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Warner Curbs Used DVD Sellthrough

14 May, 2008 By: Erik Gruenwedel

Warner Home Video's return to revenue-sharing distribution via Rentrak Corp. following a one-year hiatus includes new provisions significantly limiting the number of titles rentailers can sell.

The studio's agreement allows stores — following the mandatory 30-day rental window from street date — the right to sell just 20% of Warner rental titles with box office revenue above $10 million. Additionally, stores must destroy 80% of titles with box office grosses above $50 million and 70% for movies between $10 million and $50 million.

Titles with box office tallies below $10 million do not have to be destroyed.

The contract states stores must keep on hand all destroyed movies for at least 90 days following the rental period and are subject to a $20 fee for each missing DVD, if audited.

Similar Rentrak rev-share agreements with 20th Century Fox Home Entertainment, Lionsgate, First Look Studios and Sony Pictures Home Entertainment do not limit sellthrough or mandate destruction of DVDs.

The restrictions would appear to be another slap by Warner at the rental industry and independent stores, which have increasingly relied on sales of used product to supplement revenue.

The studio and parent, Time Warner Inc., have made no secret their distain for DVD rental, which they say generates significantly lower margins than cable video-on-demand. In addition, Warner believes used product at the retail level cheapens the entire DVD category.

“If somebody walks into a store and sees a box full DVDs for $3, what does that do for the concept of DVD value?” said a source familiar with the situation. “DVD sales were down last year.”

Studios say video stores aren't required to enter into rev-share deals (where they don't actually own the movies) and can instead purchase and sell titles obtained from other distributors without restrictions.

A Warner representative was not immediately available for comment.

Todd Zaganiacz, president of the National Entertainment Buying Group, a consortium of about 200 independent video stores, said the new rev-share restrictions are not surprising.

He said if Warner upped the limit to 40%, independents might be able to make it work. He said rental stores need sellthrough to stay in business.

“This model goes against everything that has made retailers successful today,” Zaganiacz said.

Jerry Briggs, who has been in the video rental business for nearly 25 years, doesn't understand Warner's competitive stance toward a complementary business.

“Without the video stores they scorn so much, they would never have had a market for movies,” Briggs said. “It is doubtful that the big-box stores ever would have jumped into the business had not the demand been there from video store customers in the first place.”

For Marilyn Barnes, who regularly buys used DVD movies from her local Blockbuster (which has separate distribution deals with studios) in Foothill Ranch, Calif., any talk about sellthrough restrictions would not sit well.

“Four DVDs for $20 is such a good deal,” she said.

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