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9 Oct, 2000

TK's MORNING BUZZ: Koch and Cohen Were Successful Because Neither Ran a One-Man Band -- and They Leave Behind Strong Teams

The departure of the top executives with two major home video suppliers isn't going to have much of an impact on their organizations---or on the business.

Both Mitch Koch of Buena Vista Home Entertainment and Richard Cohen of MGM Home Entertainment and Consumer Products leave behind strong, smart sales and marketing teams fully capable of carrying on in their leaders' absence.

Over at Disney, Mary Kincaid, Dennis Maguire and several others have been in place longer than I've been at Video Store Magazine. They were there when Bill Mechanic began exploiting the sellthrough market with his moratorium strategy, when Ann Daly pushed direct-to-video sequels for animated features and when Mitch Koch made an aggressive jump into the DVD market.

They learned from and worked alongside the best, and I don't expect any significant changes under any new regime. If it ain't broke, don't fix it, and Disney's mighty sales and marketing machine has consistently come out on top in the quarterly market share battles among studios in both the rental and the sellthrough arenas.

The same is true at MGM, where Cohen leaves behind several talented veterans, including David Bishop and Blake Thomas, who have consistently outshone their competitors in marketing savvy and skill. MGM was one of the first studios to recognize the value of its catalog, and what Bishop, Thomas and the crew have done with projects such as the James Bond collection is nothing short of brilliant.

MGM has also consistently led the way in DVD exploitation, positioning itself at the forefront of the curve. Just last week the studio announced it would release 400 titles from its 4,100-film catalog on DVD in 2001, nearly three times as many as it did this year.

MGM is also one of the few studios at which home video isn't walled off from theatrical, with the home entertainment unit having a definite voice in greenlighting movies. Again, expect that legacy to continue.

Part of Koch and Cohen's success at their respective organizations was due to their vision and strong leadership. But credit is also due to the fact that neither executive believed in running a one-man show.

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By: Thomas K. Arnold

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9 Oct, 2000

TK's MORNING BUZZ: With Distribution Fighting for Its Life, Loss of Universal Product Could Be a Fatal Blow

I had a most disturbing phone call with a high-ranking distribution executive last week. He told me that the morning Universal Studios Home Video announced it was cutting out all but three distributors to sell its product--hours before the news was made public--representatives from Ingram Entertainment, one of the lucky few, were already on the phone with his top retail accounts, telling them their distributor would be going out of business and they would have to buy Universal product from Ingram.

"If the situation was reversed and one of my sales people did that, they'd be fired," this distributor told me. "Fortunately, four of these retailers right away called us and told us their response had been, 'You can take this product and shove it. We're not dealing with people who do business that way.' "

David Ingram says his reps began calling rival distributors' customers "precisely at the time we were given authorization to do so by Universal," and did so in haste "because it's a footrace between VPD and Ingram and Valley to get signed credit applications in with these customers." But he says Ingram sales reps were specifically instructed "to not speculate on how other distributors that don't have Universal product would fare," and if retailers did, in fact, receive calls of the kind described by the other distributor, he'd "love to have that information" sent to him at his personal e-mail address,

As times get tougher, the line between fair and unfair competition tends to blur. What the Ingram sales reps allegedly did, albeit without David Ingram's consent, is akin to kicking a man when he's down.

But even the sanctioned message--that the only place to get Universal rental product is Ingram or VPD--isn't quite accurate, because believe me, I don't know of one distributor that intends to stop carrying Universal product, either ordering it through Canada or buying it sideways from retailers.

Can you blame them? Distribution is fighting for its life, and the loss of Universal product--particularly with the studio being on a roll in both the rental and the sellthrough arena--could be a fatal blow, coming on top of the loss just one month earlier of Warner rental product.

The studios have always frowned on sideways selling, but in the past, this practice has pretty much been limited to retailers pooling resources and forming de facto buying groups, meeting goal and then breaking up their orders--and free goods--among each other.

Now, we're going to see a new twist on the sideways selling phenomenon, with distributors rather than small retailers in the buying seat.

