BUENA VISTA ENDORSES VIDEO REVENUE SHARING

DAN ALAIMO

LAS VEGAS -- Buena Vista Home Video, Burbank, Calif., has endorsed the controversial pay-per-transaction, shared-revenue video distribution system for rental products.

The Disney marketing and distribution subsidiary announced during the Video Software Dealers Association convention here last week that it has signed a five-year deal to supply products to Rentrak Corp., Portland, Ore. The company also is close to completing a deal with Supercomm, Dallas, said Tania Steele, Buena Vista's vice president of publicity and marketing.

"We feel that the [pay-per-transaction] system has a lot of opportunity for the retailer for increasing consumer satisfaction and for moving our business forward," Steele told SN during the VSDA convention.

Both Rentrak and Supercomm offer pay-per-transaction, shared-revenue programs for supermarket video rental departments. With pay-per-transaction, retailers pay a nominal fee of $8 to $12 to acquire a new release title and then share the rental revenue 50-50 with the supplier, who in turn shares the revenue with the studio. Transactions are tracked electronically.

Proponents say pay-per-transaction enables retailers to carry new releases in greater depth, increases customer satisfaction and creates new promotional opportunities. Critics say retailers can do just as well or better by owning the tapes themselves and keeping all the profits.

Traditional video distributors, such as Ingram Entertainment, ETD Entertainment Merchandising and Major Video Concepts have been outspoken in their opposition to the competing distribution structure.

"I know pay-per-transaction is not without controversy," said Disney Studios Chairman Jeffrey Katzenberg, speaking at the

VSDA convention. "But we believe that, structured correctly, it will strengthen home video in the marketplace."

While distributors at the show were disappointed with the move -- "I'm very unhappy," said one top executive -- Steele downplayed the level of their opposition. "We have not heard any outrageous negative feedback from the distributors," she said. Another distribution executive said, "From our perspective, I don't see that it will have much of an impact on our customers." Clifford Feiock, video coordinator at Nash Finch Co., Minneapolis, was pleased that the deal will result in more products being available through the pay-per-transaction companies. "The distributors may feel threatened by it, but that doesn't mean I'm going to buy every Disney title from Rentrak. It just gives us a better selection to pick from," he said. But Disney's acceptance gives the upstart distribution systems a new level of credibility, and apparently ensures their long-term viability, said industry observers. Disney is the second major studio to openly embrace the systems. FoxVideo was first two years ago. Otherwise, the pay-per-transaction companies have attracted primarily B-movie suppliers and occasional hit titles on a test basis from other big studios, including MCA/Universal Home Video. The major studio endorsements of pay-per-transaction have been slow in coming. So while some industry observers expect other studios to follow Disney's lead, they say there is no way of telling how long it will take. MCA/Universal has been testing pay-per-transaction, shared-revenue for five years, said Louis Feola, president. "Revenue sharing is something we've been studying and watching. In the short term, I don't see us changing anything in the way we do business," he told SN. The Disney deal with Rentrak includes all the company's rental-priced titles from its major labels, Touchstone, Hollywood, Walt Disney Pictures and Miramax. Starting in September, these titles will be offered to the 3,200 stores now using the Rentrak system. Over 300 of these stores are supermarkets. It is a five-year agreement that gives Disney a five-year renewal option. Disney also has received warrants from Rentrak to purchase over 2.6 million shares of Rentrak common stock at a price of $7.13. This is a major milestone for Rentrak, said Ron Berger, chairman. "Buena Vista has a proven track record of releasing video titles with terrific rental appeal," he said. "With the addition of Disney, we think that a lot of the other studios will come out of the closet [on pay-per-transaction]," said Chris Roberts, Rentrak's vice president of sales. "This gives us three of the top five studios, a 13% market share and 50% of all the product that is out there." Disney made the decision to embrace pay-per-transaction following discussions with retailers who wanted to have it as a purchasing option, said Steele. The company has been testing the systems for a number of years, she said. "If our tests are any indication, this will be a positive move for us and for our retailers who are involved in the systems. Pay-per-transaction offers future-oriented opportunities. "The primary one is to enable retailers to regain a great deal of their customer satisfaction levels. That's very important for the future health of the video business," she said. While talk at the show focused on Disney's agreement with Rentrak, the company is looking forward to forming a relationship with Supercomm as well, said Steele. "We have a lot of confidence in the Supercomm system and we are finalizing a deal with them right now."

The Supercomm program is newer and smaller than Rentrak, but it is more focused on supermarkets. Its more than 800 stores from 30 retailers are almost all supermarkets, said Des Walsh, vice president. "We are delighted with Buena Vista's announcement of their support for revenue-sharing. We have been testing with their product for over a year and the results have been remarkably positive for both Buena Vista and the participating retailers," he said. Expanded numbers of new releases are the best way to attract more customers into supermarket video departments, said Walsh. "It also is essential to aggressively promote that expanded availability. Revenue sharing is the ideal way to accomplish both and that in turn will help the sell-through business," he said. With Disney's endorsement, more retailers will be attracted to the shared-revenue programs, said Walsh. "Up to now, those supermarket operators who have been reluctant to test revenue sharing because of the lack of participation by some of the major studios will now look with renewed interest at the concept," he said. "Buena Vista is recognized as having some of the best and brightest people in the business, and clearly they are the leader in the supermarket video business," said Walsh. "Their endorsement of revenue sharing clearly represents a very significant development," he said.