BLOCKBUSTER JOINS RENTRAK'S SHARED-TRANSACTION PROGRAM

DAN ALAIMO

DALLAS -- The video industry's 2,000-pound gorilla has spoken.

In a continuation of the massive changes sweeping through the distribution side of the video trade, Blockbuster Entertainment Group here, a division of Viacom, New York, has reached an agreement with Rentrak Corp., Portland, Ore., to acquire rental products through the company's shared-transaction fee program.

Despite specialty retail consolidation and the growth of its chief competitors, Blockbuster's size -- 6,000 stores worldwide -- still dwarfs all other retail players in the video industry. The move is seen as the loudest, clearest and most definitive endorsement of pay-per-transaction shared revenue for rental yet, said industry observers. It is all the more significant because a few years ago, Blockbuster was staunchly opposed to shared revenue, and one year ago it was moving toward direct relationships with all major studios and away from third-party distributors.

"The video world has changed dramatically in a few months," said one industry source.

But a Blockbuster spokeswoman downplayed the significance. "We don't see this as a departure," said Liz Greene. "It is enhancing what we can do for our members in terms of providing more copies. It doesn't replace anything we currently have lined up."

And another distribution source said there was concern among the studios that the landscape is now changing too quickly and that Rentrak may have not fully consulted with the studios about the deal. "There's no question that this is positive for Blockbuster and I think it is positive for Rentrak, although their studio relationships may take a hit as a result."

Rentrak distributes products from about 30 suppliers including Twentieth Century Fox Home Entertainment, Beverly Hills, Calif.; Universal Studios Home Video, Universal City, Calif.; and Disney's Buena Vista Home Entertainment, Burbank, Calif. With these shared-revenue programs, retailers pay a $7 to $12 fee to acquire a tape, and then share the revenues of each rental with the supplier. Specifics about the Blockbuster-Rentrak deal were not revealed.

The program starts immediately with March titles, said Ron Berger, Rentrak's chairman, president and chief executive officer. He also founded the company and created this concept of revenue sharing. Berger would not divulge the specific titles, but Rentrak is known to have three major titles streeting in early to mid-March, "Peacemaker" (from DreamWorks/Universal), "The Full Monty" (from Fox), and "Mimic" (from Buena Vista). The deal is only for Blockbuster's 3,300 corporate domestic stores, he said, although franchises will be invited to buy from Rentrak as well.

Part of the deal gives Blockbuster warrants to purchase up to 1 million shares of Rentrak common stock at $6.59 a share. If fully exercised, this would be equal to about a 6% ownership of the company, said Berger. Both Fox and Disney were offered ownership positions when they agreed to let Rentrak distribute their products. Disney exercised its option and owns about 9% of Rentrak stock, while Fox did not, said Berger.

Some industry sources speculated that Paramount Home Video, Hollywood, Calif., would soon sign on because it is also owned by Blockbuster parent Viacom. But a Paramount official said that Rentrak deal would mean no change in the studio's direct sales relationship with Blockbuster.

Berger praised Blockbuster chairman John Antioco for his leadership in the area of consumer satisfaction and noted that Viacom chairman Sumner Redstone has personally lobbied the studios to participate in revenue sharing with Blockbuster. "I think John is going to put pressure on all studios to support this consumer initiative. So I assume a Blockbuster sister company will at some point be helpful," he said. The Paramount official would not say if the studio is now sharing revenues with Blockbuster.

"The rental business is about to have a rebound and it is going to be single-handedly credited to John Antioco," said Berger.

Berger declined to speculate on what the addition of the Blockbuster business will mean to Rentrak. He noted, however, that existing accounts that Rentrak services represent about a 25% share of the video industry, while Blockbuster's market share has been estimated at between 25% and 35%. "So it is potentially a huge customer. On the other hand, like all of our customers, Blockbuster can pick and choose titles. They don't have to order everything from us," said Berger.

Curiously, the deal with Rentrak comes after Blockbuster has gone to considerable expense to move its headquarters from Fort Lauderdale, Fla., to centrally located Dallas and set up its own distribution system. Blockbuster spokeswoman Greene would not comment except to say that the program is additive. "This is another alternative for increasing copy depth. It does not replace anything," she said.

One reason for going with Rentrak is it has exclusive distribution deals with about half of its suppliers, said Berger. But a bigger factor may be the need for studios to centralize the accounting and auditing functions. Unlike traditional distribution systems, where a retailer buys a tape and that's the end of the wholesale transaction, shared-transaction fee programs require ongoing processing to track rental activity.

"We were approached by a number of studios to bid on this business and to respond as to whether we would process this work," said Berger. "We are honored and pleased that we are going to have the opportunity to do that."