On the surface, this practice appears just as unethical as the alleged calls from Ingram. But I see a compelling difference.

The calls are dirty tricks, nothing more.

But distributors do need a full line of rental and sellthrough product to stay in business. God bless 'em in their efforts to do so.

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By: Thomas K. Arnold

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6 Oct, 2000

TK's MORNING BUZZ: Retailers Worried About the Future Better Concentrate on the 4th Quarter

The home video industry is turning into a litigious mess.

We've got independent retailers suing Blockbuster and the studios over direct revenue-sharing deals that are supposedly unfair.

We've got consumers suing Blockbuster over late fees, again that are supposedly unfair.

And now we've got distributors talking about going to the courts to seek an end to studios pulling product and either selling it directly to retailers or cutting back on the number of distributors they use.

Where will it all end? Your guess is as good as mine. The only thing that can be said with any certainty is that once the legal system is involved, any solution is a long way off and will likely come too late to make any difference in the way business is conducted.

That means retailers need to find a way around Blockbuster getting allegedly sweetheart deals, can expect to continue to collect late fees, and will have to deal with buying their product from two or three distributors instead of one--unless they happen to do all their business with Ingram Entertainment.

Who said, "The more things change, the more they stay the same?" None of the legal proceedings currently going on, or being contemplated, affect retailers' day-to-day businesses.

And it's high time retailers who intend to remain in this business realize this fact and, instead of hoping for some far-off legal salvation or wringing their hands out of concern for the future, concentrate on the present--and on the fourth quarter, a time when smart retailers stand to make a whole lot of money.

One of the best things anyone did for retailers occurred at the just-completed WaxWorks trade show and conference in Owensboro, Ky. The video distributor's marketing department handed out a two-sided sheet of paper with 100 marketing tips, from rewarding employees (putting their picture on the wall along with suggested picks, getting them involved in the screening process) to actively engaging local businesses in cross-promotions.

Do me a favor. Go to the WaxWorks Web site at and, even if you're not a customer, download the marketing tips sheet. If you need help, call them at 270/926-0008.

In an era of legal maneuverings and sky-is-falling panic, what we can all use is a good dose of common sense.

Here's where you'll find it.

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By: Thomas K. Arnold

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5 Oct, 2000

TK's MORNING BUZZ: Unlike Warner, Universal Has Yanked Its Sellthrough VHS and DVD From Distribution -- With DVD the Only Real Growth Area Left

The other shoe has dropped.

The video distribution community was stunned, although not altogether surprised, by the announcement late yesterday that Universal Studios Home Video had become the second major studio in two months to "streamline" distribution of its product.

On the one hand, the change is not as drastic as Warner Home Video’s Rental Direct program. Universal is still leaving physical distribution of its product to wholesalers, albeit just two of them for rental (and three for sellthrough). In addition, the studio still plans on using Rentrak Corp. for its revenue-sharing, unlike Warner, which launched its own weighty revenue-sharing machine.

But on the other hand, the Universal deal is far more drastic--and ominous for the remaining distributors.

Unlike Warner, Universal has also yanked its sellthrough VHS and, most significantly, DVD from the clutches of distribution. And with DVD the only real growth area in packaged home entertainment’s future, it’s a loss that certainly will be felt.

You can’t really fault either studio for reducing its dependency on distribution. Going through eight distributors to sell your product to a still-dwindling account base of independent specialty retailers doesn’t make much sense.

But ironically, that’s only part of the reason both studios dropped distribution. The other is the fear that the continued complexity of copy-depth programs is taking distributors too much time and effort to explain, and the studios would rather do it themselves.

As one distributor told me, "Talk about adding insult to injury. They come up with these complex programs, force them on us, and then cut us out because we’re devoting too much time to making them work."

Welcome to Hollywood, where eating one's young is standard practice!

