Warner Drops Rental Distributors

The distribution community took another hard hit recently when Warner Home Video announced it will begin shipping rental product direct to retailers.
In addition, Warner has hired Ingram Entertainment as a third-party sales and administration agent for its rental product.
Ingram's deal with Warner includes the distributor setting up a separate and dedicated Warner staff to handle telemarketing, outside sales, and credit and sales administration duties for the supplier. Warner also handles sales of New Line Home Video and HBO Video product.
Warner executive VP Jim Cardwell would not elaborate on how large the staff will be, but he says it will consist of more than a dozen people.
Cardwell would not comment on financial terms or on how much of a savings Warner expects to gain.
Some of the savings will be in distributor mailer ads, sales rep incentives, and bonuses when goals are met.
"The key reason we're doing this is that so many of our programs were not getting efficiently communicated to retailers," Cardwell says. "Distributors were spending too much time explaining programs instead of selling product."
The Warner/Ingram staff is expected to be in place by September, when the new plan begins.
Over the past several years, rental product has been subject to elaborate retail buy-in, rebate, and other marketing programs that frequently confused retailers and distributors.
In fact, at last year's National Assn. of Video Distributors' annual confab, many distributors echoed Cardwell's observation that they spent more time trying to make sense of the plans than selling product into retail.
"They're complaining about something they started," said one distributor who asked not to be identified. "Retailers have always said they want a lower price, not programs."
Warner's new approach is likely to affect smaller retailers, since larger accounts such as Blockbuster Video and Hollywood Video already have rental product shipped direct from the supplier.
The new plan is expected to lower the price of product for retailers, although Warner will set terms and credit lines.
Warner has a 21.5% market share, according to VidTrac estimates, and about half of its estimated $150 million rental business is handled by traditional distribution.
The move comes within weeks of the closure of M.S. Distributing, and Sight & Sound Distributors and others question Warner's strategy.
"Obviously we hate losing the opportunity to represent anyone's line," says WaxWorks VP of sales Kirk Kirkpatrick. "The industry's job is to keep retail alive and thriving, and I don't know if this is a step in the right direction."
The supplier will continue to use multiple distributors to sell-in and ship sell-through video product and DVD.
"We didn't have the same issues with sell-through product," says Cardwell.
But Kirkpatrick says distributors may balk at pushing Warner sell-through product in protest.
"They say they're in full support of us for DVD and sell-through product, but how much trust do they have in us at this point?" he asks.