B'buster hides best pic vid to squeeze D'Works

In yet another clash of the media titans, Blockbuster is hiding copies of DreamWorks’ “American Beauty” video behind store counters because the studio wouldn’t cave to Blockbuster’s financial term demands.

Although the movie wasn’t yanked completely from consumers, Blockbuster’s refusal to promote the Academy Award-winning title resulted in a disappointing opening weekend at videostores. “American Beauty” generated just $6.8 million last week, according to the Video Software Dealers Assn.’s VidTrac data tracking service.

“American Beauty” wasn’t expected to compare to the $22 million or $14 million opening weekends of “The Sixth Sense” and “Double Jeopardy,” respectively, but it also wasn’t expected to open with 16% less revenue than the $8.1 million generated two weeks ago by “Fight Club.” That pic had a box office gross of $37 million, just 29% of “American Beauty’s” $129 million domestic cume.

There are other signs of the Blockbuster move’s impact on the performance of the title: The average rental fee dropped nearly 30 cents to $3.12 from the typical $3.40 paid for titles promoted in full by Blockbuster, according to VidTrac. And whereas 65% of first-week rental activity usually comes from the biggest videostores, including Blockbuster outlets, only 53% of “American Beauty’s” rentals came from large stores last week.

Despite standing up to the hardball tactics by the industry’s biggest retailer, DreamWorks believes the studio will wind up with a net gain in revenue on the title.

Counter attack

After failing to coerce DreamWorks into meeting stringent revenue-sharing terms for the purchase of hundreds of thousands of extra copies of “American Beauty” in order to make it a “guaranteed title,” Blockbuster suggested that store managers take the title off shelves and put it behind the counter, forcing customers to ask for it. Customers are also being read a statement prepared by Blockbuster informing them that the chain was unable to come to an agreement with DreamWorks.

A spokeswoman for Blockbuster said the strategy was used purely for “customer service” purposes to “monitor customer demand” where there were a limited number of copies of the title available.

Blockbuster purchased only about two-thirds of the number of copies it had intended to order, meaning millions of dollars in lost orders for DreamWorks.

While Blockbuster’s refusal to promote “Beauty” resulted in less national advertising on the title, other stores — including Blockbuster’s chief rival Hollywood Entertainment and even Blockbuster stores owned by franchisees — have greatly increased their orders for the title. That happened as a result of word leaking out early about Blockbuster’s reduced orders. Some say DreamWorks’ distributor Universal Studios was behind the leak and that Blockbuster’s hardball stance was a result of DreamWorks’ refusal to adhere to the terms Blockbuster has with Universal.

Cutting off their nose?

As a result, Blockbuster’s get-tough strategy could ultimately wind up hurting Blockbuster more than DreamWorks. Although there have not been widespread reports of customers being unable to rent a copy of the movie at Blockbuster stores when they ask for it, competitors are picking up some extra business from those who are not finding the title at Blockbuster stores.

Meanwhile, DreamWorks gets paid full wholesale price upfront by most retailers other than Hollywood, as opposed to splitting the revenue on each rental with Blockbuster. That means DreamWorks already made much of its money on the title even before it went on store shelves. Although DreamWorks has a revenue-sharing deal with Hollywood Video — the nation’s second largest retailer — sources say that Hollywood is renting the title at a pace that is exceeding their expectations, which will ultimately benefit both Hollywood and DreamWorks. A spokesman at Hollywood said the title is renting better in its first week than DreamWorks’ “Saving Private Ryan” did in its first week of release.

‘Beauty’s’ legs

Ann Daly, who oversees DreamWorks’ overall video operations, said that although the title did not have the first-week revenue that it would have if Blockbuster bought as many copies as planned, “American Beauty’s” rental legs will be much stronger. She anticipates that the week-to-week dropoff will not be nearly as large as it would have been had the title been more available at Blockbuster.

“There are clearly fewer units in the marketplace, but that will change the legs on the movie,” she said. “The expectation is that it will continue to perform longer because the rental demand won’t be satisfied in such a short window.”

Daly said the inability to come to terms with Blockbuster on this title will not affect DreamWorks’ relationship with the retailer. The studio is about to enter negotiations on terms for its hit “Gladiator.”

“Blockbuster has a choice of buying options, and Blockbuster is free to choose any of the standard deals that we offer,” she said. “This is just one title of many. We have been very straightforward with them while representing the interest of filmmakers.”

Since DreamWorks does not have an overall revenue-sharing agreement with Blockbuster as do other studios, the two companies negotiate terms on a title-by-title basis. DreamWorks is one of the last suppliers to hold out on striking an overall revenue-sharing deal with Blockbuster. Fox took a hit on orders for a number of its titles when it tried to do the same thing until it finally caved in to Blockbuster’s demands last year.

Splits pressure

Neither DreamWorks or Blockbuster would comment on proposed terms on “American Beauty,” but industry sources say that Blockbuster often uses its clout to dictate revenue splits that make it difficult for studios to generate much of a profit margin. One tactic used by Blockbuster is to mandate that the studio agree to uncapped promotional fees claimed by Blockbuster that come out of the studio’s split.

Sources at DreamWorks claim that the terms they offered Blockbuster were no different than ones they offered Blockbuster on such past titles as “Saving Private Ryan,” but that Blockbuster wanted to change the terms in its favor on “American Beauty.” It is known that DreamWorks was unwilling to agree to the same terms with Blockbuster on “American Beauty” that Universal had on “American Pie.”

Those same sources estimate that DreamWorks will come out ahead in its standoff with Blockbuster, making up the loss of Blockbuster’s business while Blockbuster leaves millions of dollars on the table. Or, in this case, under the counter.

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