Retailers are perplexed and frustrated over the increased cost of rental titles, and find little cause to justify the situation.
When asked how he is coping with increasing costs, Bill Glaseman, video specialist at Bashas' Markets, Chandler, Ariz., said he is coping with anger.
"I just can't see the reason of the increases when a studio can come along and sell movies that retail at $19.99. Obviously the cost [to studios] is extremely low. When it comes to retail, they are certainly making enough profit at $89 or more. I just question the greed of the studios," he said.
So far it hasn't affected Bashas' pricing. But if the costs continue to go up, "it's going to have an effect not only on ours but everybody's," Glaseman added.
Doubly frustrating to retailers is that rental tape cost increases are coming at a time when sell-through tape prices are reaching new lows. Since the materials and manufacturing process are identical, retailers find this hard to accept.
"I find it amazing that the studios come in and talk about their reduced prices on sell-through at the same time that their rental prices are going up," said Teri Severinsen, manager of video services at Roundy's, Pewaukee, Wis.
"If they could give us some real justification on how their numbers are coming in and how it works out, maybe I could understand it a little bit better," she said.
For many retailers and consumers, the world of video pricing is baffling. Movies that are intended for the rental market are priced high so that, in theory, only rental dealers will buy them. The better titles are later repriced to the sell-through levels of around $20 or less to build additional revenues for the studios and retailers. Meanwhile, retailers sell off used copies of the rental tapes when their movement slows down.
In the last few years, the parallel direct-to-sell-through market has mushroomed, with many top titles coming out in the $20 to $25 range, and others priced much lower. Some feature-length titles in budget product lines now retail for less than $10. That's why some retailers can't understand why some rental retails can cost more than $100.
The rising prices on rental videos are keeping up with inflation, said Tom Adams, president of Adams Media Research, Carmel Valley, Calif. These increases have been in the 3% to 5% range, compared with double-digit increases in the late 1980s, he said. "Given the fact that unit sales are pretty flat on a per-title basis, it is to be expected that the studios would look for at least an inflation-matching increase," he said.
"You are talking about a creeping effect -- a couple of bucks at a time," said a video distribution source, who asked not to be identified. "Over the last three years, the retailer's cost has gone up in the neighborhood of $6 to $7 per tape. I really don't think it has had a significant effect on them," the source said.
If video rental was like other supermarket departments, the simple solution would be for the retailer to pass the cost along to the customer and raise the rental rates. But because video is so competitive, and most supermarkets are strongly committed to being price leaders, raising rates is out of the question, at least until somebody else moves first.
"Our market is very tight," said Sharon Stagner, merchandising coordinator at Seaway Food Town, Maumee, Ohio. "We don't have a lot of room to move around. So we won't be raising our rates in the foreseeable future."
Said Shirley Decker, video buyer at Goff Food Stores, Haslett, Mich., "We haven't increased our rental rates, mostly because our competition hasn't."
Roundy's isn't going to adjust its rental rates either, Severinsen said. "It's a grocery store, so we want to be very competitive with our rates." "It gets tougher to make our bottom line," said Matt Dillon, video director at the Boogaart Retail Division of Fleming Cos.' Scrivner Group, Concordia, Kan.
Boogaart, with many stores in rural areas, might selectively raise rates, Dillon said. But the chain hasn't acted on this yet.
Considering that most retailers have kept their video rental rates the same for a long time, an increase is probably due, Adams said.
This poses more of a problem for supermarkets that have identified their video programs with a given pricing structure, such as 99 cents a night for catalog titles, he said.
"Of the three options -- cutting depth, cutting breadth or raising prices -- the third one is probably just as due as the studios' price increases," Adams said.
