INGRAM GOES ON INTERNET FOR ON-LINE VIDEO SALES

DAN ALAIMO / Additional reporting: Joel Elson

LA VERGNE, Tenn. -- The world of on-line video sales may be closer than many supermarket retailers think.

Ingram Entertainment, the largest video distributor and supplier to many supermarket video programs, has established a video sales presence on the World Wide Web. While the SpeedServe site (www.speedserve.com) puts Ingram in competition to some extent with retail customers for video sales, the program also has the capability to link retailers' web sites with its service. In this situation, retailers would be paid a percentage of resulting revenues from their web sites, said David Ingram, president.

"They can link to it right now," said Ingram. "If a supermarket has a web site and if they are interested in having an area that features videos or books available for sale, our system is set up to allow for alliance partners."

Ingram can monitor the traffic referred from retailers' web sites, he said. "We have the ability to rebate back to the supermarket a percentage of any sale that might occur from the supermarket site to our site, and then purchasing product," explained Ingram. For retailers without web sites, special coupons could be devised that would similarly give them a percentage of sales resulting from a referral to the web site, he said.

Ingram Entertainment announced the purchase of SpeedServe last month. The SpeedServe web site has three parts: VideoServe, BookServe and GameServe, which is not yet operating. Except for a buying arrangement, the book component is not related to the Ingram Book Co., which is a separate corporate entity from Ingram Entertainment, David Ingram noted.

However, the purchase has been kept quiet since it took place in late 1996. SpeedServe is domiciled in La Vergne, within Ingram Entertainment facilities. SpeedServe was founded in 1995 by Michael and David Mason, sons of Steven Mason, a longtime Ingram executive.

The announcement was held back to allow the company time to develop and fine-tune the system to the point where it could handle traffic resulting from the publicity, said David Ingram. "We didn't want to make the announcement until we were comfortable that our systems were working well and were ready for lots of people to use the system at once, and for them to get in and out quickly," he said.

"Building the ability to sell products over the Internet is a lot more complicated than a lot of people think," he noted. Initially, the Masons approached Ingram Entertainment because they needed resources to develop such a system, he said. When Ingram bought the company, it was only involved in selling books. The video component launched last October.

"We made the investment -- and it was not a large investment -- just to learn about Internet commerce and to try and figure out how it was going to effect our distribution business. We wanted to be smart about what we should do going forward in regard to the Internet," said David Ingram.

Ingram's entry into on-line sales comes as interest in the Internet as a means of marketing videos is intensifying. For example, Amazon.com, Seattle, the successful on-line book merchant, bought the Internet Movie Database in April, and said it expects to launch a video sales site from it. Last month, NetFlix, Scotts Valley, Calif., announced plans to rent digital video disc movies over the web in an apparent attempt to compete with the upcoming Divx, a limited play variant of DVD.

But regardless of Ingram's offer to share profits with retailers, some perceive it as a competitive threat from a major supplier. For example, Mark Wattles, chief executive officer of Hollywood Video, Portland, Ore., one of Ingram's largest customers, said his company will not buy from Ingram for its own web sales efforts.

"If Ingram is in the business of selling directly to consumers, we would not be interested in having them ship cassettes to our customers, as well," said Wattles in a press report.

Past efforts by video distributors to get into retail have met with mixed reviews from retailers, noted industry observers. For example, Major Video Concepts, Indianapolis, operates the largest shared revenue racking operation of supermarket video departments in the country, but has drawn relatively little criticism. On the other hand, Rentrak Corp., Portland, Ore., sold its interest in leased space video department operator BlowOut Entertainment, also in Portland, because of pressure from retailers, the observers noted.

Several retailers voiced concern over the pricing levels on Ingram's Internet service. But SN found that most prices were well above minimum advertised prices and generally discounted about 10% from suggested retail prices. David Ingram noted that shipping charges varied, but most were around $3 a tape.

"If it's one of those things that's being done as a convenience and they aren't competitive, then it's not a big deal and I'm not too concerned about it," said a general merchandise and health and beauty care director at a Midwest supermarket chain. "However, if they are competitive, I think you've got to ask them, 'what are you doing?"'

Others took a harder line on Ingram's entry into consumer sales. "I don't like suppliers competing with their retail customers even a little bit," said Pat DeWane, vice president of nonfood at Brookshire Brothers, Lufkin, Tex. "What Ingram would be doing is marketing product on the Internet for sale like a mail-order pharmacy. It's competition. If they sell everyday books they would be competing with the book titles sold in our stores everyday," he said.

"If you start doing that than you're a retailer and I see that as competition. It's also something that will have a definite impact on decisions we make here related to our videos and books and who we use as a supplier," said DeWane.

"In my opinion, they are first a distributor and they should be taking care of their customers," said Bob Gettner, video buyer/ coordinator, B&R Stores, Lincoln, Neb. "But the direct result of this is they are going to be competing with us, even if we do get a small portion of the sales. I am sure it is going to be a very small portion of it," he said.

David Ingram disagrees that the Ingram web presence is in competition with its retailer customers. The main focus of SpeedServe is to sell catalog product, as its prices on hit product are not competitive with most retailers. "The supermarket retailers in general don't offer deep catalog, and this is a vehicle that will sell deep catalog for books, videos and games. I don't think the supermarkets will perceive it as a material threat. The Internet is in its infancy right now and this will have no material affect on our supermarket customers for many years to come, if ever," he said.

"My take on supermarket customers is that they offer feature sell-through titles, they are in the rental business and they do a smattering of catalog business. This is really a different demographic and different market that we are dealing with. So I see it as having no effect," he said.

For example, he noted, consumers can buy Disney classics from SpeedServe. "But you are always going to get a better price from a supermarket when you factor in shipping and handling charges," said Ingram.

Supermarkets that take advantage of the SpeedServe's catalog offerings can add incremental business, he said. "A supermarket or a video store doesn't have the space to carry all these titles, yet they sometimes have customers who want to buy it," he said.