Indies Gain Ground In Dvd Marketplace

As U.S. consumers widen their DVD collections, it isn't only the major studios' blockbuster films that are reaping home-video profits. Independent home-video companies that release special-interest titles in the film, family, fitness, and music categories are placing themselves in enviable positions, with increasing demand for a variety of product. A group of independents at the Video Software Dealers Assn.'s (VSDA) 21st annual Home Entertainment convention here acknowledged that while they may be forerunners in the special-interest market, competing with major theatrical releases posed challenges in terms of retail shelf space, price competition, and available promotion dollars.

The DVD Entertainment Group recently released statistics stating that 40 million DVD players have shipped since the format launched in 1997 and that 20 million are likely to be shipped this year alone (Billboard, July 27). Accompanying software sales have also increased dramatically, particularly in the special-interest categories. Buena Vista Home Entertainment compiled its own report on the family category in June, stating that 37% of all DVDs are purchased for the entire family and that parents had purchased an average of 6.4 DVDs in the three months leading up to the report. The figures also pointed out that 36% of DVDs were purchased by the male head of the family and that an average of 7.5 DVDs were bought by non-parent DVD owners in the same three-month period.

While these numbers bode well for a major like Buena Vista—which distributes family-friendly Disney product—they also speak favorably to the many independents in the family market and in other niches trying to gain ground in the DVD marketplace. Glenn Ross, president of Family Home Entertainment (FHE)—a division of the independent Artisan Home Entertainment—and executive VP of Artisan, says: "If you looked at FHE four years ago and looked at [Nielsen] VideoScan ratings, we wouldn't have even shown up. Last year, we were rated No. 4 by market share after Disney, Warner, and Paramount." FHE's first release in its Barbie series, Barbie in the Nutcracker, has sold more than 3.4 million total home-video units since it debuted last fall. Barbie as Rapunzel will street Oct. 1, and the company expects at least 40% of its sales to be on the DVD format.

For independent Koch Vision, music and fitness categories in particular have taken off as the DVD format has grown. "DVD has been a huge boon, particularly in the music arena," Koch Vision director Khris Tahmin says. The company also delves into family product, genre films, and TV series, including the upcoming release of Carl Sagan's Cosmos (Sept. 24). "The music stores really embraced DVD early and quickly. While record sales have been somewhat stagnant in the last couple of years, DVD sales have been exorbitant.

"Fitness also lends itself particularly well to DVD, because you can vary your routine every single day," Tahmin continues. "Once you've done a fitness DVD five times and you've heard the instructor telling you to breathe, you don't necessarily need to hear it every time you do the routine."

Many retailers are now making room for independents by adding space to their DVD sections. John Thrasher, VP of video for Tower, says that "with stagnant music sales, we can move [space] out of our classical section [for example] to make room for [DVD] product. We have doubled or tripled inventory in some instances."

At Musicland stores, which include the Sam Goody, Suncoast, and On-Cue chains, independent titles are increasingly stocked. Musicland spokeswoman Dawn Bryant says, "We often go out of our way to seek titles from independent home-video companies." For example, Musicland recently sought out Backyard Wrestling titles through Ventura Distribution, which were originally marketed via infomercials.

DVDs in varying categories are doing well because the average DVD consumer is no longer the tech-oriented early adopter. "The significant difference between now and 15 months ago was that 15 months ago, everything had to be technology-driven, because that was the [DVD] buyer," says Gary Jones, president of worldwide distribution for New Concorde Home Entertainment, the Roger Corman-owned company that releases genre films in the horror (Slumber Party Massacre) and action (Bloodfist collection) categories, as well as family titles. "They are buying as if they were VHS customers, basically."

swiftER tracking of trends

Independents who have established themselves in the special-interest arena are finding that they can react more swiftly to these consumer trends than a major studio. "Right now, DVD is in such a growth spurt that we can react faster than they can," says First Look Home Entertainment senior VP of sales and distribution Bill Bromiley. The company's current release slate includes a variety of independent films, such as Nora with Ewan McGregor and Susan Lynch. "The studios, just by nature of how they are set up, take a lot more time to plan product. We can beat them to the punch."

Being fleet of foot is a common attribute that independent companies cite as an advantage over their major competitors. As VSDA president Bo Andersen says, "An independent studio can turn on a dime. If it can recognize some consumer strength behind a niche or genre, it can leap into it. My view is that the independent studios stand a better chance with the home-video infrastructure that we have now than they will have in any delivery system. It brings diversity into the market and consumer benefit."

The challenge has been convincing retailers to lend shelf space to special-interest product when major studio titles are selling so well. The shelf-space fight is "something that is inherent in the business," Tahmin says. "There's always a fight for real estate. I don't see that going away anytime soon. If anything, I see that becoming more of a challenge going forward."

New Concorde's Jones says, "What it really boils down to is if a retailer has 80 copies of Harry Potter for rental, he has to decide [if] he [is] better off having one, two, three, or four copies of an independent title that on a per-disc basis will generate more revenue on the investment than the cumulate 80 copies. They still need diversity. They can't live on 10 titles a month, and it has always been that way."

