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Is VSDA Neglecting Indies?

12 Sep, 2002 By: Kurt Indvik

By KURT INDVIKThe Video Software Dealers Association (VSDA), like the home entertainment business itself, is going through a metamorphosis. It's painful at first, but ultimately those behind the transformation hope the association will have more relevance and clout than it's had since the heyday of independent retailing in the late 1980s.At this stage, there's still more pain than gain. The association is struggling to deal with shrinking revenue from its trade shows and dues, deficit spending for certain programs that have significantly reduced its reserves, and a spate of cost-cutting layoffs in which several veterans have been quietly let go, including longtime CFO Richard Nissenbaum.The VSDA staff and volunteer board of directors spent a year developing a new three-year strategic plan. Adopted in July during the board's meeting at Home Entertainment 2002 in Las Vegas, the plan reveals a sober assessment of the association's capabilities to serve current and future members and its potential to raise money to fund those capabilities The plan also takes into account the maturation of the industry and questions the ability, or the wisdom, of the VSDA continuing to fund major initiatives that are designed expressly for small independent video retailers.The upshot: The association plans to return to its core competencies — a phrase association leaders use a lot — in legal and legislative advocacy, industry and consumer research and education. To that end, the VSDA has an ambitious agenda that includes expanding online services, revamping its conferences and trade shows, and launching a new series of consumer shows.The VSDA's Role For IndiesPerhaps the most hotly debated issue facing the association is how its changing focus will affect the largest segment of its membership, the independent video retailer (IVR). While staff members and some board members insist the association will continue to actively serve and represent IVRs, some of the market forces that compelled the VSDA to spend millions of dollars on studies and programs designed specifically to help independents, such as a copy-depth study and a revenue-sharing test, have been dissipated by DVD, which has leveled the playing field with uniform sellthrough pricing.Accordingly, these expenditures — which helped drain the association's reserves from more than $11 million in 2001 to $7 million going into 2002 — are not going to be made in the future. Programs that do happen must pay for themselves.Activist IVRs, both on the board and among the members, maintain the association has dropped its efforts on behalf of its core independent retail base. With this change in direction, they say, the VSDA has lost its purpose.“We won't have anything on our plate that isn't legislative or research,” Mick Blanken, an independent retailer and then-member of the VSDA board of directors, said shortly before he resigned his seat last week in protest. “I am concerned with the direction the VSDA is going and what, if anything, it can do for independents.”Tom Warren, fellow independent retailer and chairman of the VSDA, said he was surprised by Blanken's resignation.“I am an independent retailer, and I feel like the VSDA represents me,” Warren said. “I think it represents all independents, and does a very good job in those areas where we have the resources and the power to influence. Now maybe some people would feel the VSDA is not doing enough because their expectations of what the VSDA is capable of are unrealistic. The VSDA cannot stop evolution. It can't stop Wal-Mart from selling video or stop consolidation in the industry or keep chains from becoming publicly traded and tapping into major sources of capital to expand. It was never the association's mission … we don't have the power to influence any of that.”Warren noted that while the association will continue to deliver services such as benchmarking studies and various online services that specifically cater to small retailers, the association needs to focus on services and programs that benefit the broadest swath of membership and not devote significant resources to helping any one constituency.“That was a luxury of the past,” he said.Board member John Marmaduke, CEO of Hastings Entertainment, agrees with the VSDA's shift toward broader representation.“The VSDA has spent millions of dollars subsidizing single-member dues and single-member benefits, and I hope we can continue to do that,” Marmaduke said. “[But] our priorities are going to have to get more fundamental and achievable. Some of the things we have spent monies on in the past are going to have to be looked at through a different priority screen. We don't have money to do everything.”The IRC and Other Indie InitiativesSome longtime activist IVRs accuse the VSDA of kowtowing to the big chains. They say the VSDA is playing it safe by focusing on lobbying, education and research, and avoiding getting in the middle of the still-escalating conflict between the big guys and the little guys.This is nothing new, these critics say, maintaining that the VSDA stopped working on behalf of indies long before the new strategic plan was developed.“It's upsetting to see the VSDA leadership, staff and board suck up to the chains who are out to cut our throats,” said Rod Eglash, president of RSE Video Superstore in Milwaukee and president of the Wisconsin chapter of the VSDA. “It's been an abdication of leadership, nationally, for the cause of the IVRs.”Eglash points to the VSDA's Independent Retail Council (IRC) as one example of the association's loss of focus on indies. The group was formed three years ago to be a strong voice within the association on behalf of IVRs and to develop specific independent retailer–oriented programs to help them compete. But gradually, the most critical voices on the IRC either went out of business or were elected to the board, so today the council is conspicuously quiet.“In its heyday it had some influence and power,” Eglash said. “But now it's been pushed into the background.”Blanken, in his resignation letter, also decried the IRC's lack of activity, saying it was initially formed with “some of the most active, experienced and vocal IVRs in the association.” He maintains the group was, perhaps “too active, too vocal. So it was virtually disbanded, reformed and restructured.” The early IRC pursued a number of initiatives, including the formation of a branded buying group, similar to TruValue in the hardware industry, to help IVRs improve their copy depth and level the playing field with the big chains that were already getting good deals directly from the studios. But that initiative met with resistance as being outside the purview of what the association could or should be doing and never made it to the larger board for consideration.This year, the council has been largely silent, observers said.Mark Fisher, the VSDA's VP of membership, maintains the council has “been far from inactive,” in 2002, but concedes there have not been any concrete results.