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WINNING MARGIN

There's good news and bad news on the sell-through video front.The good news is that margins between cost and minimum advertised price are increasing. Distributor sources report that Disney will raise the MAP on two major upcoming titles -- "Lady and the Tramp" and "The Lion King: Simba's Pride" -- to $17.95, following the lead of other studios.Meanwhile, increased sales of catalog sell-through has

There's good news and bad news on the sell-through video front.

The good news is that margins between cost and minimum advertised price are increasing. Distributor sources report that Disney will raise the MAP on two major upcoming titles -- "Lady and the Tramp" and "The Lion King: Simba's Pride" -- to $17.95, following the lead of other studios.

Meanwhile, increased sales of catalog sell-through has boosted profits for the category, and more national consumer advertising is creating awareness and driving sales.

The bad news? Studios may be cutting back on co-op advertising to help pay for the national campaigns.

Here's what retailers had to say about some critical issues impacting the sell-through video market:

SN: The slim margin on some titles, when promoted at minimum advertised price, is one of retailers' biggest gripes. Is that a big issue for you?

VANOVER: It's an issue for us. Some studios have raised the MAP, and I think that's better for all of us. We can make a little bit of money on them. If we made more money on the tapes, and if we didn't have theft, it wouldn't take as many sales to make our money back. But the way it is now, if one video is stolen on some of these titles, it takes 50 to 60 videos to break even with no profit.

REDISKE: It's a major issue, because those are the big sellers and because they don't give you any room for margin. I just talked with Disney recently -- again -- and they're going to discuss it some more. But we certainly are very appreciative and supportive to other studios that are providing a little bit of margin in between MAP and cost. We'd certainly like Disney to do likewise. I think MAPs are an excellent thing. They've taken the guesswork out of sell-through pricing. But in the case of Disney, it certainly hasn't helped margins.

SN: I heard that they're raising the MAP on two upcoming titles. "Lady and the Tramp" and "The Lion King: Simba's Pride." They'll be $17.95. What do you think of that?

REDISKE: I'd prefer it if they lowered the cost. But I'd say it's a good thing. No one will be able to go below that and still get their advertising money, so the playing field is still level; it's just that now there are margins.

MUELDENER: I'm seeing improvements in margins for MAP. Disney has raised the MAP on two upcoming titles. The major concern, of course, is on the major theatrical titles, as they get the most customer recognition. They're addressing those a lot more.

SCHLOSS: No, margins at MAP aren't a big issue for us. The minimum advertised price structure is good for us in that it creates more profit. They don't want us to give the videos away, and we don't want to give them away. If we can maintain some status quo and some regulation on that, it really helps us.

We're looking for as much margin as possible in sell-through, and retail price is the major factor. If we don't have to give it away, we won't. But what dictates a lot of our pricing, too, is our competition.

UFER: Low margins at MAP are a big issue for us because it doesn't conform to our company goals. Secondly, by the time you pay for the product, and depending upon your relationship with your supplier for what percentage you can return, you might not make any money on the whole deal.

But lately, we've seen the studios raise the margins on big sell-through titles that have been coming out, like "Anastasia." If everyone is at MAP, you have the opportunity to make more money than you have in the past. I've also seen them beef up their advertising program to create more demand for these tapes, and that's something I've been optimistic about. Anything that'll raise the customers' impressions when they come in the store will help us. I've always been excited about the cross-merchandising opportunities we have in grocery. That's an area where, as an industry, we have to learn to take better advantage of.

SN: According to SN's video survey, margins are up on average for sell-through. Have the permanent sections improved your margins?

VANOVER: No, not really. Because when you price them higher, then you won't be able to sell them at all. They're just going to sit there. You've still got to be competitive. Special orders have helped us increase our margins, though.

Most stores have a sign to let the customers know that they can come in and ask about a title they want. If we don't have it, we can special-order it. We'll call it in and tell them what the retail is going to be. Then, if the customer wants it, the store will order it. You have more margin in that than you do with some of the sell-through titles released monthly.

MUELDENER: I don't know if it's 100% related. I think a lot of it has to do with customers building libraries and other reasons. It's no longer kids stuff and major hits. It's a lot of people collecting catalog inventory, and they'll pick it up.

SCHLOSS: We haven't done a lot to improve margins. We've just tried to work out some better cost structures with our wholesalers. We're constantly working with our wholesalers on obtaining better gross profit margins. You can't increase margin by just going out and increasing retails, especially in a highly competitive environment. You have to go back to your distributor source of supply and get better costs. That's what we've done.

SN: At Coborn's, how have you been doing in terms of cross-merchandising?

UFER: Sell-through is not a big part of our business. We mainly concentrate on rental. But over the next couple of years, it will become a bigger part of our video business. I see other grocers doing really good things right now, and eventually, all of us will follow suit. However, I also will say that the consumers aren't as excited about buying video cassettes as they were in the past. I sell a lot of previously viewed movies, and I don't see the same excitement over a Disney movie when it comes out as I did in the past.

SN: Why do you think this is the case?

UFER: I'd say that people are less excited about video and the video experience.

SN: What do you think can be done about that?

UFER: Some of the things the studios are doing are good. In many cases, the co-op dollars that were being spent by the major retailers weren't creating excitement for the titles the way the studios wanted. So I feel that some of what they're doing in pulling back advertising into their own control is going to help build the excitement for video.

SN: What changes have you seen or do you anticipate in co-op advertising?

UFER: They'll be affected. They haven't been affected yet, but they will be as more and more studios take this action. My distributor has notified me that it will affect my co-op advertising and their commitment to me based upon the studios supporting co-op. I guess the big question throughout the industry is, are they going to do it or not? Are they going to advertise, or are they just going to take this money and put it in the woodshed? I hope they do advertise. What we need is more excitement in the industry.

SN: Have you seen an effect from increased consumer advertising?

UFER: I've seen more TV advertising for titles like "Tomorrow Never Dies" and a few others. For example, when "Mousehunt" came out for sell-through, there was quite a bit of advertising. But I'd like to see more. I still think the studios are responsible for creating that excitement. If they feel they can use the co-op dollars better than the retailers have, then they should really make it worthwhile.

But I think co-op advertising will become the hot button during the VSDA convention. It could be a very explosive VSDA convention.

VANOVER: I haven't seen any changes in co-op monies or market-development funds. But the studios have cut back on the premium items and, as a result, we can't give away as much, or you have to use more of your co-op or your advertising money to have items made up. As a result, you've got less money for radio or newspaper.

MUELDENER: Obviously, we've been impacted on MGM titles. The problem with national advertising is: Who's getting the fair share? If I'm the regional player in the upper north central United States, and none of my stores fall within the top 100 ADI markets, I'm not getting my fair proportional share of the advertising. When you take that co-op away from me, you also take away my ability to advertise to our customers. So it's a major issue, yes. If indeed Warner follows through, it will definitely be a factor in our purchasing decisions.

REDISKE: Our co-op funds haven't been affected yet. But I would suspect that over the long haul, if this continues, it very well could. I guess it remains to be seen how much MDF will offset some of this.

SCHLOSS: We haven't been affected, but I'm sure it's coming. We're constantly pushing our distributor for more co-op advertising. Hopefully, they're taking that message back to the studios. Co-op advertising helps us drive our business. What bothers me is the amount of paraphernalia that these studios come out with: the little key chains, the T-shirts, the gym bags and all that. If they'd just forget all that garbage and put that money toward co-op advertising, I think everybody would be a lot happier.