BURBANK, Calif. -- All the signs point to a great year for video in supermarkets in 1998, said Mitch Koch, senior vice president and general manager at Buena Vista Home Entertainment North America.
While supermarkets continue to make big gains in sell-through market share, the rental side of the business remains a key component in many large retailers' marketing strategies, he said in an exclusive interview with SN. Meanwhile, he sees the overall industry overcoming a negative image resulting from media coverage of the revenue problems experienced by video specialty chains.
"For whatever reason, there were questions about video in 1997 that were overblown," said Koch. "But in 1998, I think people are going to see a reassertion of the promise of the video business within its rightful place in the entertainment companies, and retail at large." Buena Vista is the home video sales, distribution and marketing arm of Walt Disney Co. here.
"We are still seeing good growth in both sell-through and rental. While the rate of growth has slowed compared to the middle '90s, total unit volume growth has been up substantially," said Koch.
The supermarket channel's share of the sell-through market has grown 50% in the last two years, noted Dennis Maguire, senior vice president of sales and distribution at Buena Vista Home Entertainment. "Grocers are starting to fight back and compete more effectively in the general merchandise categories. The best ones are using video as a key ingredient in that strategy," he said.
"Sell-through has been growing each year," added Koch. "It is one area that has exceeded our goals and objectives for sales volume growth. We would like to see it further developed, for instance with permanent sections and a commitment to the category on a day-in and day-out basis."
The rental side of the business also has been doing well. "There has been some hesitancy in terms of the long-term commitment to the rental category. But in the last couple of years we have seen a strengthening, partly attributable to the SuperComm program. SuperComm has brought focus and attention to the rental category, and renewed the discussion about supermarkets' commitment," said Koch.
SuperComm, based in Dallas, is a Disney subsidiary that provides rental titles to supermarkets on a shared-transaction fee basis.
"SuperComm at its core enables the retailer to address copy depth issues," said Koch. Through the shared-revenue approach, supermarkets are able to compete better against large specialty stores. "It allows them to adjust their cash-flow investments and bring more copies into the store in total. We think that has reinvigorated the departments and increased consumer satisfaction."
Buena Vista is less concerned with the business results of SuperComm than with how well it supports the marketing efforts of the studios and retailers. "It has effectively enabled us to increase our sales and I think stabilize what were some negative trends in certain segments of the grocery rental business. But last year, SuperComm beat its budget and exceeded expectations," Koch said.
Looking at the overall industry, "the future of the rental business is much brighter than portrayed by a lot of the current discussions in the press," Koch said.
Recently Buena Vista made news by saying it will provide an average of 60-day pay-per-view windows on new video releases. This was a major theme at last year's Video Software Dealers Association convention and Buena Vista's move answered a long-standing and frequently voiced complaint of retailers.
"On this particular issue, we have put a stake in the ground saying we are in favor of 60-day or greater windows. In essence, we've tried to put our money where our mouth is and come up with something within the studio system that should be viewed as a shot in the arm for the video industry," said Koch.
"We think the rental business is a strong, vibrant consumer business the consumers love, and we are fully behind it," said Maguire. "And 1998 is going to be a great year in which we are going to employ a lot of different marketing tactics including copy depth, advertising and cross promotions, to continue to spur rentals."
On the sell-through side of the business, "the appetite and the enthusiasm the consumer has shown for video continues to grow," said Maguire. But as the number of titles coming out at sell-through pricing proliferates, retailers tend not to focus sufficiently on each title. "But this is definitely a marketing-driven business where event marketing on the big titles pays off. People who give it that focus are stealing share."
The company is gradually increasing the number of its titles released direct to the video market, with two major sequels scheduled for later this year: "Pocahontas: Journey to a New World" and "Lion King: Simba's Pride."
"We get the first window and to be the original marketers of these titles. The marketing spending we put behind these titles is at hit-title level, generating huge demand, and the only place consumers can get it is in a retail store. We think that is a wonderful advantage for our retailers and something that we expect to grow in the next five years," Koch said.