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By: Thomas K. Arnold

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4 Oct, 2000

TK's MORNING BUZZ: First WaxWorks Trade Show in Three Years Was an Unabashed Success -- With an Air of Defiance and Tinge of Sadness

"Captain" Kirk Kirkpatrick with VSDA president Bo Andersen and National Association of Video Distributors chief Bill Burton at the WaxWorks Trade Show and Seminar. (Hive News Photo)

OWENSBORO, Ky. — The first WaxWorks Trade Show and Conference in three years, which ends this morning, was an unabashed success.

The exhibit floor was sold out, the seminar schedule was rock-solid and there was a general air of defiance among many of the retail attendees that indicated they are determined to survive, regardless of what the future holds in store.

And yet there was a certain tinge of sadness here as well, a realization that many of the small independents who attended this year’s show aren’t going to be around much longer, no matter now much they’d like to carry on. Defiance and determination only go so far, they say, until reality sets in.

One retailer I met last night in the Executive Inn’s Time Out Lounge, Gavin Jones, has been operating a Movie Warehouse store in Monticello, Ky., for six years. Instead of attending the afternoon seminar, he left the show floor when it closed at noon and headed straight for the bar.

He’s made up his mind to exit the business in May, throwing in the towel because he simply can no longer fight the twin assaults of Blockbuster moving into his tiny Bible Belt town and the emergence of satellite.

He’s seen a significant drop in his rental business over the last few years, and even though he’s big on DVD, that’s not enough to carry him through. "The video business is dying," he declares.

Another retailer, who asked me not to use his name, says the only reason he’s still in business is tanning. He plans on hanging in there until December of next year, when his lease expires. Then, he says, he’s going to get out of video entirely and concentrate fully on tanning.

"But I don’t want my competition to know," he said, "so please don’t use my name."

It’s disconcerting that things have come to this, that honest, hardworking retailers can no longer make it in the business that they built.

But video is hardly alone. Starbucks’ successful assault on independent coffeehouses is legendary; Home Depot has all but put the mom-and-pop hardware store out of business; and who needs a neighborhood grocery store when you’ve got a well-stocked Wal-Mart right around the corner?

The chaining of America is upon us, and it doesn’t matter whether the chain is brick-and-mortar (Blockbuster) or electronic (satellite, cable, the Internet).

In the battle of David versus Goliath, the slingshot has lost its effectiveness.

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By: Thomas K. Arnold

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3 Oct, 2000

TK's MORNING BUZZ: Is Another Major Studio About to Cut Out All But Two or Three Distributors From Its Rental-Product Pipeline?

The Three Musketeers they're not. Video Store Magazine editor-in-chief Thomas K. Arnold (center) is flanked by WaxWorks executives Noel Clayton (left) and Kirk Kirkpatrick during the opening night party of the distributor's trade show and conference. The theme: Operation: Allied Forces. (Hive News Photo)

OWENSBORO, Ky.--I tell you, it's great to be back here in WaxWorks' hometown for the distributor's first trade show and conference in three years.

The show floor is actually sold out, with nearly 70 exhibitors, and I'm seeing lots of familiar retail faces, loyal customers of WaxWorks for many years who say the distributor can't be beat when it comes to personalized service and support.

To be sure, some of my favorite retailers are conspicuously absent, such as Dave Rodgers of Video Dave in Frankfort, Ky. Dave is no longer in the business, but I'll never forget the enthusiasm he had for the business as recently as 1997, when he was bragging about his booming videogame trade and how it helps balance things out when videocassette rentals are slow.

Dave, and others like him, didn't make it, but many others did. And I'm happy to report that virtually all the survivors I spoke with last night at the opening-night party, sponsored by Fox Home Entertainment, attribute a large portion of their continued success to DVD, which appears to be flourishing even in the small rural towns and villages of the Southeast--maybe not to the degree it is in the big cities, but enough to at least partially offset the general decline in VHS rentals everyone, large and small, appears to be feeling these days.

The folks at WaxWorks, too, are quite optimistic about the future, despite the disconcerting reports filtering through the show that another major studio is about to cut out all but two or three distributors from its rental-product pipeline.

