LAS VEGAS -- Low-priced video promotions with McDonald's are a much bigger threat to the home video business than the information superhighway, said Jeffrey Katzenberg, chairman of Walt Disney Studios, Burbank, Calif.
"As I look to the future, I see something much more ominous and dangerous and immediate than video-on-demand," said Katzenberg. He spoke during Disney's gala Sunday evening dinner show at the Video Software Dealers Association convention here last week. The spectacular stage and video production, celebrating "Snow White," played to a capacity crowd in the Las Vegas Hilton hotel's largest ballroom.
"I believe the real threat to home video is not the new technology coming down the road; it's the golden arches right across the street," he said. "The time has come for you to use your clout to stop fast-food video dead in its tracks." Katzenberg's impassioned comments came at a time when MCA/Universal is set to launch a fall promotion with McDonald's. This will be shortly before MCA's "Jurassic Park" and "The Flintstones" square off against Disney's "Snow White and the Seven Dwarfs" and other titles in a battle for consumers' sell-through dollars. In the past, Orion and Paramount have joined with McDonald's for similar promotions and, although they have sought to tie in video retailers via rebate coupon offers, the retailers have objected strenuously to the programs. Supermarket retailers have been among those protesting.
In the McDonald's promotions, consumers can buy a popular movie for $5.99 with the purchase of a large sandwich.
This degrades the value of videos, said Katzenberg. "You see, $5.99 is a fine price to charge if your goal is to increase traffic for your hamburger business. But it is a suicidal price to charge if your goal is to have a healthy video business," he said.
"There's a grim reality behind the Happy Meals," he said, referring to McDonald's special children's combination meals. "I absolutely believe that, if it's allowed to continue, Mac-video will undermine the fundamentals of theme-video business." The McDonald's offer will take business away from retailers offering sell-through videos as a regular part of their product mix, said Katzenberg, adding: "This fall, when consumers go into your stores to buy 'Jurassic Park' or 'Snow White,' why should they bother to buy another title? Instead, they'll walk across the street and pick up a Big Mac with Fievel and fries." In the fourth quarter of 1992, McDonald's was the fourth-largest video retailer, and grew to third largest in 1993, he said. "This year, we can only expect its share to get even larger. If nothing is done to discourage it, fast food video will continue to become a bigger and bigger business," he said.
Disney has been approached to take part in these McDonald's promotions, said Katzenberg. "It wasn't easy to say no, but we did. In the final analysis, we felt we had no choice. We saw the McDonald's deal as a Faustian bargain that threatened to mortgage the future health of the video business," he said.
Katzenberg asked the audience to imagine what would happen if video retailers offered Big Macs for 59 cents for three months every year. "McDonald's would never let this happen," he said, "so why should we?"
Katzenberg urged the retailers in the audience to use their clout with the studios to stop these promotions. "There is enormous power in this room -- the power to control the destiny of the home video industry. It's time to use it," he said.