TALKBACK

Warner returns to rev-sharing, limits used sales

By Susanne Ault -- Video Business,05/09/2008

MAY 9 | Several studios are expanding their revenue-sharing offerings, including Warner Home Video, which is returning to revenue sharing through Rentrak Corp. with a program that involves unique measures to limit previously-viewed disc sales. New Line Home Entertainment and Lionsgate are making Blu-ray Disc titles available on a revenue-sharing basis through Rentrak.

Warner, which has been absent from Rentrak’s programs for the past year, returns with the June 3 release of Mama’s Boy and unusually strict terms designed to limit the number of copies sold to consumers as previously-viewed.

As is common, Warner is prohibiting stores from selling rev-share copies until 29 days after street. However, through the entire six-month rev-share agreement term, stores are forbidden from selling any more than 20% of their units on films with box-office greater than $10 million.

Traditionally, rentailers also must wait about a month before selling rev-share copies, but there are normally zero limits on the inventory stores can move.

Warner is requiring stores to destroy 80% of all units shipped with a box office equal to or greater than $50 million. Stores must destroy 70% on box office between $10 million and $50 million. There is no destruction necessary on rev-share titles with box office less than $10 million.

Stores must hold onto to this useless product for an additional 90 days after the six-month terms ends, in case Rentrak chooses to audit rentailers for compliance. After those 90 days, stores can discard the destroyed discs, though neither Warner nor Rentrak have specified how.

Studio sources say that any content supplier wants to control relatively cheap previously-viewed copies in the marketplace, as they diminish the perceived value of new DVD. Although retailers have come to rely on used-disc sales as a source of revenue, studio execs note rentailers aren’t forced to sign onto rev-share pacts, and if they disagree with terms, they can purchase product elsewhere from wholesalers.

Neither Warner nor Rentrak executives would comment, but the studio’s sharing terms are outlined on Rentrak’s retail Web site, www.rentrakonline.com.

Additionally, New Line and Lionsgate have started rev-sharing Blu-ray titles with Rentrak, starting with April 29 release The Golden Compass from New Line and May 27 release Rambo from Lionsgate.

Since last summer, Rentrak had only been rev-sharing Blu-ray with Sony Pictures Home Entertainment.

Rentrak did confirm kicking off Blu-ray rev-sharing with Lionsgate and New Line titles. At this point, New Line’s deal is not expected to be affected by the company folding into Warner.

“We revenue-share everything that Rentrak has to offer, but we don’t know what to do with this Warner one,” said Jeff Clark, manager for Silver Screen Video in Bainbridge Island, Wash. “We do a pretty big sell-through business with the previously-viewed stuff. In my opinion, it seems like [Warner] doesn’t want to cannibalize their new sales by flooding the market with previously-viewed.”

Silver Screen generates 10% to 15% of its revenue from used-disc sales, which amounted to less than 5% of its business just a couple of years ago.

Also in these green times, Clark and other rentailers admit to feeling some anguish over the likely waste resulting from Warner’s destruction edict.

“You suspect there could be a lot of silver Frisbees out there, but I would think that the retailers would take it upon themselves to recycle,” said Todd Zaganiacz, president of the National Entertainment Buying Group.

In one unique advantage to Warner’s terms, rentailers say they are not required to pay Rentrak a percentage of their late-fee revenue.

Darcie Williams, general manager of Video Library in Grass Valley, Calif., describes the waste component of Warner’s deal as “sketchy,” but she is seriously considering agreeing to the studio’s new terms because of the unusual late-fee waiver.

“Most indies still are charging late fees, and we don’t have to pay Rentrak now a percentage of that,” said Williams.

Zaganiacz understands that Warner, and all studios for that matter, are searching for ways to boost the maturing DVD business. But he wishes the studio would target other areas besides rentailers, who are increasingly struggling against mass merchants.

“Sell-through is down, and the first finger to be pointed is at previously-viewed,” Zaganiacz said. “That’s not to say it doesn’t affect it at all. But I don’t think it affects it the way studios are assessing.”

Silver Screen’s Clark is sitting out signing onto Warner for now, but he did embrace the Blu-ray rev-share agreements with Lionsgate and New Line. With rev-sharing, Clark should be able to double his Blu-ray copy depth over what he was able to order previously from Lionsgate and New Line.

Zaganiacz is similarly taking a wait-and-see approach with Warner for his own Video Zone in South Deerfield, Mass. He has signed onto Lionsgate’s Blu-ray agreement, but disapproves of New Line’s terms.

Both the Lionsgate and the New Line pacts are somewhat less favorable to rentailers than typical standard-def agreements.

With Lionsgate, rentailers keep 55% of resulting rev-share title revenue, giving up 45% to the studio. On standard-def, the usual split is 60% rentailer/40% studio. Lionsgate does adhere to a six-month lease term, normally a given with standard DVD.

New Line’s Blu-ray split is a relatively attractive 63% rentailer/37% studio. Yet Zaganiacz is among those troubled with the studio’s year-long lease term.

“The terms of the studios are not a value proposition,” added Tom Paine, owner of Redmond, Wash.’s DVD Now. “It’s too much in favor of the studios. If terms became a little more like standard DVD, I might reconsider.”

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