Shared-revenue, pay-per-transaction programs can help retailers satisfy more rental customers while increasing promotional opportunities, said participants at SN's video roundtable. With these programs, also known as pay-per-rental, retailers pay a $7 to $12 fee to acquire a tape, and then share the rental revenue 50-50 with the supplier. There are two companies with such shared-revenue programs for supermarkets: Rentrak Corp., Portland, Ore., and SuperComm, Dallas. Walt Disney Co., Burbank, Calif., bought SuperComm late last year.
Shared-revenue can help the video rental business grow, especially in supermarkets, said Dennis Maguire, vice president of sales at Buena Vista Home Video, a Disney subsidiary, also in Burbank. "We think there's still a lot of growth in the video rental business. We think that revenue sharing could lead that growth," he said.
But, he added, "we bought the system as a marketing tool, not as a financial tool for people to buy cassettes cheaper."
Nash Finch Co., Minneapolis, has been testing both SuperComm and Rentrak. "One of our biggest problems in video rental is not having enough new releases during those first three to four weeks of release to satisfy the demand," said Clifford Feiock, video coordinator. Shared-revenue helps meet this demand, he said.
But profitability remains a question mark. "There's a danger that [shared-revenue] could get out of control and become much more widespread than the studios originally anticipated and adversely impact the profitability of all segments of the industry," said Ron Eisenberg, president of ETD Entertainment Merchandising, Houston.
"The long-term viability of any business is its profitability to the retailer," noted Bernard Herman, president of Star Video Entertainment, Jersey City, N.J.
Here's how the roundtable conversation went about shared-revenue programs:
SN: One of the bigger news items last year in the relatively small world of supermarket video was Disney's acquisition of SuperComm. In past years, most roundtable participants expressed considerable skepticism over this kind of program. But Disney's involvement has given it an almost instant credibility. What does this acquisition mean to supermarket video and to the overall video industry?
MAGUIRE: One of the significant challenges that supermarkets face is the rental business. We believe that there is growth in rental. There is consumer dissatisfaction in the rental business and if we can address that issue together with our supermarket partners, we can make the business grow.
GLASEMAN: What consumer dissatisfaction are you referring to?
MAGUIRE: There is a hassle factor in renting videos. Consumers are not getting what they want, they do not necessarily know what's available, they have less excitement about the rental dynamic. One of the pressing issues for each of the studios is to help bring that satisfaction to the consumer and bring that excitement to the rental unit.
We believe that our acquisition of SuperComm will and should be used as a marketing tool, not as a financial tool. We believe if you use it that way, you can continue to spur interest in rental, cut down on the hassle factor and bring excitement back to the rental business.
SN: Cliff [Feiock], Nash Finch has been testing both SuperComm and Rentrak, the other major shared-revenue system. What's your perspective on this?
FEIOCK: Disney buying SuperComm was the best news I'd heard in a long time. The ideas behind the SuperComm program are much simpler, which is great. Rentrak is very complex, as far as different terms between different studios. It is a nightmare sometimes to keep that all straight, as far as the length of terms, and what percentage of revenue, what's the minimum fee, that type of information.
So far with SuperComm, it's been a 50-50 split, no matter what you rent the tapes for, which is very important.
INGRAM: One of the interesting questions regarding revenue sharing is, what effect do sell-through-priced theatrical titles like "Speed," "The Mask," "Mrs. Doubtfire" or "The Lion King" have? When the retailer can bring in as many of "The Mask" as they want for a relatively low price, how is that going to effect SuperComm or Rentrak? I don't know the answer to that, but it's a consideration.
FEIOCK: If the trend continues, there will be no need for Rentrak or SuperComm, certainly.
INGRAM: I just asked the question.
FEIOCK: That would be an ideal situation for our company, anyway. That would enable us to bring in those extra copies at a price we can afford, and still be very profitable. That's the ultimate goal.
SN: Steve [Jones], what implications does this type of shared-revenue program have for your type of business?
JONES: We've been looking at this for several years, and we've put the hardware and the software to handle the system in place in all of our retail locations. We spent a great deal of time trying to develop systems for our customers that integrated shared-revenue into our lease program.
If we find it to be of a real strong benefit to our customers and make them more profitable, then we will at some point become involved. But until we are confident that we can make it work, and make our customers more profitable, we will not become involved.
When you buy those titles through Rentrak or SuperComm, you have to avoid the temptation to not support titles that are not in the system. That's what we see as potentially being the most damaging. If you start to isolate the pay-per-transaction titles, and really build those up, and at the same time you don't support the other titles, then your catalog is going to get real weak.
FEIOCK: That's very true. When I sit down to do a month's purchasing, I do it without Rentrak and SuperComm, and then look at the titles they're offering. If they have some big titles, I'll order four times as many from SuperComm or Rentrak. I don't want it to change the way I look at the rest of the month. I still have to pay attention to the bigger titles or the lesser titles as much as possible. But SuperComm and Rentrak add to your ability to play up some other titles that you wouldn't have been able to do as strongly before.
JONES: The way I look at it is, my savings on those titles should be invested in the other titles so I have more copies of those also. You really want to build up a whole new release section, not just that small segment.
FEIOCK: It is very complex. It's really hard to determine what the best way to approach it is. I'm still experimenting.
SN: Bernie [Herman], your company has been participating with SuperComm since its early days. What's your feeling about this program?
HERMAN: It works well for a retailer in that it gives them more copies than they would normally buy. That's the positive side. It's a positive for their customers, too, because they can deliver more titles. The negative is, they're sharing their revenues with a partner and most retailers that I have spoken to who share with partners find that it's not profitable to do that. That's another balance.
There are other reasons that people do it. Some want to make sure that they are competitive with other video retailers in the marketplace.
SN: Any other thoughts on shared-revenue?
EISENBERG: Even studios who participate in revenue sharing will privately admit that if every retailer was on the program, and if every A title was bought on a revenue-sharing basis, it could quite possibly have a devastating effect on profitability for both the retailers and the studios. But the thought seems to be that on a limited basis, it gives some promotional benefit and doesn't have any serious adverse impact.