Are there video stores in CD-ROM’s future?

While some distributors and retailers are convinced the country’s 27,000 video stores with their 50 million weekly customers will soon be a major outlet for sales (and rentals) of CD-ROM discs, others aren’t so sure — and everybody is waiting to see what industry leader Blockbuster does next.

Brad Grob, group director of marketing development for Baker and Taylor, the giant wholesale distributors, says he’s already stocking nearly 100 video stores with CD-ROM software, and says the category will continue to grow. “Video store rentals of CD-ROMs will be a driving force for the market,” he predicts. “People are used to going in the stores, and they feel comfortable there.”

Market consultant Joanna Tamer believes “the video channel of distribution will be in full swing by this year’s fourth quarter.”

But Kelly Conway, director of affiliated labels for Electronic Arts, questions the viability of video stores as a “sell-through environment” for CD-ROMs, and points out that copyright-related legal issues continue to cloud rental prospects for CD-ROMs.

“CD-ROM sales are being driven by PC owners,” says Martin Leahy, senior product manager for Microsoft’s home division, “and that’s who you need to target. I think if video stores get inCD-ROMs in the near-term they’ll be disappointed.”

Video stores propensity to rent rather than sell will also hurt, Leahy believes. “I couldn’t be less interested in rental,” he says. “CD-ROMs are all about huge amounts of content, and many content copyright owners have very restrictive contracts, and they’re very skittish about rental. Also, I can’t see us making a full profit if we rent our CD-ROM product rather than sell it.”

But copyright attorney Marc Jaffe, president of the Electronic Licensing Organization, dismisses Leahy’s arguments. “I think CD-ROM in video stores is a sure thing,” he says.

The true test of CD-ROM’s fate in video stores is most likely being determined by the closely watched CD-ROM trial Blockbuster is conducting in its approximately 50 Bay Area stores.

The trial, which began on Thanksgiving weekend last year, was originally set to end in March but was recently extended through June 31.

According to Michael van der Kieft, Blockbuster’s director of business development who’s spearheading the project, the chain is carefully monitoring sales and rental data with the help of the Gallup Organization and needs more time to “manage CD-ROM better as a business.”

Van der Kieft downplayed the sticky copyright issues raised by rentals of the disks, saying Blockbuster signed a special agreement with participating CD-ROM publishers and has not run into problems to date.

“If Blockbuster rolls this out nationally, it will have a big impact,” says Paul Sweeting, editor of Video Software News.

West Coast video stores, the country’s second-largest chain with 500 stores, is already gearing up to rent and sell CD-ROMs, albeit cautiously.

The chain has placed CD-ROM titles (mostly games) and demonstration kiosks in two of its new “multimedia” stores, Game Power Headquarters and West Coast Video Plus.

“We recognize the opportunity,” says spokesman Steve Appel, “but it’s still too early to tell. Many people are confused about the CD-ROM marketplace, and are looking for an excuse not to buy. What we’ve found is that it takes expert demonstration to sell these products.”

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