THE CHANGING ECONOMICS OF REVENUE SHARE

DAN ALAIMO

For many supermarkets, the landscape has changed for shared-transaction-fee programs, perhaps permanently.

Not long ago, supermarkets could take advantage of revenue-share programs for rental product from two suppliers: Rentrak Corp., Portland, Ore., and SuperComm, Dallas. Many liked the SuperComm program because it was designed for the supermarket class of trade. One of the biggest concerns of retailers at the time was that new releases were available from a limited number of studios.

Now the number of studios has been broadened for SuperComm, but so has the basic structure of the program. It is now available to all retailers, but through traditional distributors and with far more stringent requirements. Some former SuperComm customers have told SN that the new program is no longer as attractive to them as it had been in the past.

Studio executives interviewed by SN said the requirements, such as minimum transaction fees, minimum purchases and guaranteed fees per title, will stand. However, they are concerned about the reaction of supermarkets operating rental programs.

"I really understand how difficult it is," said Steven Einhorn, president, New Line Home Video, Los Angeles. "The chains developed a model for doing business. It worked. They built an infrastructure around it. They built a merchandising model around it. They built a customer-service model around it. But then the economics were radically changed. The rug was almost pulled out from under them, frankly. There are more than a few dislocations at this point in time," he said.

Some supplier sources noted that SuperComm could be more flexible when limited to supermarkets because the studios believe these stores to be more reliable in accurately reporting data. Abuses are widespread among specialty stores, so a program designed for all classes of trade had to take that into account, the sources said. Legally, such a widespread program could not differentiate in terms between classes of trade.

It is unlikely that the terms will change appreciably in the future, the studio executives said.

"We try to make our programs equal and available on the same basis to everybody, and that's what we have to do," said Einhorn.

"We want to have very consistent standards in the program for each of the distributors to offer to the marketplace," said Mitch Koch, senior vice president and general manager, Buena Vista Home Entertainment, North America, Burbank, Calif. Buena Vista and SuperComm are both Disney subsidiaries.

"We changed all the revenue-sharing terms earlier in the year and right now I don't have any expectation of changing what we implemented at that time," he said.

John Quinn, senior vice president, sales, Warner Home Video, Burbank, Calif., confirmed that there have been few takers among retailers for the new shared-revenue programs. "I haven't heard that anybody in distribution is having a lot of success converting people to revenue sharing, so I would assume that applies to the old SuperComm accounts as well," he said.

Some supermarkets have objected most strenuously to the minimum transaction fee, which is said to be between $1.25 and $1.35 depending on the studio and title. These chains have midweek promotions like 99-cent Tuesdays or rent-one, get-one-free Wednesdays that would cause them to take a loss under the new terms of the program.

"With the minimum transaction fee, it is no different for retailers than what they pay under normal distributor pricing," said Quinn. "You can still do a 99-cent rental, but you just have to give me my minimum for that transaction. If you buy a product for $75, you can still rent it for 99 cents, but the difference between what you pay for it and what you rent it for is your expense. That's no different with the revenue sharing. You can rent it for 99 cents, but the difference between what you are paying for it -- i.e. the minimum transaction fee -- is your expense, and some people look at that as part of their marketing program, what they have to pay to get people in the store," he said.

The minimum fees protect the home-video revenue stream, which in turn protects video's window as second after theatrical. "If people are doing 49-cent transactions and I get 20 cents of that, then I can't keep my revenue up," said Quinn.

Warner and Columbia are relative newcomers to shared- transaction-fee programs. "What we have seen so far from distribution's revenue-share programs has been limited among both grocery and non-grocery accounts," said Mike Evans, vice president, sales, Columbia TriStar Home Video, Culver City, Calif. "I am hopeful that we will see some growth in it, but I'm not certain that we will. We are not espousing revenue sharing. It is an option that we are offering. We really don't have enough data at this point to determine where it is going to end up," he said.

Fox meanwhile has been involved in shared-fee programs the longest of all studios, and continues to offer product through Rentrak's Pay Per Transaction program.

"We support Rentrak and we feel that, for some retailers, it is a viable supply system," said Don Jeffries, vice president, sales and distribution, Twentieth Century Fox Home Entertainment, Beverly Hills, Calif.