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VSDA Show: Real Estate War Leads to Rebirth of Sharing

30 Jul, 2003 By: Thomas K. Arnold

With big sellthrough chains like Wal-Mart increasingly passing on non-hit DVD product, studios are renewing attempts to reach out to independent retailers -- a class of trade many were on the verge of writing off just a few years ago.

Several aggressive revenue-sharing plans are either being floated or are already available, targeting small rentailers rather than the big rental chains. Under Warner Home Video's revenue-sharing program, retailers can pick up secondary titles on DVD and VHS for less than it would cost to buy them outright, and only start sending money the studio's way once a certain threshold is reached. The only condition is they buy everything the studio releases.

Warner Home Video president Jim Cardwell said the goal is twofold: To increase unit sales of nontheatrical titles and to get a “fair share” of the rental revenue, a quest that has vexed studios since the demise of the rental-priced videocassette dramatically slashed front-end proceeds.

“Think of it as an insurance program,” Cardwell said. “It obliges retailers to support our entire line of product. They have to have the hits, but we have numerous titles they don't necessarily have to have. And we'd like to make sure all of our products get adequate shelf space.”

Indeed, it's about real estate for secondary titles, and profit margins on what has traditionally been rental product. For a while, as nonhit titles migrated to DVD, it looked as though the sellthrough chains would pick up the baton. But with so much product coming to market, the big sellers of DVD have become increasingly picky.

On top of that is that with the majority of unit sales coming from DVD, studios are getting $15 to $19 a pop from rentailers instead of the $32 they were averaging per cassette under the most liberal of the old revenue-sharing or copy-depth programs.

And if rentailers buy these secondary titles outright and then rent them, “we get nothing” of the rental proceeds, Cardwell said. “This way, we get our fair share.”

Under the Warner plan, retailers typically pay about $6 per title upfront, VHS or DVD, and then give the studio as little as 30 percent of the rental revenue, Cardwell said.

Under optimal conditions, if a title rents 14 times at $3.99 a night, Warner's return would be $16.80, plus another $5 from selloff. That gives the studio nearly $22 per unit instead of $15 from an outright sale -- and given that Warner's deals are only available on an output basis, the studio is also moving significantly more units out the door.

On the other hand, if a title doesn't rent, the retailer is only out $6. The onus lies on Warner to make sure that doesn't happen very often.

One retailer who asked his name not be used had a different take on the Warner deal. He said retailers can bring in Warner titles for nothing upfront, with pre-viewed DVD sales after 29 days. He also said the retailer cut was 60 percent to 65 percent. He said the new, more generous deals may ignite a “real estate war” for shelf space.

Paramount Home Entertainment's president, worldwide, Tom Lesinski said there is “more pressure on secondary titles” in the rental market. It's “very easy [for rentailers] to load up on the big titles,” adding “we need new strategies on smaller titles.”

Some studio executives aren't convinced the new, more generous revenue-sharing plans that involve DVD are the way to go. “We will only go into revenue-sharing if we make more profit from it than the current business model,” said Bob Chapek, president of Buena Vista Home Entertainment. “Until we come up with one, we won't do it.”

Under plans such as Warner's, “you may get more copy-depth, but you are making significantly less per copy with no guarantees,” Chapek said. “And you're also putting extraordinary pressure on your sellthrough business by having voluminous copies at cut-rate prices being sold as previously viewed.”

20th Century Fox Home Entertainment president Mike Dunn said shelf space is a problem in the rental business and that retailers should bring in secondary titles to satisfy the consumer's need for choices other than the hits. He said rentailers' customers are movie buffs and retailers should “take care of them.”

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