In the hot growth area of the film industry, the DVD sector, major studios are doing big business while the independents are taking it on the chin. The reason? The DVD boom is tilting the homevid biz to sell-through, in which mass merchandisers such Wal-Mart require labor-intensive service by film distributors.
“Years ago, you shipped the product and then it was the retailers’ problem,” says Steve Beeks, prexy of Lions Gate Home Entertainment, referring to video specialty stores such as Blockbuster that rent and sell videotapes. “With mass merchants today, it’s our problem. We’re the ones responsible to make sure that the inventory is managed, serviced and replenished” on the shelves. Unlike most smaller indie vid labels, Lions Gate has the size to effectively interface with mass merchants. It holds 40% of an indie video sector that is otherwise highly fragmented.
The Stateside shift to sell-through, or units designed for immediate sale to consumers, is pronounced. Research firm Kagan World Media sees the sell-through category (both DVD and VHS) growing from 56% of U.S. video revenue in 2000 to 73% by 2005. Video rental revenue will shrink to just 27% by 2005.
Today’s tough times are a contrast with the late 1980s, when indie vid titles actually over-performed during the VHS revolution. Major studios were slow to issue their film libraries via pre-recorded videotape, which cleared the way for indies to stuff the vid pipeline for a halcyon period.
Today, indies are also getting squeezed in the videogame arena. “There were video stores that I visited in Korea and some other countries that should call themselves ‘Game Stores With Video on the Side,’ ” jokes Michael George, president of consulting firm MTG Media. “The video space that they did have was occupied by major-studio titles.”
Indie homevid distributors also are hamstrung because some of the sector’s best specialty fare comes from major studio-owned film units, such as Disney-owned Miramax and Fox Searchlight. Those titles bulk up studio homevid departments, which are already ahead of the game. Indie distribs, given their relatively small size, often require a host of middlemen who raise costs for marketing, thus reducing profits.
Still, there are rays of light for indies in today’s tight video market, such as more opportunities to sell rights piecemeal to studios.
Universal Pictures Intl. is stepping up acquisitions of territorial rights to indie films, now for the first time taking all rights in some territories, including theatrical and TV. Recent deals include taking French rights to Zhang Yimou’s “Hero.”
Paramount Home Entertainment is increasing its indie film ties, looking for more video rights to action and thriller movies with marquee talent. Ellen Pittleman, Paramount Home Entertainment senior VP of worldwide acquisitions, says the studio also is looking to ink more video output deals with indie distribs in territories, such as its relationship with Highlight Communications covering German-speaking territories in Europe.
The indies are masters of finding non-traditional ways into the marketplace. For example, in the London-based Hollywood DVD acquires DVD rights to movies for bundling with DVD players sold in the territory. The British outfit’s strategy is to place a few well-known studio library titles with a selection of indie films. It acquires DVD product from Disney (“Pretty Woman”); Fox (“Titanic”) and Warner Bros., says Hollywood DVD’s managing director, Spencer Pearce. Indie films are from Nu Image, Hearst and others.
Pearce says he plans to introduce the bundling concept in the U.S. with DVD hardware sellers.
Another strategy for indie distributors is to build a brand image by covering genres. For example, indie video distributor York Entertainment once concentrated on the urban genre but found more fertile ground with horror titles recently.
“The minute the market shifts, we know how to move,” says Arik Ben Treston, York’s VP for marketing.