Crossan "Bo" Andersen is walking a tightrope as he approaches his first convention as the Video Software Dealers Association's new president. One part of the VSDA's core membership is the big specialty chains, Blockbuster, Dallas, and Hollywood Entertainment, Portland, Ore., which are aggressively pursuing market share at the expense of independent retailers, who represent the biggest percentage of the VSDA's dues-paying members. Meanwhile, those independents are unhappy with their treatment by the studios -- another important part of the VSDA's constituency -- and video distributors also are suffering losses as the market takes a new shape. The decline in numbers of independents means a smaller membership base for the VSDA and will probably be reflected in the total attendance at the VSDA Convention next month in Los Angeles, July 8 to 10.
Supermarkets have much in common with the independents, although they historically have played less of an active role in the VSDA, Andersen told SN in a pre-convention interview. But in spite of their lack of involvement, he is concerned that the supermarket class of trade remain a healthy contributor to the overall video business.
"I still think there is a strong opportunity in home video for supermarkets, whether they are committed to a small sell-through penetration, or a small couple of racks of rental videos, up to the 4,000- to 5,000-square-foot element in the store. I hope we'll see some growth again in the supermarkets," Andersen said.
"I look at most of the supermarket participants in the industry as small video retailers with a corporate superstructure, so they have two bosses: the economics of home video and the economics of supermarkets. That's a challenge. I am impressed by those that can do it and do it right," he said.
Andersen was named acting president of the VSDA in January following the resignation of Jeffrey Eves. Although his four-year tenure as president had been successful by most objective measures, Eves had fallen into disfavor with the independent retailers who said they believed he wasn't doing enough for them in their struggle with the big chains. In April, Andersen was given the job of president on a permanent basis.
Andersen joined the VSDA as vice president and general counsel in 1995, and was named senior vice president and general counsel in 1997. He was responsible for the VSDA's governmental and legislative affairs, as well as the membership department. In contrast to Eves' more flamboyant and political manner, Andersen's quiet style earned him the confidence of the VSDA's board members and staff.
The following SN interview with Andersen took place during the Cleveland mini-convention of the VSDA's Northern Ohio chapter last month.
SN: Looking ahead to your first VSDA Convention as president, what is your view of the state of the overall video industry?
ANDERSEN: It appears that the industry is up, probably not double digits, but on an uptick. That's positive news so long as there is some uptick for most elements of the market, and that's part of the challenge of this year. So the industry is still experiencing some growth and yet there is a little more turmoil than there normally is. That's my view of the status of the industry right now.
SN: Are the lower volume, smaller sized stores -- termed "tier one" and "tier two" in the VSDA's recent research -- participating in this uptick?
ANDERSEN: No. The tier one and tier two stores are not experiencing growth and it is the superstores that are seeing most of the growth. One of our objectives is to accelerate the growth at tier one and two as well.
SN: What are your goals for the VSDA that would relate to the supermarket class of trade that is involved in both rental and sell-through?
ANDERSEN: My personal goals are to manage this trade association in a professional manner with unquestioned integrity, but at the same time to deliver value to all the member groups. I'm frankly concerned with what appears to be some retrenchment by supermarkets. They have been a very strong competitive force in the past, and I enjoy competition because of what it brings to the industry in customer satisfaction and in economic success.
But I need to understand more about what has caused that retrenchment. If it has been due to the complexity of the studio programs, that is unfortunate because the programs shouldn't be unmanageable by any strong segment of the market. Beyond that, I still think there is a strong opportunity in home video for supermarkets, be they committed to a small sell-through penetration, or a small couple of racks of rental videos, up to the 4,000- to 5,000-square-foot element in the store. I hope we'll see some growth again in the supermarkets.
SN: In SN's recent video survey, supermarkets expressed the same concerns as independent retailers: The market share expansion of the specialty chains and what they perceive as unfair treatment from the studios and other suppliers.
ANDERSEN: We think that not all of the growth by the major chains has come from market-share transfer. But they are clearly more competitive than they have been in the past, and I'm not surprised that supermarkets share many of the same reactions and needs as independent video stores. I look at most of the supermarket participants in the industry as small video retailers with a corporate superstructure, so they have two bosses: the economics of home video and the economics of supermarkets. That's a challenge. I am impressed by those that can do it and do it right.
SN: How are the VSDA's copy-depth initiatives going and how do they relate to supermarkets?
ANDERSEN: The way I view most supermarkets is that they have the same basic limitations on shelf size as the smaller independents, and that results in some problems for presenting great copy depth. However, the increase in customer satisfaction that can be gained by carrying copies in depth can still be attained even though the copies are not all on the shelf. For example, they could offer some kind of a guarantee of availability. That seems like a good opportunity for copy depth, even given those space limitations. So supermarkets can experience the same kind of organic growth, with customers visiting more frequently and renting more units per visit, that we have discovered for all tiers of video specialists.
