Used DVDs a growing business

Supply increasing from kiosks, consumers

By Jennifer Netherby -- Video Business, 1/16/2009

JAN. 16 | Hudson News has never rented or sold new DVDs, but in 2008, it began selling used DVDs as part of its entry into the home entertainment business.

The airport retailer is not alone. A growing number of retailers who have never rented movies, including Borders, are entering the DVD business on the cheap with used discs, thanks in large part to an exploding supply from DVD rental kiosk companies and demand from belt-tightening consumers.

Kiosk companies churn through millions of DVDs a month—Redbox alone has more than 10,000 kiosks stocked with several hundred DVDs apiece.

Redbox sells some of its used movies in its kiosks for $7; the rest it sends back to its distributors, Video Product Distributors and Ingram Entertainment. Those distributors also buy back used discs from other kiosk companies and other rental retailers such as Netflix, which recently announced it would stop selling previously-viewed discs on its site in favor of reselling them to distributors. The leading by-mail DVD renter took in $1.6 million from used sales in the third quarter, a fraction of its total revenue.

Executives with VPD and Ingram didn’t return calls to talk about the business, but sources said the wholesalers sell used movies to a handful of other resellers that include Pennsylvania-based SQS Movies You Buy; Burbank, Calif.-based Distribution Video Audio Inc.; and Emeryville, Calif.-based Alibris, which supplies Borders.

Those resellers then sell the used discs to other retailers. DVA supplies new and used movies to Dollar General and Big Lots as well as to some rental retailers, such as Hastings Entertainment, DVA president Ryan Kugler said.

“Used is growing,” Kugler said. “With demand and Netflix and Redbox and Blockbuster Online as they get larger and larger, as they rightfully should, there’s going to be more product out there.”

It’s hard to find numbers on the actual size of the used business—one distribution source estimated that used disc sales are less than 10% of the overall DVD business.

However, the explosion in used disc sales has already attracted the studios’ wrath. Universal Studios Home Entertainment tried to force Redbox to destroy all copies of its movies rather than resell them as part of a revenue-sharing agreement, for which the DVD kiosk company is now suing the studio. Universal, which declined to talk about previously-viewed discs, presumably wanted to stem the flow back into the retail market, where they would compete against new release sales.

Warner Home Video last year similarly began requiring retailers who revenue-share its titles through Rentrak to destroy most units rather than resell them.

A distribution source questioned whether used sales actually hurt new DVD sales. He said used discs don’t tend to make it back into stores for resell until eight weeks or more after they’ve been released, long after most retailers have taken new copies off their new release shelves because sales have dropped off.

DVA’s Kugler, however, said he gets used product in some cases between one week and six weeks after its initial release.

Hastings, which recently expanded its used offerings, believes used discs ultimately help new product sales, particularly among customers who are able to trade in older titles.

Many rental retailers, who have long been selling rental product back to customers as previously-viewed in their own stores and online, blame kiosk companies for an oversupply of used product on the market pushing down prices.

DVA sells used DVDs for $3 to $6, lower than a year ago, but its business revenue is up because the company is handling more volume. The company bought 20 million discs for resale in 2008, Kugler said.

At Video Zone in South Deerfield, Mass., owner Todd Zaganiacz said that in 2007, he sold off rental units for $7 a piece 90 days after they streeted. In 2008, he was lucky to get $6 30 days after a film’s release and $5 after 90 days.

“This year, specifically, we really started to see price erosion across the board,” Zaganiacz said. “Part of it may be the economy, but there’s more product out there.”

John Sarantakis, owner of People’s Choice Video Express in suburban Chicago, opened a used-only store for the holiday season to sell off most of its used inventory for $5 a movie.

“By next year, it’ll be very bad,” he said. “We’re taking advantage right now. Next year, we’re hoping to sell them for $3. It reminds me of VHS, when we were buying from customers for $1, then it went to a quarter, then a dime.”

He partly blames an oversupply of used DVDs, noting that his distributor, Ingram, often shows as many as 10,000 used units of recent releases available for sale.

Studios contacted by VB declined to talk on the record about used sales. However, one studio source said the concern isn’t that used sales cut into new sales, but that used discs hurts consumers’ perception of DVDs’ value.

Sarantakis agreed, noting that he pays customers $1 at most for DVDs these days, well below the $10 they could expect a couple years ago. But he pointed the blame at pricing on new DVDs as much as used.

“When you see brand new DVDs for $4 and $5, you just killed the perception of the DVD,” he said.