DELIVERING HOME ENTERTAINMENT

WENDY TOTH / DAN ALAIMO

ENCINO, Calif. - Entertainment technology is flourishing. High-definition DVD has become a reality and home entertainment can take place anywhere from the computer to the car. For supermarket retailers, this means finding the best ways to deliver home entertainment to customers. In response, the Grocers Council of the Video Dealers Software Association here is now the Grocers Council of the newly formed Entertainment Merchants Association, after a recent merger of VSDA with the Interactive Entertainment Merchants Association. The group's Home Entertainment 2006 show takes place this week in Las Vegas. The merger was designed to give retailers a place in the quickly advancing and converging video and video game technology markets. SN asked Bo Anderson, president of EMA, about the merger and its impact on the supermarket trade, and what the future holds for grocers offering entertainment software products.

SN: Please recap what the Grocers Council is and why it was formed.

BA: The Grocers Council was formed in early 2005 to provide a forum for our members within the grocery channel to discuss issues that may be unique or top-of-mind for them. The council meets regularly by conference call and discusses a variety of topics, including legislative issues, the launch of high-definition DVD and shrink.

SN: What are its accomplishments so far?

BA: The council held its first studio summit in May where members met as a group with executives of each studio's home video division. Growing sell-through was a central topic, including suggestions for breaking down the "shrink barrier," which is an entry barrier and a barrier to expansion for grocers.

SN: Why did VSDA merge with the Interactive Entertainment Merchants Association and rename the combined group the Entertainment Merchants Association?

BA: The merger was driven by the same factors that led to the creation of VSDA. Twenty-five years ago, the diverse elements of an emerging market came together to confront the challenges of new technologies, new business models built on those technologies and legal and competitive threats to those businesses. Retailers needed to band together to help each other survive. VSDA evolved into EMA for the same reasons: new technology, new business models, legal and competitive threats. As much as ever, retailers need to band together. The merger also flowed with the momentum of the intensive convergence of retailing sectors. No longer are video and video game retailers different companies with separate product lines. Increasingly, retailers of DVDs are also retailers of computer and video games, and the converse is demonstrably true.

SN: What will this merger mean to supermarkets?

BA: We're a stronger association and that will help all members. Specifically for the grocery trade, our integration of the video game industry may allow us to more aggressively advocate for the breakdown of shrink barriers that keep grocers from selling this product line. Rest assured, there will be no redirection of focus or support away from the home video category.

SN: What will it mean to VSDA and the video industry as a whole?

BA: We're a stronger association and have more clout to deal with the challenges ahead. For example, as we deal in statehouses and Congress with video game violence legislation issues today, we are forestalling such issues related to DVDs in the future.

SN: What do you see for the future of rental in supermarkets?

BA: Grocers could mirror the rest of the industry, or could take on more of a share of the market. Grocers have less overhead costs than stand-alone video stores, and they have a built-in customer base visiting their stores 2.5 times each week on average. Many grocers are evaluating or installing rental vending machines. This, in most cases, is adding to the number of storefronts renting DVDs and should continue to grow.

SN: And what do you see for sell-through?

BA: As grocers navigate the shrink issues they will get more involved in sell-through. Some are creating dedicated catalog sections in the body of their stores. Others want to, but are still constrained by valid concerns that shrink will erode their margins. Studios are recognizing this and will develop methods to overcome this hurdle. Sony has continued its MGM scan-based trading business model, for example. Also, we expect that technology will offer additional opportunities, but time will tell.

SN: Why should supermarkets continue to be involved in video?

BA: It's a consumer draw and a profitable category. Wal-Mart has found that the shopping basket of customers who buy videos is twice the size of the basket for all other purchasers.