Studios unwinding VHS shipments

Retailers OK with shift

By Susanne Ault -- Video Business, 8/12/2005

AUG. 12 | Studios are putting a few more nails in VHS’ coffin—and many retailers appear ready for the funeral.

As the majority of U.S. households now own DVD players, the Video Software Dealers Assn. estimates that VHS made up 17% of rental revenue year-to-date through July 10. That’s down from VHS’ 29% share for 2004.

So it’s perhaps unsurprising that sources now say Buena Vista Home Entertainment has told a number of rental and sell-through accounts not to expect any new VHS title production in 2006. Indeed, the studio is not bringing out family comedy Herbie: Fully Loaded on VHS (see Spotlight, page 18).

Elsewhere, HBO Video, which distributes titles through Warner Home Video, has gotten out of VHS starting with the most recent season set releases of Sex and the City and The Sopranos. And retailers report Buena Vista, WHV, Universal Studios Home Entertainment and DreamWorks Home Entertainment all have been raising wholesale prices on VHS, effectively limiting retailers’ orders of product in the older format.

“Disney [appears] to have stopped already, with many of their [smaller] titles, like Hellraiser and The Prophecy,” Tower video advertising manager Terrel Porter-Smith said. “Hitchhiker’s Guide to the Galaxy is one of the first major releases [not to be on VHS and DVD]. But it’s almost like we don’t care what the studios are doing. We were getting out of it to begin with.”

About 5% of Tower’s home entertainment stock is VHS. That includes a handful of stores that rent VHS at the primarily sell-through chain.

“The Video Buyers Group is fully expecting that little if any VHS product will be made on both secondary and major titles starting Jan. 1, 2006,” VBG president Ted Engen said. “We’re fine with that. VHS orders are costing more than DVD. Much of it is $35 [wholesale costs] compared with $20 for DVD. We’d just as soon have VHS go away.”

Engen recognizes that there is a good chunk of people still consuming VHS. Within small- and medium-size cities, VBG member VHS activity accounts for 35% of their business. In large cities, it’s about 25%.

Yet he is embracing industry shifts. “That will hopefully make that last group convert to DVD,” he reasoned.

Studios and retailers are increasingly clearing out VHS product. Over the last several months, Warner, Universal and Paramount Home Entertainment have been delivering deep-discount, one-way offers on older VHS titles, say retailers.

Typically, stores are listing participating titles at $5 and below, and they are not able to return the unsold product to studios for refunds. Regional chain Fred Meyer is selling Universal’s The Scorpion King and Fried Green Tomatoes and Warner’s Caddyshack, among others, in this fashion as impulse product near cash registers.

“All studios are looking very seriously at cutting out or greatly reducing their assortment,” Trans World exec VP merchandising Fred Fox said. “Some studios are offering special pricing on a one-way basis.”

In early August, the National Entertainment Buying Group was told that Universal is no longer accepting returns for all new VHS orders. Ingram Entertainment distributes product to NEBG’s 150 indie store members.

“I can certainly understand why from Universal’s standpoint,” NEBG president Todd Zaganiacz said. “VHS is dwindling. Mass merchants aren’t carrying it, as are many retailers. But clarity is needed in terms of what we should do with [potential] defectives.”

Even e-tailers—the last sales area for VHS for many big retail chains—are getting out of VHS. BarnesandNoble.com is liquidating its VHS product and will no longer order fresh copies. Many of its VHS titles are selling for as little as $1.99 a piece, including a batch of discs from Buena Vista’s family franchise Tales From Avonlea.

BestBuy.com removed its VHS offerings a few months ago. Its bricks-and-mortar stores have not carried VHS for the last couple of years.

Virgin got out in mid-September 2004. Tower is not replenishing any of its VHS stock. Newbury Comics stopped selling VHS about a year and a half ago.

For those retailers still carrying VHS on an ongoing basis, that side of their business is shrinking.

Fred Meyer’s VHS sales have been dropping 50% to 60% annually over the last few years. Hastings offered 70% more VHS product last year at this time.

Fred Meyer buyer Randy Schaaf insists VHS is viable and cites that 40% of copies for an A-list kids title can sell on VHS. Many families plugged their VHS players into kids’ rooms, leaving space for DVD players in living rooms.

“Baby Einstein and Blue’s Clues [from Buena Vista and Paramount, respectively] are ones that could still have a VHS business,” Schaaf said. “The understanding is that this is the last year Buena Vista is pretty much in the business … but I feel we could have extended the life of the product line another year.”

Overall, there should be few hard feelings for VHS, contends Virgin buyer Chris Anstey.

“We held onto VHS as long as we could, recognizing that there were still some customers interested,” he said. “But ultimately, if sales aren’t strong enough, then you have to make room for departments that people are genuinely interested in, like TV on DVD. In the end, it’s the customers who ultimately decide the success of any format.”

Additional reporting by Jennifer Netherby