Log in

Used DVD Glut?

22 Apr, 2006 By: Holly J. Wagner

Rental floor space given over to shelves of previously viewed DVDs. Tables and dump bins piled high with $5 used discs. Perpetual sales offering four discs for about $20. These are the wages of copy depth, revenue-sharing and output deals, industry veterans say.

In some ways, the DVD industry is a victim of its own success. Whether the trend is good or bad depends on whom you ask, but most sources agree the market is awash in used discs.

That, many say, accounts for some of the erosion in sales and rentals of new discs that vexes financial analysts and studio and retail executives. In any market, glut is a four-letter word.

To Ryan Kugler, president of liquidator Distribution Video and Audio in Los Angeles, it's all part of the product cycle. “On the selling side, there is so much out there,” he said. “We used to sell used DVDs for $6 to $7. Now the going rate is $3 to $4.

“This is also cyclic of what happened with VHS. When we started DVA with VHS 15 years ago, we were selling them for $13.”

Copy-depth and rev-sharing programs, particularly output deals designed to manufacture demand, are the culprits, industry observers say.

“Thirty days after street date, forget selling a new copy,” said Dan Crider, an industry veteran who launched Volume Video, a used DVD brokerage, in Carrolton, Texas. “The rental industry gets their turn at it. Then after that, it's movies by the pound.”

Because of output deals, some movies may be harder to move, he said. Too many copies of marginally popular movies have led to a wholesale glut, said Ed Geiske, COO of Preplayed, a used entertainment goods chain in the Northeast. Dealers buy from consumers, wholesalers and salvage companies, cherry-pick their lots and sell the balance back into wholesale.

“There's a glut of the same stuff being picked over and passed around,” he said.

Kugler disagrees. “There are retailers out there that want depth,” he said. “They want more titles, sometimes the ‘B' titles nobody has heard of.”

It's nearly impossible to track used-disc sales the way researchers track new sales and rentals. Companies need not disclose what's selling unless they are required to under rev-share deals. Consumers can sell discs to chains, independents and on eBay or Amazon. Frugal consumers can trade among themselves on sites like Peerflix and Barterbee.

Trans World stores have long bought discs from consumers. Musicland, recently acquired by Trans World, bought discs from consumers in Sam Goody and Suncoast stores and forged a relationship with hitmenow.com (now dark), a fulfillment outfit that handled online trades. Trans World EVP and CFO John Sullivan said Trans World will integrate Musicland's online trading into its existing online brands, which include Wherehouse.com and SecondSpin.com. Movie Gallery and Hollywood Video stores began offering disc trades in 2005. Netflix also has begun selling previously viewed titles, although the company's financial report said it sold fewer discs at higher prices than expected.

None of the publicly traded companies responded to requests for interviews, except for Trans World.

Sullivan said used DVD is “a good business for us.”

Still, 2005 financials paint half the picture of used video at the major chains. Movie Gallery's 2005 annual report lamented that “higher than historical discount and promotional activity related to previously viewed products also contributed to the reduced rental gross margins.” The chain also noted that one misstep in managing a format transition could squeeze a rentailer with unsellable obsolete-format discs.

Blockbuster Inc. began letting consumers sell their discs back for credit in late 2004. The following year, the chain expanded its consumer trade-in program to 6,000 stores worldwide.

“While these additional trading locations increased our overall unit sales of movies worldwide by 6%, it also reduced the average retail selling price of movies by 14.7%,” according to Blockbuster's 2005 annual report.

Add Comment