VSDA, NARM talk merger

Trade groups could join after separating years ago

By Paul Sweeting and Scott Hettrick -- Video Business, 6/11/2004

JUNE 11 | The biggest industry organizations representing the DVD and music industries are officially talking merger.

The consolidation of both industries and the growing overlap in the two markets along with common issues resulting from the digital and Internet revolution has led the 46-year-old National Association of Recording Merchandisers and the 23-year-old Video Software Dealers Association to launch official negotiations to explore a merger.

It would be a reuniting of the not-for-profit organizations that split nearly two decades ago.

Such a move would also prompt consideration of the merging of the two national trade shows of the organizations, each of which, like most tradeshows, are shadows of the halcyon days when they drew considerably more attendance, business and overall hoopla.

Perhaps the biggest concern facing each group is declining vendor support for the annual shows. Studios once spent lavishly at VSDA's conference, providing the bulk of the group's revenue. But as big-box dealers take an ever-increasing share from indie retailers, the annual gathering has become less important for suppliers, and Hollywood attendance has been declining for years.

Music labels also used to mount splashy product presentations at NARM shows, but those days are now long gone.

During the past year or two, there have been discussions between the two groups about co-locating the annual shows. Those talks led to the recent merger discussions, according to NARM president Jim Donio.

The VSDA's Home Entertainment 2004 is scheduled for July 14-16 at the Venetian Resort Hotel Casino in Las Vegas. The 46th annual NARM Convention & Marketplace is set for Aug. 21-24 at the San Diego Marriott.

Representatives for both organizations said it was too early to comment on the potential ramifications of a merger of the groups or the tradeshows, although this year's shows would not be affected.

The VSDA's convention is one of three shows operated by Home Entertainment Events, which is jointly owned by the VSDA and Advanstar. Any change to the VSDA show would have to be approved by both parties, or, according to the contract, each party has to be given the option to buy the other party out of its interest in the partnership.

Lawyers for VSDA and NARM are hammering out a letter of intent to formalize the merger talks, which could still take months, officials from the groups said.

If they do get together, it would bring the groups full circle. VSDA began in 1981 as an offshoot of NARM, and until 1986, the groups shared a staff and headquarters.

VSDA is now based in Encino, Calif., while NARM hails from Marlton, N.J.

In recent years, however, both groups have seen membership roles plunge, as both the CD and DVD businesses shift away from specialty shops to mass-merchants chains.

Piracy has also taken a toll, particularly on music stores, which have suffered from the sharp drop in CD sales seen since 2001.

VSDA counts about 1,200 member companies, down from a peak of nearly 4,000 a decade ago; NARM has fewer than 400.

Although only a handful of members formally belong to both groups, the rank and file of each is increasingly eyeing the other's turf as both music and video retailers look to diversify to offset declining sales and rentals.

"Obviously, there has been a lot of convergence on the product side by our members, with retailers selling music, movies and games," Donio said.

Both memberships also face a threat from the growing business of legal downloads, which could further undercut CD and DVD sales.

Cooperation between the groups also has been growing.

In April, NARM and VSDA joined forces with the National Association of Theater Owners, along with game retailers to form the Coalition of Entertainment Retail Trade Association.

The Washington-focused Coalition will coordinate lobbying on piracy legislation and other issues of shared concern among the groups.

"We've been marching down the hallway together on issues in Washington and, equally important, in dozen of state houses," VSDA president Bo Andersen said. "We already know that our government affairs interests are almost perfectly aligned, so that's an element" in the merger talks.

Additional reporting by Jennifer Netherby.