,” said Mike Omansky, who recently took the reins of DigiView Entertainment as CEO. “We are in many stores where we are the thing you see next to checkout. We want that impulse purchase.”

DigiView, which has supplied dollar discs to Wal-Mart, is moving away from public domain content and into licensed product, including programs from defunct professional wrestling leagues and Spanish-language or dubbed programming.

BCI Eclipse, however, doesn't rely on $1 discs for its business. Though a “tiny fraction” of BCI's business, said SVP Greg Glass, dollar discs have “always been profitable for us. When we first developed the concept a couple of years ago, there was margin in it for ourselves and the retailers. Some of that margin has gone more to the retailer and less to the manufacturer. The manufacturer is living with less per unit but making it up on volume. There are people who are losing money on it because a lot of people got in at one time.”

Me-Too Companies
The budget market is attracting a glut of suppliers, others agree.

“A number of companies get into it and come out with me-too product and do mediocre packaging that will not display well at retail and that the consumer will not want to keep and own,” Omansky said. “They don't understand the end user or the outlets they are trying to sell to. Some of these companies come in and get out of the business when they really have nothing special to offer. It is one thing if you can fight your way into retail, it's another to sell to the consumer.”

That may be the case for Diamond Entertainment. According to the company's 2004 annual report, it is operating under a “going concern” warning from its accountants. That means that its accountants don't think the company can remain a going concern operating as it is. The company has been providing $1 discs and tapes to Walgreen's, Meijer, Musicland Group and Dolgen Corp. from a DVD stable that includes 1,040 public domain and licensed titles (312 are available on DVD). Part of the company's plan to turn its business around includes more licensed titles, including titles in a high-definition format.

Product quality also is a huge factor, the suppliers agreed.

“When you get into the low-end stuff, you get fuzzy pictures and bad sound, so quality is clearly an issue,” said Gary Delfiner, whose Global Multimedia sells only value product.

DigiView not only relies on quality replication, but also adds motion menus, chapter selection features and edits for family-friendliness, because mass merchants carry the company's product.

Paper or Plastic?
Budget players also agree that packaging is important.

DigiView insists on thin plastic cases. “It helps you put on better graphics,” Omansky said. “It's collectible.”

Cardboard sleeves can hurt sales because consumers associate them with poor replication and may have had bad experiences with fly-by-night suppliers, closeout dealer Ryan Kugler, president of Distribution Audio & Video, said.

“People really want to see the DVD case,” he said. “The ones from a slipcase, 50 percent of them don't play.”

Nonsense, Delfiner said.

“We do cardboard packaging for merchandising reasons,” he said. “We also do plastic, but I will try to talk our customers out of doing plastic because their customers will pick up two or three in the cardboard sleeves but they would only buy one in plastic.”

Kugler thinks public domain content and sales are on the wane.

“There are so few public domain titles out there that consumers see the same DVDs over and over,” he said.

Nothing would make Delfiner happier than to be the only one left providing public domain discs. His company makes money by focusing on getting popular public domain titles into channels where DVD is new.

“I don't believe that just because something is inexpensive it'll sell,” he said. “We only put out what we consider the most popular, mass-merchant-friendly titles. I have 60 titles.”

Delfiner also has a sales force of 50 independent salespeople who get his titles into channels as diverse as small food and drug chains, gift basket companies and even Dollywood.

He also thinks rentailers could make money selling “value discs.” “They seem to think that at $1.50 or $1.99 they can't make any money,” he said. “Our markups are generally in excess of 50 percent.”

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