Hollywood still fervently believes in the video rental business, which is good news for supermarkets.
Rental revenues dropped 4.2% last year, according to the Video Software Dealers Association, Encino, Calif., and now studios are reacting aggressively with programs geared to putting more copies of new releases on retail shelves. This is expected to improve customer satisfaction and, in turn, product movement. As a result, this spring promises improved revenues for supermarkets in the rental business.
Market forces are driving change throughout the video trade. The growth of Hollywood Entertainment, Portland, Ore., with its glitzy stores and massive presentations of new releases -- often acquired from shared-transaction fee supplier Rentrak Corp., Portland, Ore. -- forced Blockbuster Entertainment, Dallas, to rethink its marketing strategy. Blockbuster then used its clout as the world's largest video retailer to negotiate revenue-sharing agreements with studios that allowed it to enhance copy depth and roll out a "Go Home Happy" customer satisfaction promotion chainwide.
Needing to extend similar consideration to other retailers, the studios have rolled out programs to boost copy depth. Warner Home Video, Burbank, Calif., was first with its "Profit Plus" program, introduced late last year. It rewards retailers with free copies if they meet certain buying requirements. Columbia TriStar Home Video, Culver City, Calif., soon followed with a similar program. And Universal Studios Home Video, Universal City, Calif., announced a similar copy-depth program, called "Universal Rewards."
This month, Disney's Buena Vista Home Entertainment, Burbank, Calif., shook the industry with the news that it would offer a revenue-sharing plan through all traditional distributors. Buena Vista's plan embraces both existing shared-transaction fee suppliers, Rentrak Corp. and Disney-owned SuperComm, Dallas. But the details of how the program would work with distributors -- who have historically and vehemently opposed such revenue-sharing programs -- were unclear.
One thing is certain: The video rental business this year will be vastly different from the one that suffered the 4.2% decline in 1997.
"In light of the Blockbuster situation, I'm very glad I'm on revenue-sharing right now," said Randy Weddington, video specialist at Harps Food Stores, Springdale, Ark. Harps uses Rentrak. "I think that just everybody is going to be on it in the long term. I'm anxious to see what this year brings," he said.
"Across the board, we are hearing that rental revenues are up compared to last year, and the retailers are enthusiastic about what this year will produce for them," said Bill Bryant, vice president of sales for grocery and drug at Ingram Entertainment, La Vergne, Tenn.
Because of 1997's theatrical schedule, there will be "a very consistent flow of very strong rental product" in early 1998, said Bryant. "Retailers have a much more optimistic outlook."
The VSDA also will weigh in on copy-depth issues, as well as creating a Video Industry Promotion program akin to such efforts as the "Get Milk" campaign.
"We think that one of the most important issues right now is to increase customer satisfaction," said Jeffrey Eves, the VSDA's president.
A major research study conducted by Yankelovich Partners, Norwalk, Conn., for the VSDA, concluded that consumers still enjoy watching videos and the experience of going to a store to rent them. However, some new technologies, particularly satellite systems, are starting to cut into the rental market. To no one's surprise, the study found the availability of new releases is one of the biggest concerns of renters.
"On the rental side of the business, we need more copies, and the new programs that have been introduced have the effect of putting more copies into stores without the retailers having to spend more money. We need to make sure that we use those programs to increase customer satisfaction levels so people stay happy with video," said Eves.
Last December, in response to market conditions, Warner Home Video announced its Profit Plus program. The program rewarded retailers with free products for meeting goals based on past purchases. The goals on a total of eight Warner titles were tied to each retailer's purchase of "Addicted to Love." Retailers who met their goals on the titles were eligible to receive free goods equal to 20% of their orders.
"The major complaint from consumers seemed to be a lack of copy depth at retail," said Jeff Brown, director of rental marketing at Warner Home Video. "The Profit Plus program is a way to help retailers address that issue."
In the wake of the Warner program, Columbia TriStar Home Video announced a similar program, offering retailers free goods equal to up to 20% of their purchase of seven titles including "I Know What You Did Last Summer," "Seven Years in Tibet" and "U Turn." Goals for the Columbia program were based on retailer purchases of "The Fifth Element" and "Anaconda." Both the Warner and Columbia programs require the purchase of some secondary products along with the A titles.
Now Disney has jumped in with its shared-revenue program. With shared-transaction fee programs like SuperComm and Rentrak, retailers pay a $7 to $12 fee to acquire a tape, and then share the revenues about 50-50 with the supplier. Otherwise retailers pay about $60 to $70 for a new release tape they would own. Most retailers take advantage of this pricing structure to bring in much greater depth of copy on the hits and more breadth on B-titles.
The Disney program is expected to be similar, but go through traditional distributors, who will license the software to track the transactions from SuperComm or Rentrak, said Des Walsh, vice president and general manager at SuperComm. "The distributor will handle and process all revenue-sharing functions totally independent of us, so we can continue to devote our resources to the supermarket segment," he said. SuperComm and Rentrak also will provide an audit function.
Walsh said revenue-sharing will be simpler for distributors to administer than the bonus-units programs of Warner and Columbia.
But competitive issues aside, the combined efforts of the studios are good news for the rental market, said Walsh. "The fact that the studios are developing these programs, and backing them up with marketing dollars and promotional activity, we believe will cause a resurgence of the video business, which is good for supermarket retailers," he said.
Increasing copy depth, the goal of both the Warner and Columbia programs, has long been the purpose of shared-transaction fee distributors. But, according to Ron Berger, president of Rentrak, that's where the similarity ends. Berger said that while he believes depth-of-copy promotions aimed at keeping consumers from walking out of video departments empty-handed are good for the business, the studios can't go far enough.
"Warner said that for every 10 copies of a hit movie that you buy, we'll help you put out two more. Rentrak said that for every 10 copies of a hit movie that you buy, we'll help you put out 30 or 40 more. And, if they don't rent, you don't pay for them," said Berger.
