Blockbuster revamps revenue-sharing

WASHINGTON — Last week, Disney became the first studio to lose its video revenue-sharing agreement with Blockbuster. But the real loser in the deal may be Miramax.

Its November vid releases includes “The Closet,” “Everybody’s Famous,” “Jailbreakers” and “Calle 54,” all of which did less than $5 million at the box office — if they were released theatrically at all.

Under the old agreement, Blockbuster would have been required to stock at least minimum quantities of those titles in all its stores, guaranteeing at least some vid coin to Miramax.

Now Blockbuster may not stock them at all.

When the studios first negotiated rev-sharing deals with Blockbuster in 1997, they were able to structure the pacts as “output” deals, requiring the vidtailer to stock minimum quantities of every rental title a studio released.

The deals let Miramax and others load up their vid release slates with marginal titles, knowing they were guaranteed to bring in revenue from Blockbuster, as well as other rental chains with rev-sharing deals such as Hollywood Entertainment.

Blockbuster realized that as more of the business has shifted to DVD, which isn’t covered by the rev-sharing deals, all those VHS copies it had to stock on marginal titles became a drag on the vidtailer’s earnings.

With many of those initial deals now coming up for renewal, Blockbuster decided to play hardball in an effort to reduce its commitment to buy smaller theatrical and direct-to-video titles.

Last month, Blockbuster chairman John Antioco told Wall Street analysts in a conference call that the retailer was willing to let one or more of the deals lapse, rather than renew them on terms that kept Blockbuster locked into an output commitment.

In August, it declined to exercise its option to renew its deal with Disney for another year on the old terms, touching off months of negotiations to try to reach a new pact.

But when Disney refused to deal, Blockbuster walked.

Disney homevid prexy Bob Chapek downplays the loss. “As the rental business continues to evolve, both the retailer and the studio need to make changes,” he says. “The time has come to re-examine our business practices.”

Indeed, Disney doesn’t have to worry in the short term, at least. Its next major homevid release, “Pearl Harbor,” is priced for sell-through — which isn’t covered under rev-sharing. “Harbor,” like Disney’s upcoming sell-through releases “Dumbo” and “Atlantis,” will likely translate into millions of copies sold through Wal-Mart, Target, Best Buy and other retailers.

While Blockbuster will still be a big customer for those titles, it’s small fry compared with Wal-Mart.

After the holidays, though, Disney has a passel of rental titles that will make them more dependent on Blockbuster again.

But the loss to Miramax may be serious enough to be giving Disney second thoughts. Sources say that after talks broke down, Mouse House prexy Bob Iger picked up the phone to deal directly with Antioco.

Officially, neither company will confirm or deny whether talks are back on.

But you’ll know if they work something out by counting the copies of “Jailbreakers” next month at your local Blockbuster.

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