SN: What did the recent study the VSDA commissioned from Mars & Co., San Francisco, show about copy depth in the lowest tiers of stores, which include many supermarket departments?
ANDERSEN: It may be self-evident, but the empirical data supports that, in the very smallest tiers, the revenue boost that they can achieve through copy depth is smaller. So the economics for bringing in twice their usual copy depth have to be better. It is important to note that the studios want to experience that growth, because they get a share of that revenue. If they don't encourage those tiers to add more copy depth, they leave money on the table. So there is a real economic reason for studios to price very aggressively to the smaller tiers.
SN: How are the studios responding to this information?
ANDERSEN: I have been working with the studio video executives for 12 years now in a couple of capacities. I have seen them engaged on some things and less engaged on others. On this, they have been fully engaged, interested and data thirsty. We have presented them with transparent analysis and transparent data sources. They can dig as deep as they like and some of them are doing a good job of digging into the data.
SN: When will there be changes in their programs as a result of the research?
ANDERSEN: There have been some positive changes already and there will certainly be more. These changes will be more rapid if concerns about sideways distribution [retailers selling program titles to other retailers] can be allayed. The studios want to present better opportunities to all tiers, and there have been some proposals that focus on limiting sideways distribution.
SN: Is there anything illegal about sideways distribution?
ANDERSEN: No. There may be some contractual limitations that people are ignoring, but there is nothing in the intellectual property or in antitrust law that makes it illegal.
SN: It goes back to the First Sale Doctrine.
ANDERSEN: Yes. Fundamentally, you can't control downstream distribution because of the First Sale Doctrine.
SN: How do the interests of the independents and supermarkets coincide?
ANDERSEN: Other than the need to respond to a corporate structure in the supermarket context, where independents can turn on a dime, I think that we are talking about the same economic and the same business models, except where a supermarket uses video as a loss leader. But I don't see so much of that anymore.
SN: In the light of declining membership base and two new shows -- the Grand Slam Video Show, May 13 to 14 in Biloxi, Miss., and Independents 99, June 9 to 10 in Las Vegas -- what are your expectations for this year's annual convention in Los Angeles? ANDERSEN: I definitely want the VSDA convention to be attended as it has in the past. We have priced it so aggressively that there are ample reasons to come because it really is delivering more value for the dollar, per attendee. The exhibit floor will be engaging and fully attended, but while there aren't going to be as many monster booths, there will be a real business focus on the floor. It's going to be a great event. It will be a great opportunity for product presentations and DVD products that need more exposure at retail.
SN: What attendance do you expect?
ANDERSEN: I don't think it's realistic to expect that we will draw as many as we did in 1996 in Los Angeles, but I certainly would like to have more than 9,000 people there.
SN: You mentioned fewer large exhibits. Does that mean a smaller exhibit floor than in the past?
ANDERSEN: We will come close to the same total square footage sold because there are a large number of new exhibitors. It's going to be well over 110,000 to 120,000 square feet.
SN: In terms of content, what will be different at this year's show?
ANDERSEN: Aside from the exhibit floor, we have enhanced the business elements of our show. We will bring in some professional presenters for the seminars and upgraded the overall quality of the seminar program. We are going to have a general session on purchasing options, buying groups and revenue sharing. I think the show will have more business value than it has had in recent years.
SN: With so many independent specialty stores going out of business, what concerns do you have with VSDA membership?
ANDERSEN: Membership renewals are down and we are not signing new members at the same rate as we did last year, so the net is down, and that's troublesome. But the VSDA is strong enough, so that's a long-term problem and not an immediate one. We will find a way to build membership back up by delivering value.
SN: Many smaller retailers don't feel that the VSDA represents their interests. How do you respond to that?
ANDERSEN: The VSDA is better aligned and more responsive to independents than it has been in its recent history. It has taken some effective steps in support of independents and it has a very good commitment to them. So I just think that people are wrong in thinking that independents aren't of primary concern and focus for the VSDA, and we will convince them of that as we go along.
SN: Jeff Eves spoke of the VSDA as a big tent -- a place for big and small retailers -- and couldn't engage in legal action on behalf of one segment against the other. He drew criticism for that. What do you think?
ANDERSEN: We are no less a big tent than we were before. A big-tent approach is not a reason to keep quiet about things that are wrong or illegal, but experience has already demonstrated that those who were calling for a legal action to correct illegal activity were wrong. There wasn't such an action to bring and the VSDA was right in plotting a more methodical and empirical approach to the problems that independents are faced with.
SN: How do you see supermarket participation in the VSDA in the future?
ANDERSEN: I want to see the growth or reinvestment in home video from supermarkets, and I welcome more participation by them in the VSDA. It's a segment that we want to continue to respond to and I always appreciate the focus that one of the studios brings to supermarkets at the convention through the breakfast. I would like to look for additional opportunities to involve supermarkets at the committee level or in special projects for supermarkets. I'm thirsty for ideas.