Revenue, Import Issues Loom For Europe's Video Industry

LONDON-Responsible for around a quarter of the $33.6 billion worldwide home entertainment business, Europe's video industry has to face up to three major issues at the start of the next century.
Once the festivities are finished, the problems posed by revenue sharing, DVD parallel imports, and rental windows for the format offer a potential hangover of pulsating proportions.
Of immediate importance is the regional coding of DVD. Designed to protect local distribution of video product, regional coding divides the world into five districts where DVDs and players are locked until video windows in specific territories are opened following theatrical distribution.
However, it is estimated that at least 50% of all DVD players in Europe, a Region 2-designated area, have been "chipped" to allow them to play discs from any region, including Region 1 discs from North America.
Industry experts believe that for every Region 2 disc bought, a Region 1 DVD from America is being purchased, most likely off the Internet.
Thus, these parallel imports are threatening to undermine local video businesses, as consumers increasingly grab American DVDs that are released earlier and are often of better quality.
This creates a domino effect, as local stores lose sales to U.S. Internet retailers. This in turn damages the income of local video licensees and, as in the case recently of films such as "The Blair Witch Project," also damages theatrical revenues, since the U.S. DVDs arrive a month and a half ahead of their theatrical release in countries such as Denmark.
Kim Peschardt, director of Denmark-based video and theatrical distributor Scanbox, estimates that 5,000 to 6,000 Region 1 copies of "Blair Witch" were sold in the territory and have been seen by approximately 30,000 people.
Further, he estimates that 80% of these DVD buyers aren't likely to see the film in theaters.
"That is 25,000 unsold admissions in tiny Denmark," says Peschardt, "which may not be very scary for anyone else, but it is very scary for the Danes."
He believes that across Europe, DVD Region 1 discs could cost as much as $10.8 million in box office per film and as much as $4.5 million per title in lost revenue to local video distributors.
20th Century Fox Home Video in the U.K. has recently attempted to hunt down Region 1 disc distributors within Europe. But there is little to be done unless DVD release dates in the U.S. are altered to coincide with international distribution patterns or U.S. Internet retailers are prevented from exporting DVDs.
Retailers across Europe, such as France's FNAC and Video Vision in the Netherlands, have begun selling Region 1 discs, recognizing that halting Internet sales is unlikely.
Matt Brown, London-based VP of international video for DreamWorks Home Entertainment, says that the globalization of the business and retailing over the Web have caught some studios by surprise.
"I have the feeling that some of the people who create these projects back in Los Angeles are not quite up to speed, and they need to be brought up to speed quickly," he says.
Region 1 imports are causing immediate concern, but rental and sell-through retailers are becoming increasingly divided over a rental window for DVD.
Rental dealers are adamant that they need one to preserve their businesses. On the other hand, sell-through retailers believe that with the consumer now used to the day and date of rental VHS and for-sale DVDs, the introduction of a window would hand their business to U.S.-based Internet retailers.
The DVD release strategy has left distributors caught between trying to preserve a rental business that makes up 50% of their revenues and trying to support a growing sell-through business.
Pushing DVD sell-through windows back six months "is a sales conversation I don't want to have with a key retailer who has built the DVD business over the last year and who will be building it over the next three years," says Paul Miller, president of CIC International, Paramount and Universal's joint video distribution venture.
If a window is introduced, though, it is believed that dealers would get only a six-week jump on the sellthrough release.
In the long term, the greatest debate in the European video business is over revenue sharing.
While the goal of providing greater copy depth to increase consumer satisfaction in the face of threats from pay-per-view and video-on-demand is worth pursuing, the system-as American retailers have found-threatens to undermine both the rental and the sell-through businesses.
European retailers are divided. Blockbuster, a keen advocate of the system in the U.S., has not yet adopted revenue sharing in the U.K. Steve Jefferies of the 100-store British rental chain VidBiz is equally cautious.
"It has to be remembered that if the studios want to share my revenue on the blockbuster films and come to the weddings," says Jefferies, "they also have to come to the funerals."
However, Co Mast of the leading Dutch retailer Video Vision, a 55-store rental chain, has been successful with revenue sharing for the past five years. "At the moment the market is declining in Holland by about 2%, and my shops have increased by about 7%, so it is working," he says.

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