BURBANK, Calif. -- In a move that may signal more radical changes in the video-distribution business, Warner Home Video will no longer use traditional distributors to ship rental product. Instead, beginning in September, it will handle all rental accounts via a subcontracting arrangement with Ingram Entertainment, La Vergne, Tenn., which will act as the studio's rental-fulfillment arm.
Distribution of sell-through and DVD product will continue to be handled through distributors.
The move means that distributors -- already struggling to survive -- stand to lose 20% to 25% of their rental business, say industry observers. Warner accounted for 21.5% of rental revenues last year, according to statistics compiled by the Video Software Dealers Association's VidTrac Service. Understandably, these wholesalers, along with supermarket video executives contacted by SN, have reacted with alarm to the change, believing that should Warner be setting a trend, video buyers will now have to deal with salespeople from a multitude of studios, instead of just one salesperson at one distributor.
"It's going to be a problem for sure," said Brent Bailey, video manager at Darrow's Country Market, Baraboo, Wis. "If we can get more copy depth, it might not end up being a bad thing, but it's questionable what kind of input Warner will be able to give me in terms of what my store needs. Luckily, I have a pretty good idea of what rents and what doesn't." Bob Gettner, video buyer/coordinator for B&R Stores in Lincoln, Neb., isn't crazy about the switch either. "If the rest of the studios follow suit, it will be a horrendous mess," he said. "You'll have to call so many people [to get product], and it will be impossible to get a hold of them. If they have thousands of retailers who have to get their orders in by a certain date, they'll be on the phone 24-7. With regular distributors, it's different. I was with Sight & Sound before it closed, and my rep knew my stores very well. He knew my ordering patterns. Now, it's going to be a real mess."
Warner's decision is the result of the difficulties distributors had in effectively communicating the studio's buying programs to retailers, said John Quinn, Warner's senior vice president of sales. Because so many studios have so many different programs, Warner said, it believes that a targeted sales force explaining only Warner product will lead to a better understanding and more effective use of its programs.
"We believe we've always been on the leading edge of what works for retailers looking to satisfy consumer demand," he said, "but we haven't seen the benefits get through to every retailer. By going direct, we'll communicate what the programs are, how they work and what the benefits are to consumers. We'll also be able to hear on a first-hand basis what kinds of things work and don't work."
Whether other studios will follow Warner's lead is up for debate at this time. Greg Durkin, research director for home video at Alexander & Associates, New York, said he believes other studios will take a wait-and-see approach before deciding to go direct themselves.
"As usual, Warner is taking the initiative," he said. "They're experimental, as they were with DVD and revenue-sharing. If anyone can pull it off, it's Warner because they're the leading distributor of rental product."
Warner also distributes for New Line, HBO, MGM and Turner, he noted. "It seems like everyone in the entire economy is trying to cut back costs and eliminate middlemen as much as possible," Durkin said, "and the Internet helps you do that. As for the Warner decision, look for the Internet to support [their relationships with retailers] greatly in the future."
Quinn said Warner doesn't see multiple salespeople being a problem for supermarket retailers, who are used to purchasing from a number of suppliers. "Grocers don't buy all their food from one place," he said. "Shipping direct isn't unheard of, and we don't think this will be a major complication for them."
Durkin said, however, that it may be problematic for video buyers to have to deal with multiple salespeople. "It doubles their work," he said, saying he believes that if other studios follow suit, retailers could find themselves dealing with five or six different sales reps to place their orders. "Having that one distributor rep come in and talk to you was very helpful. It was almost like a support session to keep you in business. I think Warner intends on filling that role, but retailers are skeptical."
David Ingram, president of Ingram Entertainment, either deferred questions on such issues or stated that he simply didn't know what this new arrangement meant for retailers or the future of video distribution at this time. "It appears Warner picked Ingram Entertainment over other distributors because they felt that we could do the best overall job as a third-party services provider," he told SN.
Regardless, at a time when other video distributors are closing or considering mergers, Ingram is evidently planning on future growth. Last month, the company purchased 112 acres of industrial land for $3.6 million near its headquarters, according to a report in the Nashville Business journal.
Retailers and distributors are questioning Warner's credibility in advising retailers under this new arrangement. Currently, a traditional distributor offers third-party recommendations to its accounts based upon what historically has rented well at the store. Will Warner be able to provide a similar impartial approach?
Quinn noted that half of Warner's rental business was sold through direct distribution, so shipping direct is nothing new. "One thing we know about is selling," he said. "We've got a 30-year history selling to music and video stores. Our credibility rests on recommending titles and quantity."
Distributors, however, aren't convinced. One wholesale executive -- who said he believes that even more distributors will close now -- said that the traditional distribution rep will be difficult to replace. "A distributor has a strong effect on ordering, especially in the supermarket business," he said. "Among grocers, over half of the buying decisions are made by the distributor, and that's because the supermarket buyer has so many other responsibilities. They really rely on the wholesaler."
He agrees with video buyers that buying from multiple suppliers will cause problems. "The Ingram deal is awkward at best," he said. "Every account in America will now have to deal with two sales forces -- the Warner/Ingram force and their own distributor. And if you're an account of Ingram, you won't be able to place your order for Columbia product with the Ingram rep who's now taking orders for Warner. It's going to make it harder for the supermarket to operate."
Both he and Quinn said independent retailers, including supermarkets, make up about 45% of the video business.
"A third problem will also be customer service," said the distributor. "Traditionally, if you didn't get good service from one distributor, there's the threat that you'll take your business to another. Now, grocers have to deal with Warner/Ingram no matter what. When there are no checks or balances, when there's no place else to go, service declines rapidly. Warner's service will start out bad and get worse."
Quinn disagrees, saying Warner is committed to quality customer service, noting that it will be kept in check by competition from other studios. But it is said that many retailers aren't waiting to see how things will turn out, and are soft-selling Warner sell-through product, which Quinn denies. "We've been taking calls," he said, "and we've yet to run across anyone who's angry."
