Retailers are greatly increasing copy depth on key new-release hits with shared-transaction-fee programs. More of the top chains are using shared-revenue programs, such as those from SuperComm, Dallas, and Rentrak Corp., Portland, Ore., to increase their presentation of new releases and to stage aggressive promotions advertising "guaranteed availability." For example, some stores have brought in as many as 150 copies of top rental titles such as "While You Were Sleeping" and "Die Hard With a Vengeance." The programs are even causing some retailers to remerchandise their departments for a greater focus on new releases. "I'm very pleased with the results so far," said Clifford Feiock, video coordinator at Nash Finch Co., Minneapolis, which rolled out the SuperComm program to all 38 of its corporately run video departments in October. "In some stores it is having a real impact. In others, we still need
to fine-tune it a little. We are still in an adjustment period, but I am still very happy with it so far." "It is our belief that it is a positive thing to do, although we can't put a number to the benefits," said a video executive with a Midwestern retailer. "I've been increasing SuperComm purchasing quite a bit since I took over this position," said Randy Weddington, who joined Harp's Food Stores, Springdale, Ark., as video specialist in mid-1995. With shared-revenue programs, retailers pay a small $7 to $12 fee to acquire a tape, and then share the revenues with the supplier. This can be an alternative to paying as much as $70 or more a copy for some titles and allows the retailer to bring in specific movies in much greater depth. Revenues are tracked electronically. Also known as pay-per-transaction, this form of shared revenue is different from the full-department racked programs in that it focuses on specific titles. With the racked programs, revenues from the entire rental department are split. There are two major suppliers of the shared transaction fee programs: Rentrak Corp. and SuperComm, which is a subsidiary of Walt Disney Co., Burbank, Calif. These programs apply only to rental-priced products.
Rentrak has a stronger presence in the video specialty store business and offers more product breadth, retailers noted. On a regular basis, Rentrak offers movies from the various Disney labels and from FoxVideo, Los Angeles. The SuperComm program, meanwhile, is tailored for supermarket video programs, and has a greater penetration into the supermarket trade. Retailers said the SuperComm program is easier to deal with, especially at store level. Parent company Disney is its only regular major studio at this time. SuperComm now supplies 60% of the top 50 supermarket companies, said Des Walsh, vice president and general manager. "Based on commitments already received, we expect that number to reach 75% within the first half of 1996," he said. Rentrak executives were traveling and could not be reached for this report. Many big chains are either using or testing these programs, according to distribution sources. Among them: Coborn's, Dillon's, Fiesta Mart, Fleming, Food Giant, Haggen, Harp's, H.E. Butt, King Soopers, several Kroger divisions, Marsh, Nash Finch, Pathmark, Phar-Mor, Price Chopper, Randalls, Safeway, Smith's, Winn-Dixie and the video rental departments in Wal-Mart and Kmart supercenters. Among the titles that have been available recently on one or both shared transaction fee programs are "Die Hard With a Vengeance," "Pulp Fiction," "While You Were Sleeping" and "Waterworld." The success of these programs is prompting some retailers to reevaluate the way they merchandise their video rental departments. With space limited and demand for new releases high, retailers use computer programs to help cut back on catalog products that turn infrequently. "We have an ongoing effort right now to condense some of those sections, sell off the excess product that is not renting and reconfigure our departments so we can devote more space to the new releases," said Feiock of Nash Finch. "If we are going to compete against the Blockbusters and Hollywood and Premiere video stores that are out there, we have got to operate as they do in terms of keeping titles on the new-release racks longer and providing a better environment for them," he said. Nash Finch remerchandised a few stores in this way just before Christmas, "and so far the results have been very good," Feiock said. "I would like to get to a point where we could phase out the catalog inventory," said Randy Weddington, video specialist at Harp's Food Stores, Springdale, Ark. "Our smaller operations don't have a lot of space and I would rather turn them into strictly new-release departments and maybe just keep a family section of catalog product. That is all we would have room for if it grows like I expect it to," he said. SuperComm has been encouraging retailers to do this, Walsh said. "The increased copy depth has forced retailers to re-examine how best to merchandise their videocassettes. If new releases are the key to attracting the consumer's attention, then it makes good sense to devote more of the prime renting space to new releases," he said. A distribution executive who specializes in supermarkets agreed that many