“They created ideas and developed some concepts,” he said, “but they haven't gotten enough traction to move forward.”Millions Invested in Studies, Tests for IVRsVSDA president Bo Andersen counters critics by pointing out a number of programs the association has undertaken in recent years that were designed specifically with independent retailers in mind.“We have, in the past three years, an imbalance,” he said. “We have invested heavily in projects that were specifically focused on the needs of independent retailers and we were right for doing so.”The biggest investment was the $1.8 million generic consumer awareness ad campaign test conducted in two select markets in the spring of 2001 — a program, Andersen noted, borne of pressure from IVRs to help build consumer traffic.“Blockbuster did not need a generic advertising campaign,” Andersen said, yet the chain and other chains on the board approved the test to see if such a campaign that promotes the value of home entertainment could “raise all boats.”The results of the test showed that where a major chain advertised heavily, generic advertising did not increase rental lift, while in regions where there was no major chain advertising, rental lifts averaged 4 percent for the period. But rolling out a generic ad campaign on a broader scale is unlikely to garner the necessary industry support. As a result, there are no plans to go national with such a campaign, or conduct any more tests.Andersen also cites the investment of more than $700,000 in the spring of 2001 for a test to see whether expanding copy depth in independent stores could “drive points to the bottom line.”The test “showed the way” for what is now seen as a successful business model in many markets — consumer satisfaction driven by aggressive copy depth in independent stores, especially in highly competitive markets. The acquisition of VideoRetailer.com, a Web site with information and services developed by and expressly for independent retailers, in early 2001 was another investment specifically geared toward the VSDA's indie constituency and helped to expand VSDA's own online initiatives for IVRs.The VSDA wants to continue serving independents because they are a significant part of the industry, Andersen said. But the association says its programs can and should be developed to involve a broader spectrum of retailers, while not turning their back on indies.“This is best illustrated by legislation,” Andersen said. “In our state efforts, for instance, 60 percent to 70 percent of those efforts are to defeat bills that particularly focus on adult material. That certainly helps the small retailers and independents who carry that material.”That the VSDA board of directors, most of them IVRs, has approved measures that chiefly benefit smaller retailers counters any argument that VSDA is not interested in independents, said Nigel Travis, president and COO of Blockbuster Inc. and a member of the board since 1999. “Clearly the independent retailers have a majority of the storefronts in the industry and, as such, the board has bent over backward to understand and support independents,” he said. “It advanced significant sums on various tests [and] unanimously approved the addition of an adult industry member to the board even though our chain and others have no involvement in adult.”IVR Role on the BoardBlanken, on the other hand, sees an “imbalance” within the VSDA that lets the staff generate much of the momentum for program development and set the decisionmaking agenda.“I am concerned that the board of directors is nothing more than a rubber stamp,” he told Video Store Magazine.Independent retailer Harold Rosenbaum, one of what he says are the few remaining activist voices for IVRs on the VSDA board of directors, agrees. Most IVRs on the board, he said bluntly, are “starry-eyed” in dealing with the big chains and have allowed themselves to be turned away from focusing on the things the association can be doing for IVRs.“I think the board has buried their heads in the sand … and allowed the chains to take over the industry,” Rosenbaum said. Blanken's resignation, he noted, “was his way of showing his frustration of putting in years of hard work for nothing.” Rosenbaum points to other recently departed activist IVR board members, such as Bob Webb and John Merchant, as further evidence the board is veering way from its pro-indie stance of years past.A major turning point for these IVRs, Rosenbaum added, was the bylaw change the VSDA board approved in July 2001, in which appointed board members can be approved by a simple majority rather than a “super” two-thirds majority. Rosenbaum voted against the measure. This effectively cut off the voting influence this activist core could exert in trying to keep the board more focused on indie concerns. VSDA chairman Warren said he's frustrated that some indies say they are dissatisfied, but won't offer any solutions.“I need someone to tell me what it is that the VSDA has the resources to do, or influence to do, but has chosen not to do,” he said.Indeed, when asked what the VSDA could do for IVRs, Rosenbaum said, “I don't know what anyone can do there anymore.” Eglash said, “A lot of independents just aren't interested in fighting for these issues anymore. Apathy is a real problem.”While he believes in working within the VSDA for change, Eglash said he couldn't muster a great deal of interest from retailers in his state. A recent letter from Eglash to 120 lapsed members and other nonmember retailers in Wisconsin promoting the VSDA drew nary a response.“They don't care about the VSDA and that's a sad thing,” he said.Ted Engen, president of the 2,000-store Video Buyers Group and an active member of the VSDA, believes the return of the VSDA to its core competencies is the right path.“The things they were originally designed to do — education, lobbying, research — that's what they should be doing; that's what they're best at,” he said. “If they stay focused on that, then every retailer, Wall Street chain or not, needs to support them.”Additional reporting by Joan Villa.Editor's Note: This is the first in a series of stories on the Video Software Dealers Association. Next week, Video Store Magazine looks at the association's full range of efforts to develop membership, create new revenue sources in trade shows and research, and a variety of other issues centered around the newly-approved strategic plan.

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