WaxWorks is wisely pumping DVD as much as it can, and offering retailers assistance in what many consider an inevitable transition in the coming months from VHS to disc.

Sadly, talking to retailers, it becomes apparent how vulnerable everyone is. Blockbuster and Hollywood are moving into smaller and smaller towns, and the areas the big chains have not yet penetrated are getting satellite.

Retailers are preaching as well as practicing the gospel of diversification, and if there's a general rule of thumb it is this: VHS rental may be your bread and butter, but it simply can no longer be your staple diet.

DVD needs to be integrated into everyone's product mix, and at the same time retailers need to look elsewhere as well for things to augment their packaged entertainment wares, be it tanning, pizza or movie merchandise.

Even in rural America, it appears, the VHS videocassette is rapidly going out of style.

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By: Thomas K. Arnold

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2 Oct, 2000

TK's MORNING BUZZ: In Trying Times for Video Rental, Retailers Should Try Selling Discs -- Be It DVD or Pizza

OWENSBORO, KY -- I rolled into town late last night for this week's WaxWorks trade show and conference, the first since 1997, after having spent much of last week in Atlantic City, N.J., for the East Coast Video Show.

And I tell you, attending back-to-back trade shows that are essentially magnets for independent video specialty retailers has me feeling like Brother Love's Traveling Salvation Show, with people coming to me for what they hope will be some magical cure for the video rental woes.

Last week, I felt like a preacher, evangelizing about how important DVD is, and how retailers, no matter how small, should also begin selling discs, because rental alone isn't going to cut it.

That's hardly snake oil. It's sound advice, and yet at the same time it's not a cure-all. In these trying times, retailers have to strategize and analyze and figure out what works best for them to get the revenue stream flowing again. In New York and Boston and other big metropolitan areas, it might be DVD; here in Owensboro and surrounding hamlets like Hawesville, Tell City and Calhoun, it might be video game rentals or tanning.

The harsh fact is this: If a splashy new Blockbuster or Hollywood video store opens across the street, down the street or anywhere close to you, you're probably not going to make it. You can't compete with walls of hits, guaranteed to be available and dispersed to customers for five nights.

But even retailers who are nowhere near a Blockbuster or Hollywood are feeling the crunch, with satellite, the Internet, and other things electronic and digital.

Simply renting VHS videos is no longer a viable business, at least not in the long term. Even Blockbuster concedes this point, which is why the chain is now selling satellite dishes and developing an online video-on-demand service.

As I said before, these are trying times--and you need to keep on trying to find something that complements your existing video rental business, be it DVD or pizza, so that all your proverbial eggs are no longer in one basket.

Praise the Lord, you can do it. Hallelujah!

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By: Thomas K. Arnold

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29 Sep, 2000

TK's MORNING BUZZ: Now's the Time to Turn DVD-Renting Customers Into Buyers

On my flight back to Orange County after the East Coast Video Show closed yesterday afternoon, I couldn't help but dwell on a conversation I had at our booth with a retailer who says his 10-store chain has developed a burgeoning DVD rental business, but isn't in the game when it comes to sellthrough.

"I can't compete with the mass merchants," he told me. "They sell it for less than what my distributor charges. It's VHS all over again."

That may be the case, but it certainly doesn't have to be "VHS all over again."

When video specialists effectively gave up on the VHS sellthrough business, they lost a potentially powerful profit stream. Sellthrough in the last 10 years has grown into a nearly $9 billion business, but specialists, sad to say, are only reaping a small percentage of that.

Let's not have the same happen with DVD. When this retailer told me he couldn't compete against the mass merchants, I told him I thought he was wrong. Dead wrong.

He may not be able to match the mass merchants' price and still make a reasonable profit, but he certainly can play up his strengths and use them to his competitive advantage. Why not offer two or three free rentals with the purchase of any DVD, or apply the rental fee toward a purchase? That's something the mass merchants, who have never really gotten into rental, can't offer, and it also plays right into the public's "try before you buy" mentality. "Hmmm," he responded. "I never thought of that."

