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UPDATE: Rentrak Pins Hopes on Games, B.O. Tracking

14 Nov, 2002 By: Joan Villa

While weak demand for rental titles dampened second-quarter revenue and earnings for pay-per-transaction distributor Rentrak Corp., the company is pinning future fortunes on more game revenue-sharing deals and the launch of a box office data reporting system.

Rentrak has signed four agreements in the past two months with video game publishers and is negotiating 15 additional revenue-sharing deals, according to CEO and chairman Paul Rosenbaum.

While Rosenbaum would not name the game suppliers, citing their sensitivity to publicity, retail sources said Rentrak is offering revenue-sharing terms with BAM! Entertainment, Majesco, Namco and Atlus. A deal announced last month with Vivendi Universal Games for 10 titles has been stalled, sources said, reportedly because at least one traditional distributor has lobbied game companies against the revenue-sharing agreements. Rentrak executives were traveling and could not be reached to confirm the delay.

Weak demand for rental titles is expected to continue through the rest of the year, Rosenbaum said.

Rentrak reported revenue of $20.8 million in the quarter ended Sept. 30 versus $22 million in the year-ago period. Net income from continuing operations fell to $173,115, compared to $566,800 in last year's second quarter.

However, the company is diversifying operations with game revenue-sharing and by extending its data collection business to report box office performance data. Rentrak is close to signing multiple studios to the new service, Rosenbaum said. The company has also appointed Kenneth M. Papagan, an experienced Internet and cable executive, to the newly created position of EVP of new business development and strategic planning.

“These strategies have the potential to add high-margin revenue to our business beginning in our fourth fiscal quarter, more than offsetting the transitional revenue-and-earnings pressure we are experiencing due to current industry trends,” he explained on an earnings call.

He blamed the downward rental trend on DVD growth that has caused a “dramatic transition” in the industry. However, he said he expects DVD revenue-sharing in place with MGM Home Entertainment to expand to other studios by spring of next year.

“This growing trend caused weak demand for rental titles in our second quarter, and we expect demand to weaken further in our third quarter, making these the two worst quarters we're likely to face in terms of available titles,” Rosenbaum said.

On the video game side, Rosenbaum said a recent Rentrak study of 3,000 North American video retailers revealed that more than 90 percent can't afford to stock enough games to satisfy customers.

Eric Smith, owner of 13 Video King stores based in St. Cloud, Fla., said he has expanded his purchases from about six to eight titles per month to 12 to 15 games under the revenue-sharing terms.

“It's my stance that the games I will rev-share with Rentrak are the games I would not ordinarily purchase, so this is just an add-on for my business,” he said.

In addition to expanding the selection of titles, Smith said he intends to boost depth as a merchandising tool to increase visibility of the games section within the store.

“Anytime we can put more than one or two pieces on the shelf, the customer sees the presence of that title,” he explained. “Just like a movie, one copy gets lost, but as soon as you can put a full shelf of seven to eight pieces, it lends some credibility to it.”

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