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Distributors Are Taking the Tough Economy in Stride

3 Apr, 2009 By: Erik Gruenwedel

The Hollywood adage that there’s no such thing as bad publicity could easily apply to home entertainment distributors in the current economy.

Distributors say that while mainstream consumer confidence continues to struggle, the effect on packaged media sellthrough and rental is not as dire as some might think.

Indeed, DVD sellthrough year-to-date (through March 29) is down about 10% to $1.65 billion, according to Home Media Research, a tally somewhat offset by Blu-ray Disc sellthrough, which totaled $189 million during the same period.

Packaged-disc rental revenue from Aug. 10, 2008, through March 22, 2009, totaled nearly $4.4 billion, down 7.4% from $4.7 billion from Aug. 12, 2007, through March 23, 2008, according to Rentrak. The figures do not include by-mail rental revenue from Netflix and Blockbuster.

With increased competition from rental kiosks and by-mail subscription (i.e. Netflix), distributors are using the recession to promote the value of rental in addition to mining new and previously used retail channels.

WaxWorks, the 60-year old Owensboro, Ky.-based distributor of packaged media, now markets video bags to retailers that promote the value of movie rental versus going out to the movies.

“The competition of kiosks and mail-delivered subscription services have forced retailers to come up with creative ways to make their customers’ trips to their store an enjoyable one,” said VP of marketing Kirk Kirkpatrick.

The distributor also is focusing on sporting goods stores and college towns to distribute sports-related DVDs based as much on seasonality as geographic region.

“Our ability to regionalize sales of sports product has proven to be a way to open new doors of retailers who were not previously in the DVD business,” Kirkpatrick said.
WaxWorks actively markets DVD to retailers as a value-add to related gift purchases. Working with studios, new releases are packaged as a marketing tie-in with related product rather than an attempt to up-sell unit shipments, Kirkpatrick said.

“Business is tougher, but our retailers have been in the business for a long time now,” he said. “They know what works for them, and by providing them with good information from salespeople who are not on commission, we are finding that although the industry is tossing a lot of us around, we continue to weather the storm.”

Ingram Entertainment, widely regarded as the biggest (and most profitable) independent distributor of DVD and Blu-ray, March 26-28 held its annual in-house sales meeting at corporate headquarters in La Vergne, Tenn. Nearly 300 sales reps and 80 vendors (including all the major studios) talked about efforts to best circumvent and survive the current economy.

“Everybody left feeling more upbeat about the future than when they came in,” said Bob Webb, EVP of purchasing and operations with Ingram.

He said studios expressed increased interest in distribution this year due to it being an area of possible growth compared to direct retail accounts such as Wal-Mart and Target. Webb admitted there’s concern about shrinking retail for packaged media since there have been more retail closures in the past year than previous years.
“[Studios] can use distribution to get more product into accounts, in addition to finding new retail accounts too small to deal with directly,” Webb said.

Ingram accounts also include grocery stores, supermarkets and drug stores. The distributor this year is working with studios to educate and offer promotional material and special price breaks to non-video retail regarding Blu-ray Disc.

“We are working with our retailers to help them get into Blu-ray when it is the right time for them,” Webb said.

He said DVD remains Ingram’s core business, but with studios dropping prices quickly on catalog over the past couple of years, retailers and distributors have been scrambling to generate the same revenue dollars.

Ted Engen, president of Video Buyers Group, which represents a consortium of 1,800 independent rentailers, attended the Ingram event and said altered street dates on new releases were a topic of keen discussion. He said the studios discussed why they have been experimenting opting for Friday and Sunday releases on some titles versus traditional Tuesday releases.

Engen said Sunday releases had not fared as well as Friday ones, especially with titles earmarked for younger viewers getting out of school for the weekend. The success of Twilight (released at midnight on a Friday), is a recent example of this strategy.

Consensus was that studios needed to do a better job communicating altered street dates with everyone in the distribution channel.

“They know they have some work to do,” Engen said. “They are not walking away from anybody. They need every source of revenue, no matter where it comes from.”
Ingram’s Webb said home entertainment remains a monthly business predicated on the mercy of the release schedule.

“We had a good release slate in the first quarter, and retail reflects that,” he said. “From the numbers we see, the video industry is still very healthy.”

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