Well, it's time he did. It's time you all did. Don't be lured by the short-term potential of DVD rental. I've said this until I'm blue in the face, and I'll say it again--get to work now, turning your DVD-renting customers into buyers.

Sure, not every new DVD owner is going to want to buy every disc that comes out. But if you can add a few sales to every dozen or so rentals, you're generating incremental revenues that are sure to add up after awhile.

You're also re-establishing the video store as the MOVIE store in your customers' minds, a place where they can satisfy all their home entertainment wants and (perceived) needs.

And, perhaps most importantly, you're hedging your bets against the day when DVD rentals cannibalize so much of the VHS rental business that the studios, who make a lot more money selling you rental-priced VHS cassettes, begin tinkering with the current model, perhaps even to the point where you're going to start seeing day-and-date releases on video and on pay-per-view.

The time to spring into action is now, with the fourth quarter right around the corner. Enjoy DVD rentals all you want, but don't skimp on the sales side.

Your future depends on it.

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By: Thomas K. Arnold

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28 Sep, 2000

TK's MORNING BUZZ: Video Stores May Become a Scapegoat in Hollywood’s Latest Round of Moral Cleansing.

Avalanche Home Entertainment held a drawing for a pair of World Series tickets at its booth. Shown here, from left, are "celebrity drawer" Bo Andersen, president of the VSDA; Brad Pelman, Avalanche's sales and marketing v.p.; David Rand, Avalanche's director of sales; and Noah Segal, senior v.p. of Lions Gate Films, which owns Avalanche. (Hive News Photo)

ATLANTIC CITY, N.J. — Well, the weather cleared up and the crowds poured into the Atlantic City Convention Center yesterday in a much heavier stream than they did the day before, when the East Coast Video Show opened.

Retailers and exhibitors alike appeared quite content, with several noting that despite the hard times many dealers have fallen upon there are still new faces to be seen, new video stores opening and coming out of the gate well-stocked and well-armed with knowledge, information and strategy.

Meanwhile, the controversy over Hollywood allegedly marketing violent movies to young people hit home in a couple of ways. Senator Joseph Lieberman, the Democratic vice presidential candidate and champion of kinder, gentler fare for America’s youth--his threats of legislative intervention helped bring about the video game industry’s move to adopt a voluntary ratings system a few years ago--was in the convention center this week, addressing a convention of bricklayers. He blasted studio executives for refusing to "say explicitly that they would stop marketing adult-rated products to our children."

Good thing he didn’t wander over to the adult section of our little confab, which was sandwiched between the regular video area and the bricklayers--a stone's throw, as they say, from where the good senator was speaking.

VSDA president Bo Andersen, in his speech, warned against government empowering the studios to crack down on retailers who don’t abide by the MPAA ratings system, saying such a legislative move would threaten the sanctity of the First Sale Doctrine. I agree with Bo 100%, and also share his concerns, particularly in light of an Associate Press story that hit the wires this morning.

The headlines is, "Teens: Lawmakers Can't Control Media," but the opening of the story reads as follows:

LOS ANGELES (AP) - To Matt Casazza and fellow teens, the debate raging over Hollywood's marketing of violent films to youth leaves them with one question: Who cares?

"Sooner or later they're all gonna come out on tape and then you can rent it," the 15-year-old Casazza said. "It doesn't really matter, because they don't card at (video stores)."

Am I the only one who fears this may stir things up even more? Andersen and the VSDA need our support in fighting Washington on this one. The VSDA’s "Pledge for Parents" program, in which retailers agree not to rent unsuitable fare to minors without parental consent, is a worthy and admirable example of responsible self-regulation, and yet it appears that video stores may become a scapegoat in Hollywood’s latest round of moral cleansing.

As if our industry doesn’t have enough problems!

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By: Thomas K. Arnold

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27 Sep, 2000

TK's MORNING BUZZ: Instead of Fighting the Public Clamor for Hits, the Industry Fed It -- And Look Where We Are Now!

