(From Video Business Online - April 6, 2001)

Retailers Go Sideways To Sidestep Warner Goals

By Diane Garrett

APRIL 6 | Retailers across the country are responding to a steep rise in VHS order goals under Warner Home Video's Rental Direct program by finding ways to get around them.

Retailers and tape brokers contacted by VB say Warner's Rental Direct program has not stemmed the tide of new releases being sold sideways as intended. Rather, the rising goals and the studio's recent unwillingness to negotiate on them seem to have pushed more retailers into buying VHS sideways or caused them to reduce their buys through Warner in hopes of influencing future goals.

Retailers singled out goals on two recent titles--Warner's Space Cowboys and New Line Home Video's Little Nicky--as particularly hard for smaller chains to reach.

After months of steadfastly resisting sideways selling, retailer Mark Tusher said he took the plunge when Warner refused to budge on his buy-in goals of 21 copies for Little Nicky, which grossed $39.4 million in theaters, and 27 for Warner's Space Cowboys, which grossed $90.5 million. By comparison, two of his first goals under the program were 15 for Any Given Sunday, a $75.5 million film, and seven copies for Ready to Rumble, a $12.4 million film. Frequency, a New Line title with a box-office take of $44.9 million, close to Little Nicky's, had a much lower buy-in at 14 copies.

"They pick a dollar they want, then they create a formula to reach it, and all it's doing is making more retailers go sideways," said Tusher, who owns two stores north of Los Angeles.

Warner, like many other studios, sets a certain number of units that a store must buy at full price in order to qualify to buy greater copy depth at a reduced price per unit. The goals apply to both revenue-sharing and nonsharing purchasing options.

Warner VP of U.S. sales Steve Nickerson declined to comment on the supplier's goals other than to say that "our programs cover many areas, not just goals." New Line officials were unavailable for comment.

Mick Blanken, owner of Superhitz Moviez and Gamez in Delaware, Ohio, stopped buying Warner titles through revenue sharing this year and has been talking with Warner about reducing his goals.

"I think Warner goals the first quarter of this year have been particularly lousy," Blanken said.

He said goals keep going up without any real break in terms, and that as more retailers buy sideways, those that continue to buy through the system bear more of a brunt because their market share with Warner grows.

Chuck Grachan of 22-store chain JC Flicks, Joliet, Ill., was able to buy into the program for Little Nicky and Space Cowboys because April was otherwise a light month, but he too shook his head at Warner's goals on those titles.

According to Jonathan Hubbard, CEO of MetaExchange.com, an online trading site, Little Nicky and Space Cowboys have been the most actively traded VHS titles since the site began offering video in November. Little Nicky traded in large quantities in the $40-$45 range throughout the month of March, he noted.

Tape broker Phil Forman of Newtown Video has also noticed heavier demand for new Warner titles lately. "We have people who only buy Warner product from us," he said.

Ironically, some of the same retailers criticizing Warner goals say that otherwise it's the best studio program available.

"I think overall Warner's program is better than anybody else's--subject to goals, of course," Grachan said.

He advised that retailers struggling to meet goals should consider buying 30% less than they would normally order, but at full price, as a way of getting their goals down. He passed on Art of War and is now reaping the benefit of a lower goal for Pay It Forward (street date May 15, prebook April 24), which is based in part on his Art of War buy.

"You've got to control your goal--otherwise it will go absolutely bananas," Grachan said.

Another retailer started to cut buys on all Warner program titles to eight copies per title three months ago to force down his future goals, and he's beefing up his DVD buys for his three-store chain in the interim.

"If it hurts me for a couple months, I can live with it, especially if it helps me in the long term," he said.