NEW STAR RISING

DAN ALAIMO

NEW YORK -- PolyGram is counting on supermarkets as it becomes more aggressive in the movie business.

With the theatrical release of "The Game" last month, PolyGram Filmed Entertainment embarked on a course that it expects will quickly place it among the top movie studios. A long slate of big and small budget features will follow in the coming months. As they hit the home video window, supermarket rental and sales programs figure prominently in the company's marketing plans, said Bill Sondheim, president of PolyGram Video here, in an exclusive interview with SN.

"I still see supermarkets being a significant overall portion of our rental business, and I envision that continuing on through next year and the years beyond," said Sondheim. Under PolyGram Filmed Entertainment, there are two theatrical marketing and distribution companies -- PolyGram Films and Gramercy Pictures -- and four production companies, Working Title Films, Interscope Communications, Propaganda Films and Island Pictures.

PolyGram already has a strong theatrical track record, which is obscured because of commitments to distribute product through other studios. If all these titles were channeled through PolyGram for 1995 through 1996, it would have ranked seventh among the major studios with a 7% market share, said Sondheim. Titles distributed by others included "Jumanji," "Mr. Holland's Opus" and "French Kiss." Among the titles PolyGram distributed itself in that period were "Fargo," "Dead Man Walking" and "Four Weddings and a Funeral."

The outside distribution deals have now lapsed and PolyGram is set to directly challenge the major studios for market share, said Sondheim. "There are fairly conservative models that show us growing 200% to 250% next year in revenue," he said.

"On the film side, you are going to see the name 'PolyGram' coming to the forefront," said Allan Golden, vice president of sales at PolyGram Video.

This will be felt by supermarkets, Sondheim noted. "You don't have a growth of $150 million in new revenue coming out of a company, especially one that has a reputation for being customer-oriented and innovative, without making a positive impact on virtually everyone at retail," he said.

Retailers saw evidence of PolyGram's leadership intentions earlier this year when the company conducted a study on the purchasing habits of supermarket video-rental customers. It was the first research of its kind to be made public by a studio and demonstrated statistically not only that the rental business builds traffic and revenue for other supermarket departments, but by how much. For example, it showed that customers who rented videos spent an average of $28.87 on other products in the store.

The study "sent a very positive message to all the doubters and naysayers that video is, has been and will continue to be very viable for the supermarket business. Even when customers go to the supermarket just to rent movies and purchase videos, they spend other money while they are there," said Golden.

"If a supermarket is operating its department in a smart fashion, video rental not only is a stand-alone profit center, but it also brings profit to other parts of the store. If that is the case, then I don't see a reason why supermarkets won't continue to embrace it, and hence, they are significant to us," said Sondheim.

But success in video is not automatic. "They need to have a separate, dedicated focus to the video business and personnel to face the everyday challenge of finding ways to get that excitement going in the store and bring attention to that department. If you don't do that, you stand a real chance of being cannibalized by the other stores in your area," said Sondheim.

Golden noted that video complements today's trends to more upper-demographic products and services in supermarkets, such as home-meal replacement items. "They are stressing convenience and quality, and the rental business fits right into that mode."

Noting the trend toward putting in banks and other services -- sometimes at the expense of video rental -- Sondheim said, "supermarkets are experimenting with their square footage and the return they get on it. Over time, they are going to find that video is one of the best nonessential parts of the supermarket mix, and that some of the additional goods and services they are experimenting with may have a short-term lift, but I don't think they are going to sustain themselves."

There is still potential for supermarkets to grow in market share as a class of trade within the video-rental business, he said. "Over the next year to two years, supermarkets could grow their part of the total video pie somewhere between 3% and 5%."

Because of their cross-merchandising potential, supermarkets are well-positioned to compete with the high-powered video specialty chains like Blockbuster and Hollywood, said Sondheim. One example is a cross promotion that began last month with Chiquita bananas to support the children's video line, "Bananas in Pajamas." "We are actually going to be able to merchandise and display 'Bananas In Pajamas' videos right in the produce section, adjacent to the bananas," said Golden. "If consumers purchase the video, they will get $1.50 worth of free bananas."