The karaoke party drew a huge crowd of participants and revelers alike. (Hive News Photo)

ATLANTIC CITY, N.J.—Midway through the East Coast Video Show, I was hit by the irony of things. The video industry is in turmoil, and yet the party scene last night was more boisterous, more festive, than it’s been in the five years I’ve been coming here.

The anime party was a blast, and the karaoke party that followed was a blitz of dancing and some incredible singing on the part of wannabe teen sensations.

I'm sorry I missed Bruce Apar's stunning vocal interpretation, with Tom Rooney and David Goodman, of "It's My Party," but my absence was more than made up for when I was dragged up on stage while show director Kimbirly Orr crooned "Stand By Your Man" in my ear.

The other thing I noticed about both parties was how much work was getting done. The anime folks who sponsored the anime party were mingling and talking business with retail clients, and during the karaoke party there was plenty of networking in the halls. I overhead VSDA board member and Texas retailer Ross Flint discussing late fee collections with a group of retailers, while I was cornered by at least a half dozen retailers whose questions all boiled down to this: What, exactly, is going on in this business, and how did we get to this point?

A conversation with a New Jersey retailer who got into the business in 1986, "made a lot of money for a lot of years," and now wonders how long he’s got left led to this train of thought: The groundwork for the sad state of affairs we are now facing was laid back in late 1993 and early 1994, when the business was recovering from the recessionary early 1990s and retailers were breathing a collective sigh of relief that they had survived the great shakeout of the early years of that decade.

Around that time, we began noticing a precipitious decline in ‘B’-title sales. Video rental was a maturing industry, the novelty of the VCR had worn off, and consumers were starting to go for the hits. Independent suppliers who had been accustomed to moving 20,000 and even 30,000 units of a decent secondary title were alarmed to find sales cut in half, and several independent suppliers, including Prism Entertainment and Academy Entertainment, threw in the towel.

As the years progressed, consumer tastes continued to run toward the hits--to the point that in 1997, when a slate of weak theatricals came to video, rental revenue for retailers and studios alike went south. Live by the hits, die by the hits, everyone said--and the solution was to find a way to get more hits into stores and thus satisfy consumers’ still-growing propensity for theatrical blockbusters.

Thus began revenue-sharing, copy-depth, the aggressive market-share wars between Blockbuster and Hollywood and the slow death march of the independent video specialty retailer, who no longer could compete against the big guys, with their 200-plus copies of the latest big hit and five-days rentals, to boot.

What can be done now? Probably nothing. What should we have done back then, in 1994? Therein lies the key to our predicament.

In my opinion, the falloff in secondary-title sales and rentals should have been taken as the ominous sign it was. The industry should have immediately taken steps to change consumer behavior before it was too late. With the first sign of a slowdown, the industry should have embarked on a generic awareness campaign, stressing video’s convenience and selection and focusing on the variety and diversity that home video offers compared to competing delivery systems, such as pay-per-view.

Studios should have focused on bringing better product to the ‘B’-title table, and instituted some sort of pricing structure under which retailers could bring in two or three secondary titles for the price of a theatrical hit. Studio and distribution reps should have worked with retailers to develop special sections in stores, to pump up ‘B’ titles under such categories as cult, slasher, foreign, art-house, and the like.

Yes, consumers have a natural propensity to the hits, but if we had come at them with all guns blazing I firmly believe we could have arrested this trend, or at least slowed it down.

Instead, we caved in and panicked. Our great industry minds concluded that if consumers want the hits, we need to give them the hits, more of them, and guarantee their availability. As for secondary titles, Hollywood threw in the towel, figuring there’s no chance for recovery.

At a conference in early 1994, Bill Mechanic said that 80% of what video stores rent is films you can’t get anywhere else--not on cable, not on pay-per-view, not anywhere--and that it was this distinction that would keep video stores alive well into the future.

Well, that distinction has been lost. Instead of fighting the public clamor for the hits, we fed it. And when there’s nothing but bones left on our plates, we have no to blame but ourselves.

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By: Thomas K. Arnold

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