video departments need remerchandising, but said that if it is done well, the retailer won't need to share revenues. Rapidly expanding video specialty chains like Hollywood Video and Moovies are raising merchandising standards beyond the those that Blockbuster set years ago, and it takes more than multiple copies of new releases to compete, said John Fincher, national account sales manager at Baker & Taylor, Morton Grove, Ill. "I don't think [shared transaction fee programs] are as important a component as they once were. Consumers are now making decisions based on: 'Where is the funnest place to rent movies?' " Fincher said. Retailers need to pay more attention to the design of the departments, and such elements as colors, lighting and monitors, he said. "It's like comparing the experience of going to an old run-down movie theater to a new theater." Too much of a focus on new releases is destructive to the overall video business, said a source in the video industry who asked not to be identified. "With Disney entering in with Rentrak and SuperComm, revenue sharing has expanded. But that is making the business more hit-driven, crowding out B titles and secondary titles, which hurts business from the standpoint of satisfying demand too fast," the source said. New-release-only departments will decrease selection, "and you just might lose that shopper to Blockbuster," the source said. "The premise of shared revenue is you don't want unsatisfied customers. Yet that is ultimately what you are going to have when your video departments become a 10-choice deal. The customer might as well dial the movies up on TV," said the source. But in some big new departments, retailers are doing both. In a 2,200-square-foot prototype in a Wal-Mart supercenter in Moore, Okla., Rentrak subsidiary Blowout Entertainment, Portland, Ore., put in an 8,000-unit video department in which 40% of the 5,000-tape rental inventory is in new releases. As part of its grand opening in November, the department had 150 copies of "While You Were Sleeping," a title available from both Rentrak and SuperComm, and sell-through priced movies "Batman Forever" and "The Santa Clause." "Hits are the engine that runs the car," said Steve Berns, president and chief executive officer of Blowout. "It's the consistent satisfaction of demand for the hits that continually drives customers into the store." When they get their first choice in a new-release movie, then they are more likely to pick up a second or third video that often is from the catalog sections, he said. Supermarket executives have never been comfortable with the level of customer dissatisfaction that is a central part of the video rental business, said Berns. "Any supermarket chain worth its salt understands that they have to consistently satisfy customer demand with their inventory," he said. While retailers have reported good profits from the shared-transaction-fee programs, most agree that the primary benefit is promotional. A promotional method spreading rapidly among retailers now is guaranteeing the availability of these titles by offering a free rental, usually of a catalog tape, if the store runs out.
"All the supermarket chains that we deal with who use shared-revenue are intrigued with it from the promotional aspect, not the profitability aspect," said a distribution executive who asked not to be identified. "If these programs were more profitable, then instead of just bringing in a couple of shared-revenue titles a month, they would do it with every title that is available. But they don't." Both Harp's and Nash Finch are guaranteeing the availability of one title a month. In January, when SuperComm did not have a significant hit, the supplier offered promotional assistance to retailers who wanted to continue the program with "Indian in the Cupboard," a sell-through-priced title from Columbia TriStar Home Video, Culver City, Calif. While some retailers make a big splash with the guaranteed availability promotions, others do not use them. "To make the guaranteed availability program work, you need to bring in [a ratio of] four or five copies to one copy of what you would normally bring in. And when you do that, it doesn't pay," said the video executive with the Midwestern chain.
For others it is a space issue. "I can't put in enough in the stores just because I don't have storage space to do it," said Gregg Wright, president of Video III, Orem, Utah, which racks more than 120 stores for Safeway, Lucky, Smitty's and Buttrey. "You have to bring in 50 copies to give a guaranteed rental, and I'm bringing in 14 to 16 copies," he said. But this is a lot of copies for many of his departments. "Appearance of depth of copy is the main thing, with little up-front investment," said Wright. Another big issue for retailers on the shared-transaction-fee programs is the amount of work they entail for store employees. "There is some disillusionment with it at store level in terms of managing the inventory," said Greg Rediske, president of Video Management Co., Tacoma, Wash., which buys and manages the video inventory for several major chains in the Pacific Northwest and California. "Other than that, the retailers are generally happy with the programs," he said.