Video's David vs. Goliath

Your local mom-and-pop video store might be on its way to extinction because of pricing benefits offered to large chains, complained the Independent Video Retailers Group last week at the Video Software Dealers Association trade show and conference in Las Vegas. According to the independents, mass-market outlets like Blockbuster are given an unfair advantage by movie studios eager to increase rentals by putting more copies of hit movies in stores.

The studios' intention is to generate more rentals by making more copies available, a move known in the rental business as "copy depth." Stores with mass-market appeal---typically in suburban areas---tend to stock many copies of the most popular films to prevent customers from walking out empty-handed. By comparison, independent stores in urban areas and college towns tend to be "deep-catalog" operations, meaning they stock fewer copies but have many more titles, some of which might be rented only a few times a year.

The revenue-sharing policy, which became widespread in the industry about nine months ago, is a departure from the purchase-to-rent model that has been in place for 15 years. Traditionally, retailers have purchased video tapes at an average of $70 each and then rented them as many times as possible. Under this system, a film must be rented 35 times at $2 per day before the dealer breaks even on it. Under the new system, dealers pay a $10 fee per film, then share the rental revenue with the studio on a 60/40 basis, with the retailer taking the larger share.

Revenue-sharing has enabled Blockbuster to emerge from a two-year slump. Blockbuster CEO John Antico admitted as much when he verified that first-quarter sales in his stores increased by 10%. "Certainly, we have built some top-line momentum with the fourth quarter last year," he told Reuters news agency. The Independent Video Retailers Group plans to fight back by filing an anti-trust lawsuit against Blockbuster and major Hollywood studios later this summer.

According to Jeffrey Eves, president of the VSDA, video rentals were a $7.4 billion business last year, a decline of 4.2% from 1996. So far this year, they have risen by only 5.7%. There is no logic in movie land: One long-standing oddity in the video-rental business is the practice of "dual listing," in which dealers pay one price for a film to be rented and another price---often much lower---for the identical item intended for sale. Incidentally, most laserdiscs have been offered to dealers under a different, single-price policy.