NINTENDO SETS UP RENTAL PROGRAM

DAN ALAIMO

REDMOND, Wash. -- In a sharp departure from its staunch resistance to game rentals, Nintendo of America has established a video game rental program for retailers and video distributors.

At least one retailer, West Coast Entertainment, Philadelphia, signed up in late April. The program was effective immediately, said Steve Apple, vice president of communications and new business development at West Coast. The first title West Coast bought from Nintendo was "Super Metroid," he said.

The rental program includes direct sales, merchandising assistance and incentives, said Perrin Kaplan, manager of corporate communications at Nintendo.

"From a business point of view, it made sense for Nintendo to get involved," said Kaplan. "Our business has been really lucrative, and I think that the rental business has been lucrative. At this point, it made sense for those two roads to cross."

But the program does not mean that Nintendo has stopped opposing game rentals, she noted. "It's not really a change of our position, but it is a change in our tactic in working with the rental trade," she said.

"We are going to continue to oppose legislation that allows the rental of video game software. The legislation that has been enacted sunsets in 1997. When it comes up for review -- and it has already started to come up for review -- we are going to push for protection for the video game software industry," she said.

Even if such legislated protection were granted, Nintendo would continue to sell to rental retailers, she said. "But it might change the economics of that business relationship. For example, there might be some other financial caveat put into the legislation," she said.

Sega of America, Redwood City, Calif., strongly supports the rental of video games and was a dominant presence at the April 10 and 11 Videogame and New Technologies Conference staged by the Video Software Dealers Association in Chicago. Sega also has agreed to sponsor a dinner at VSDA's July convention in Las Vegas. VSDA is the principal trade group for the video rental and sell-through industry and many supermarket video executives attend the annual convention.

"What we have said all along is, if you are smart, you can make the rental component of the business a nice addition for you and for your retailing base," said Richard Brudvik-Lindner, Sega's director of communications. "We've recognized that for a long time. It's nice to see that Nintendo is catching up," he said.

Seven out of 10 consumers rent games to preview them before making a purchase, said Ted Lannan, president of Fairfield Research, Lincoln, Neb. Of the games previewed, "30% of the trials result in a purchase, and that's not bad. Everyone wins on a deal like that," he said.

"It's a good move for Nintendo because it puts a lot more product in the pipeline and ensures that it is getting out there quickly," said Lannan.

West Coast, which is believed to be the first company to sign up for the Nintendo program, is now rolling out its Game Power Headquarters stores and in-store game departments, said Apple.

West Coast has been targeting supermarkets with the Game Power Headquarters concept. "This will be another positive in terms of us selling this concept to supermarkets. They know how difficult it is to obtain Nintendo product," he said.

"This deal with Nintendo puts the last brick in our expansion plan. This allows our retailers, and anyone involved in the Game Power Headquarters program, a lot of relief when it comes to pricing," said Apple.

Nintendo is now in negotiations with Blockbuster Entertainment Corp., Fort Lauderdale, Fla., and video distributors like Ingram Entertainment, La Vergne, Tenn., said Kaplan. Most supermarkets and video department rackers obtain games from distributors. All channels -- except for Nintendo's big sell-through accounts, like Wal-Mart and Toys R Us -- previously had to buy Nintendo products from third-party sources.

"This genuinely puts us on an equal footing with the mass merchants."said Apple. "Nintendo recognizes our business plan as one that deserves this kind of treatment."

West Coast has one stand-alone Game Power Headquarters store and opened six in-store departments in late April, said Apple. Four more departments will open in May. The departments operate as distinct businesses, with separate staffing, fixtures, POS systems and phone lines, said Apple.

The Nintendo rental program "is as significant to me as Sony announcing that it would make VHS videocassette recorders. It's a realization by one of the world's largest electronics manufacturers that video rental retailers will play a significant role in Nintendo's future," said Apple.

Nintendo's decision on game rentals may impact the debate over renting CD-ROM (compact disk-read only memory) software, where some companies support rental and others vehemently oppose it.

"This may open the door to the more open-minded among the antirental contingent in the CD-ROM industry. But we as an industry must give them a comfort level that this product will not be copied, pirated or otherwise prostituted. That is very important to them and we have to address all of those issues," said Apple. Technology that would allow CDs to be duplicated easily may be only a few years away, he added.

The Nintendo program "opens the door for the perception of acceptability" of renting CD-ROM software, said Fairfield's Lannan. As long as consumers can't duplicate CD-ROMs, "it is a perfect rental product."