THE PUSH & PULL OVER PRICE

In addition to competition for in-store space, independents are also constantly battling with retailers about pricing. Independent product usually costs more than major studio titles, and many retailers, according to independent companies, are pushing for lower asking prices in order to move more units. No retailers contacted by Billboard would comment on this issue.

For Steve Sterling, president of Eagle Vision—a predominantly music-oriented home-video company—this issue is a constant "push-pull" with retailers. "As an independent, we pay a lot of money to get major artists [for our product]," he explains. "It costs millions of dollars to mount the production and get the rights. On the music side, you have a lot of obligations, from royalties to publishing. It's very, very arduous to get that all done.

"People sometimes say, 'There's a $25 million movie selling for $9.99. Why is a music title selling for $24.98?' " Sterling continues. "It is very frustrating for us right now to be trying to do A-list titles that are very expensive to get under way and to have the retailers say they want to sell it for $9.99. The reality is that the quality of music in the DVD format still has a good premium on it with consumers. We have to make sure we can get our money back. In order to do that, you have to generate the kind of revenue that a higher price gets you."

Similarly, First Look's Bromiley notes that his company's DVDs are priced at $24.98. "We can't really afford to be much less than that and still make the model work," he says. "However, you get some of the big mass merchants who have consumers coming in who just don't want to pay $24.98, or even if they mark it down to $22 or $21 it's too much money. They are trying to get us to drop the price by $5 here and there. I can't lower the price just for them. How we compete is that people are always looking for something new. On the arty, independent films, you can [therefore] keep the price a little higher."

Stephen Nadelberg, chairman of Anchor Bay Entertainment—a company known for its variety of genre films (The Evil Dead: Book of the Dead, Werner Herzog Collection), family (Thomas & Friends), and fitness product (For Dummies series)—explains that while DVDs do not cost more to make than VHS tapes, it's the added features that may ultimately suffer as a result of pricing concerns. "If prices keep sliding, people are not going to be able to afford to do [special features] anymore. From a retail perspective, if a retailer makes X% margin on a sale, it's far better off making it at $20 than $5. What you're going to do is drive people out. The thing that makes DVD great for the studio and the retailer will go away, because we've driven all the value out of it and made it an unprofitable business. If this continues, in three or four years, retailers are going to say it is not a good business anymore."

What many retailers are also looking for, independents say, is proof that the company will market its product and help to move it off shelves. "We try to tailor each retailer differently and try to accomplish what we know to be their goals," Artisan president Steve Beeks says. "In some cases, the DVD will get wide TV exposure. In many cases, we try to do a lot of street advertising. We don't go out with one advertising plan. That takes time and energy and isn't easy."

Most independent studios don't have the resources to mount such marketing plans. Showtime Entertainment's Sallie Fraenkel—the company's senior VP of program enterprises and distribution—says: "We do not have gigantic marketing budgets. This is not a studio model. One of the advantages of working with an independent is that you get a certain personalized attention. The joy [that a retailer gets from] working with an independent is that you're important to [the independent's] business, and therefore you're going to get a customized program you won't get from a mega-studio." Showtime is best-known for its release of Queer as Folk—The Complete First Season on DVD, and it recently signed a deal to distribute home-video product from the newly formed Sundance Home Entertainment company.

HOOKING THE MASS MERCHANTS

At this point in time, retailers of all shapes and sizes are taking notice —even the mass merchants. "A year or two ago, the mass merchants had no interest whatsoever [in niche product]," says Tom Seaman, president of music specialist Music Video Distributors. "It's very, very easy for a retailer to say no. You've got to work for them to say yes. The marketplace is changing, and they can't afford to [say no]."

First Look's Bromiley points out one example that epitomizes the changing scene. "We've been trying since we started the division 21/2 years ago to get into Walmart, which has been very difficult. We just got in our first two titles. That caught us completely by surprise, especially with one of them. One of them was Asoka, which is an Indian-language film. Who would have thought that Walmart would bring in an Indian-language film from us? We've got thrillers, we've got action films. That was really an eye-opener for us. We thought, 'If Walmart can bring this in, there is definitely more of a customer base than we thought.' "

Many independents ultimately believe that it is the perceived value of their product that will help pull them through any potholes in the road. Because these companies put out fewer films a year than a major, they give each title more personalized attention and feel very passionate about each release. Showtime's Fraenkel says, "We love the films that we distribute. When you love the films, you put a special touch to [them]. We are not a film factory. We don't release 150 titles a year. By doing fewer films and really putting a lot into each one, we do get very invested in them."

And by being invested in each film, independents try to maintain integrity in the home-video industry. Anchor Bay senior VP of acquisitions and product development Jay Douglas says, "People who buy hardback books love to collect. People who still buy vinyl are collectors. They have a respect that's taught. The [home-video] industry has to teach that and reiterate it over and over. Consumers are conditioned to find things collectible or disposable. I grew up putting a priceless value on music and movies. Seeing it become like a roll of paper towels is chilling."