DVD rental data from Rentrak

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Rev-Share Still Lives
Author: KURT INDVIK (HomeMediaRetailing.com)
Sept 16, 2005

The time for sharing is hardly history. Revenue-sharing may have flourished in the heyday of the high-priced rental cassette. But even though the business has shifted to low-priced DVDs, the concept of suppliers getting a percentage of rental proceeds in return for cheaper up-front costs hasn't faded away completely. Studio involvement is mixed — and evolving.

The major rental chains, including recent convert Movie Gallery, still aggressively use direct rev-share deals with the studios to manage cash flow and inventory.

Smaller retailers, on the other hand, are a lot more selective in their use of revenue-sharing because their cost of goods has plummeted from around $65 for a rental-priced cassette to around $17 for a new DVD. [nb: This is for new releases, rather than back catalog]

On average, rentailers involved in revenue-sharing acquire anywhere from 40 percent to 60 percent of their rental inventories through the practice, according to industry sources. [nb: NFLX reports 30/70 front/back, vs 70/30 for BB]

"If you are in a cash crunch, as Blockbuster apparently is, then [revenue-sharing] becomes more important," said analyst Dennis McAlpine, of McAlpine & Associates.

He estimates Blockbuster has upped revenue-sharing to about 70 percent in the latest quarter.

"At any one time, we may have about 70 percent of product coming into our stores through revenue-sharing agreements," Blockbuster spokesman Randy Hargrove confirmed. "We continue to believe revenue-share and copy-depth programs are useful for providing the movies that customers want and maximizing revenue on a title by title basis for both Blockbuster and the movie studios."

Movie Gallery, McAlpine said, revenue-shares about 50 percent of its rental inventory, although the recent merger with Hollywood Entertainment Corp. makes estimates problematic. Movie Gallery did not respond to requests for comment.

Netflix, the online rental giant, brings in about 60 percent of its new releases through revenue-sharing, said chief content officer Ted Sarandos. "Revenue-sharing is a way to maximize customer satisfaction in a margin-neutral way," he said. "Direct wholesale purchasing of rental units puts the rentailer in the position to manage margins by regulating access to what a customer wants and when they get it." [nb: if, as they report, 30% of their catalog is front catalog, and none of the back catalog is rev share, then around 18% of their overall catalog is rev share]

Marty Graham, COO of Rentrak's PPT division, said with consumers having more entertainment options than ever, video stores can't afford to run out of hot titles. Revenue-sharing, he said, allows them to pump up their inventories without investing too much cash in advance.

"The majority of studios offer product on output deals, so they're taking in more, but in exchange the retailer is getting more attractive terms," Graham said. "Revenue-sharing is the largest piece of our business today, and we don't see that changing any time soon."

Rentrak also offers programs for independent suppliers, aimed at smaller retailers who might balk at spending even $17 on a relatively (or completely) unknown film.

Industry analyst Tom Adams of Adams Media Research said the low price of DVD has diminished the rentailer's need for revenue-sharing.

Many independent rentailers are reluctant to take on rev-sharing deals, largely because of restrictions in selling previously viewed titles. The average is 30 days, and with the short legs of new hits, that's simply too long, rentailers say.

"We recommended a year ago to our members that if they were doing revenue-sharing to get out," said Ted Engen, president of the Video Buyers Group (VBG), which reports about 1,800 storefronts in its membership. "When your cost is under $20 for a DVD, there isn't any reason to take on a partner." In a recent VBG poll of members, 68 percent said they typically began selling off rental titles within 30 days of street date.

"Under revenue-sharing, you lose the flexibility to start selling off those titles when you need to," Engen said.

Rentrak's Graham doesn't see studios budging much on selloff restrictions, since they don't want to risk cannibalizing their new sellthrough.

On the studio side, sources say three of the six majors — Buena Vista Home Entertainment, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment — have opted not to enter into any long-term deals with the chains.

All the major studios have PPT deals with Rentrak, with variations. Most offer output deals for DVD and videocassettes, with Buena Vista's and Universal's PPT involvement limited to VHS. Upfront fees ranging from nothing to $1.50 (Universal and Buena Vista charge $3.75 and $6.75 for VHS). On average, retailers then keep 60 percent of the rental proceeds, and all but $1.25 to $3.80 of the selloff take.

Last March, Warner Home Video tweaked its revenue-sharing program to include a back-end minimum guarantee back to the studio.

Rentrak also has deals with a variety of smaller suppliers, including Wellspring, Ardustry and MTI. PPT programs also are available for some video games, with upfront fees averaging $8.50 to $12.50 and participating retailers getting 54 percent of the rental proceeds.

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DVD stats

From NYTimes "As DVD Sales Slow, Hollywood Hunts for a New Cash Cow" 6/13/2006:

• For movies that gross more than $100 million at the box office, 84 percent of DVD sales are in the first six weeks after their release
• Comcast, the country's largest cable company, lets its subscribers view 7,500 free movies and programs, and since 2004, they have watched them two billion times.
• Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research. [NB-I think $17.26 is for front-catalog discs]

DVD stats nyt, originally uploaded by ssaito.

Excerpts from Kevin Kelly's "Scan This Book!" (NYTimes)

"From the days of Sumerian clay tablets till now, humans have 'published' at least 32 million books, 750 million articles and essays, 25 million songs, 500 million images, 500,000 movies, 3 million videos, TV shows and short films and 100 billion public Web pages."

"Nearly 100 percent of all contemporary recorded music has already been digitized, much of it by fans. About one-tenth of the 500,000 or so movies listed on the Internet Movie Database are now digitized on DVD. But because of copyright issues and the physical fact of the need to turn pages, the digitization of books has proceeded at a relative crawl. At most, one book in 20 has moved from analog to digital."

"The 15 percent of the world's 32 million cataloged books that are in the public domain are freely available for anyone to borrow, imitate, publish or copy wholesale. Almost the entire current scanning effort by American libraries is aimed at this 15 percent. The Million Book Project mines this small sliver of the pie, as does Google. Because they are in the commons, no law hinders this 15 percent from being scanned and added to the universal library.
The approximately 10 percent of all books actively in print will also be scanned before long. Amazon carries at least four million books, which includes multiple editions of the same title. "