DEMAND FOR DEPTH

DAN ALAIMO

Use it or lose it -- that's studio executives' essential message to skeptical retailers about the new copy-depth programs.

The copy-depth initiatives that supermarket retailers have complained vehemently about recently are designed to ensure the survival of the home-video rental industry, said studio executives interviewed by SN. Besides helping to meet specialty-store competition at the local level, strong orders from the studios will result in home video maintaining its favored window after titles have their theatrical runs and before other distribution channels, such as pay-per-view, have a crack at the consumer, executives said.

Moreover, the executives added, copy-depth and shared-revenue programs are likely to become simpler and more adaptable to supermarkets. Some studio officials estimated that the confusing array of programs will settle out within a year.

"I really think that there are competitive issues that have required this copy-depth-program matter to emerge," said Steven Einhorn, president of Los Angeles-based New Line Home Video, at last month's East Coast Video Show. "This is not something that the retailers and the studios had any option about."

"Everybody is wrestling with various concepts to try and bring more copies to all rental outlets, supermarkets included," said Mike Evans, vice president of sales, Columbia TriStar Home Video, Culver City, Calif., also at the East Coast show. "I think supermarkets have some unique challenges, including their rental rates."

Recently SN ran two articles about the new programs. In one, retailers complained the programs are too confusing, too time consuming and ultimately ineffective, especially in small departments. In the second story, retailers noted the new shared-revenue programs based on the SuperComm software and offered by distributors were less attractive than the old program offered directly from SuperComm, a Dallas-based Disney subsidiary.

One of the retailers' strongest requests was that the studios dispense with the complexities and simply lower the prices on the rental titles. This won't happen, studio executives said.

"I'd like to tell you there is a simple solution here, but I don't think there is," said John Quinn, senior vice president, sales, Warner Home Video, Burbank, Calif. Lowering prices has been tested in the past, but retailers did not increase orders enough to justify continuing, he said.

"We can't put that revenue stream at risk or we will lose our window before pay-per-view," he said. If prerecorded-video revenues go down, he added, the next move by the studios will be to shorten the pay-per-view window in an effort to boost those revenues, "and we don't want that to happen. So that simple solution is not as simple as it seems to some people."

"I do believe the rental market is witnessing a lot of competition from direct-broadcast satellite and wider digital pipelines into the home," said Bruce Pfander, executive vice president, domestic, Universal Studios Home Video, Universal City, Calif. "Unless we as an industry can figure out ways to satisfy consumers and make retail a pleasurable rather than a frustrating experience, I think we will find this window atrophying in favor of other windows."

Einhorn said that on important titles' order dates, New Line's pay-per-view executives want to know immediately how the video division did versus the potential revenue that could have been derived from shorter windows. "They have their templates all set up and they calculate whether we came out ahead or behind. Every studio is faced with that," he said.

"I'm not sure a straight lowering of cost is appropriate," said Evans of Columbia TriStar. "But we are certainly trying as many options as we can to get product to grocery at an appropriate price."

One option is sell-through-priced product, he noted. "We have been very aggressive in bringing out our big movies at sell-through pricing, which I think is very friendly to grocery."

Retailers also say there are too many programs and they are too complicated. Studio officials countered that a period of experimentation is necessary, though they conceded there is a problem and they are addressing it.

"It's almost a Chinese menu," said Don Jeffries, vice president of sales, Twentieth Century Fox Home Entertainment, Beverly Hills, Calif. "It is very difficult for people to manage all of the different copy-depth programs that are given to them. In some of the free-goods programs, you have to be a mathematician in order to figure them out."

Yet the studios have been asked by distributors and retailers to provide these programs, he said. "What happens is, when you have six or seven different suppliers that are challenged to come up with a program, they are all going to come up with six or seven different programs."

According to Jeffries, the market will determine which programs will survive and which will disappear. "The ones that are complicated and don't work aren't going to get support from retail and they are just going to wither and die on the vine. The ones that are successful, where the suppliers are listening to retailers and coming up with programs that work and are beneficial, are going to continue to be supported," he said.

Most of the studio executives sounded the theme that they are very interested in what retailers want. One example, they said, is the buy-back programs they have recently implemented. These may not be ideal for the supermarket class of trade, where it is more difficult to facilitate the return of copies, but it does show that the studios are paying attention, the executives said.

"We don't think we have a corner on all the ideas in the business," said Mitch Koch, senior vice president and general manager of Buena Vista Home Entertainment, Burbank, Calif. "We try to go out and listen as well as speak. Various elements of the marketplace told us to give this a try, so we are, and we certainly have high hopes for it."

"Increased copy depth seems to be what the industry is asking for," said Ken Graffeo, senior vice president, marketing, PolyGram Video, New York. "Maybe it's not been done in the easiest way, and maybe there are ways to improve that."

While they will become simpler as time goes on, the buying programs are here to stay, the executives said.

"We'd like to make it significantly simpler for the retailers," said New Line's Einhorn. However, "the process of copy depth, I think, is always going to be with us. Whether it is free goods or revenue sharing or buy-back, my sense is the structure for that is in place now. Each of the studios will try to grab a merchandising opportunity to get focus and differentiate their program. But my sense is, because copy depth is required, it will be with us."

One reason for this is that the programs appear to be working. The rental business is up about 8% in 1998 from the year before, although the bigger stores seem to be participating in the increase more than smaller operations, according to the Video Software Dealers Association, Encino, Calif. "Almost all of the growth is taking place in the larger-sized stores," said Jeffrey P. Eves, president, during the East Coast show. For the most part, that means Blockbuster, Hollywood and the other big specialty chains, observers said.