Weinstein titles leak to other rental stores

Despite studio's exclusivity deal with Blockbuster

By Susanne Ault -- Video Business, 1/26/2007

JAN. 26 | Despite The Weinstein Co.’s deal to make Blockbuster the exclusive rental outlet for its titles, rental stores ranging from Netflix to single stores had the studio’s The Protector and Seven Swords on shelves on their Jan. 16 street date and expect the same for February titles.

Some retailers contacted by VB bought the titles at mass merchants, while others said they acquired them through traditional distribution.

That has pushed TWC to take a stricter stance on the accounts wholesalers can sell to, according to the middlemen. Starting with Feb. 13 release School for Scoundrels, wholesalers may only sell TWC titles to stores that derive the majority of their revenue from sell-through, according to retailers and distributors. Those with smaller sell-through businesses will not get the titles even if they agree only to sell and not rent them, wholesaler and retailer sources said.

“We placed our orders with Ingram in late November, early December, for Protector, and I got as many copies as I wanted,” Video Quest owner Tom Hannah said. “On Jan. 11, I talked to my [Ingram] rep, and they said they were canceling my order for School for Scoundrels. But I will still get it come hell or high water.”

Under the First Sale Doctrine, rental stores have the right to buy DVDs at other retailers and use them as rental inventory.

Nevertheless, sell-through copies of TWC’s The Protector carry the message “This DVD Is Intended For Sale Only,” which shows on screen for four seconds following the standard FBI piracy warning.

Blockbuster’s rental copies are branded on packaging as “Exclusive.”

The National Entertainment Buying Group and two indie retailers are suing to prevent TWC and its distributor, Genius Products, from identifying its DVDs as not appropriate for rental from any retailer but Blockbuster. Earlier this month, TWC agreed not to distribute DVDs with a message asking consumers to report rentals at non-Blockbuster outlets.

According to the Independent Dealers of Entertainment Assn., TWC titles streeting through March are expected to carry the “For Sale Only” message, including The Gathering, Prey (both Jan. 30), School for Scoundrels (Feb. 13), Shut Up & Sing (Feb. 20) and Harsh Times (March 13).

IDEA has posted documentation on its Web site to show non-Blockbuster outlets that they are on solid legal ground in renting TWC product.

“We want to assure our members and their customers that all video packaged goods that we are aware of today can be rented without reprisal, intimidation or innuendo,” says a letter signed by IDEA chair James G. Loperfido. Additionally, the IDEA site suggests rentailers include paper slips in all of their TWC copies explaining to customers that “it is unquestionably lawful to rent this genuine DVD.”

Retailers including Video Quest’s Hannah say they will continue to rent TWC titles even if they can’t buy the DVDs from their usual distributor. Hannah said he is set to buy School for Scoundrels at Wal-Mart at 8 a.m. Feb. 13 and rent to customers by the time his store opens at 10 a.m.

Netflix is allowing subscribers to add School for Scoundrels to their rental queues. Spokesman Steve Swasey declined to reveal the source of Netflix’s TWC title inventory, other than to say “we’re obtaining the titles lawfully, and we are free to rent them to our subscribers.”

One distributor expressed doubts about its ability to control how stores use TWC titles.

“We’re doing our best to follow Genius’ guidelines, but it’s difficult for us to be in the position of enforcing their rules,” said Kirk Kirkpatrick, WaxWorks president of video. “We are requiring our accounts to provide a written signed agreement stating that they are only selling the product when the account in use is questioned by Genius. But we are not the video police.”

Blockbuster officials acknowledged the availability of TWC titles elsewhere but downplayed its importance.

“We always knew there would be some form of sideways selling, but we believe it is very small,” Blockbuster senior VP of merchandising Matthew Smith said. “There is not the copy depth out there that Blockbuster has. All theatrical [TWC] titles are guaranteed in stock.”

Smith noted that the chain “is off to a great start” with Protector and added that TWC is currently working to protect Blockbuster’s rental exclusivity.

TWC would not specifically address the availability of the company’s titles outside Blockbuster.

Larry Madden, executive VP of finance and chief financial officer said in a statement: “We’re very excited about our relationship with Blockbuster and pleased that The Protector exceeded both our rental expectations at Blockbuster and sales elsewhere in the marketplace. Blockbuster did a fantastic job marketing The Protector to their customers and has some really exciting campaigns for future TWC titles.”

A March 9 court date has been scheduled with U.S. District Court Judge Michael Ponsor in the ongoing NEBG-TWC case. Plaintiffs hope Ponsor will halt further inclusion of the “For Sale Only” message in TWC sell-through copies.

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