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TK's MORNING BUZZ: Will Distributors Soon Raise Prices on Rental Product to Make Up for a Dwindling Revenue Stream?

22 Sep, 2000 By: Thomas K. Arnold

Nothing's been confirmed yet, but rumors are flying that distributors will soon begin raising prices on rental product to make up for a dwindling revenue stream.

Much has been written about the plight of independent retailers, but the distributors who serve them have been hit just as hard, if not harder.

Warner Home Video going direct hurt, but the real pain comes from the weekly mailers distributors send their customers. And those mailers are getting thinner.

That's not surprising, given that the amount of rental product channeled through distribution has shrunk from 75% a few years ago to about 45% today. Studios simply aren't going to spend as much money to advertise their product to a significantly smaller portion of their clientele, and already, mailers are getting smaller and at least one distributor has gone from weekly to biweekly publication.

This is significant, because everyone knows that distributors don't make money selling product. Even five years ago, before revenue-sharing and direct selling began taking their toll, wholesalers were complaining of profit margins of less than a dollar per unit.

Distributors make their money selling mailer ads to studios, and if that pot is shrinking, they're going to have to do something that's as logical as it has previously been unthinkable.

Logical, because if you're not making money selling something due to low margins, you have to raise the price.

Unthinkable, because in the cutthroat world of video distribution, no one wants to be the first to raise prices, even if only by a few cents.

When it comes to buying product, retailers are notoriously fickle, opting to buy at the cheapest price possible regardless of longstanding relationships and customer loyalty.

Conditions have now gotten to the point where logic will finally prevail.

Sources tell us that at least one major distributor plans on raising prices, initially in markets where competition is minimal.

Now, no distributor would do that unless he's fairly certain others will follow suit; hence, I predict a broad-scale price rise is on the very near horizon.

The first inclination among retailers who read this is to scream and holler.

But wait a minute--distributors need to make money to stay in business, and if they can no longer do it the traditional way, through mailer pages, then they're going to have to do it some other way.

The logical way--by selling product.

What a concept!

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