Giving overstock DVDs an extended shelf life

Ryan J. Kugler is known as the video industry’s scrap collector, but he doesn’t mind.

He sees himself as doing studios a favor by buying up the surplus DVDs that they would otherwise be stuck with, then reselling them to retailers. Chances are that when you rummage through old movies in discount bins at Target, Wal-Mart, Best Buy or a local car wash, Kugler’s fingerprints are on them.

“It’s like guys who buy foreclosures -- they get the house they want for a lower price,” said Kugler, who runs Burbank-based Distribution Video & Audio Inc. with his brother, Brad.

With the growth in DVD sales leveling off, and stores such as Sam Goody and Tower Records closing, Kugler’s DVD liquidation business is booming. Right now, the odds are good of finding “American Idol: the Search for a Superstar” or “Shrek” in the bins.

Last year, the company grew by 40%, generating about $24 million in revenue on the sale of more than 17 million DVDs, CDs, video games and books. The only area Kugler steers clear of is pornography. About 10% to 20% of his revenue is profit, he said.

“A lot of these companies that go out of business need some place to dispose of the excess merchandize,” said Thomas K. Arnold, publisher of trade magazine Home Media Magazine. “It’s better than putting the stuff in a landfill.”

While Kugler cures one of Hollywood’s major headaches by liquidating its extra DVDs, don’t expect the companies to acknowledge it.

That’s because overestimating demand for DVD sales can be a big waste of money, not to mention an embarrassment. For example, despite being DVD hits, DreamWorks Animation SKG Inc.’s “Shrek 2” and Pixar Animation Studios’ “The Incredibles” didn’t sell up to expectations.

“He’s the guy who nobody wants to talk about,” one studio executive said of Kugler, proving his point by not wanting to be named.

Kugler estimates that there are approximately 10 companies nationwide that specialize in the entertainment overstock business. There are at least 70,000 DVD titles out there, according to DVD Release Report, a tracking service.

Consultant Tom Adams of Adams Media Research said liquidators contributed to the overall health of the home video industry.

“A piece of [the studios’] profit would go away without being able to offload extra copies at a cheap price once demand is satisfied,” Adams said.

Kugler’s father, Ben, moved his family from Chicago to Los Angeles and bought Distribution Video Inc. in 1989. Kugler and his brother bought the company from their father in 2005.

The company stores its DVDs in three Florida warehouses, and Kugler says they are planning to buy one more. In stores, the videos are usually strategically placed in bins located near the cash register to take advantage of customers’ impulse to buy.

Kugler checks in with studios several times a year to see whether they have any DVDs they want to clear out. Often, Kugler receives calls from retailers wanting to fill their shelves with movies that could be big sellers on special occasions or holidays. For Easter, Kugler got requests for a Bible series starring Charlton Heston.

“They also asked if we had anything with eggs,” Kugler said. “Rabbit DVDs are good, too.”

Right now, the demand is for A-movies and popular television shows. Two years ago, everybody wanted children’s movies. Five years ago, there was a demand for B-movies starring the likes of Dolph Lundgren and Lorenzo Lamas, he said.

Kugler badly miscalculated the public’s mood when he assumed viewers would want to see O.J. Simpson films after the ex-football star was acquitted in his double murder trial in 1995.

“I bought 100,000 units of an O.J. movie -- nobody would touch it,” he said.

Kugler is so close to the fringes of the entertainment industry that he often comes in contact with questionable characters.

In 1999, he was approached by a man wanting to sell 500,000 Tae Bo kick-boxing videos starring Billy Blanks. Kugler figured they were pirated after the legitimate distributor told him it had no plans to release the videos. But more important, the seller wanted cash.

“He wanted green cash -- believe it or not, it is very hard to find $20 million cash in L.A.,” he said. “So we did a sting operation. He got busted.”

For his efforts, Kugler got a commendation letter from the Los Angeles Police Department, which is framed and hanging in his office.

“I get to work with the down-to-earth numbers guys -- the people that aren’t drinking coffee at Starbucks and talking about their projects,” Kugler said. “The business might seem like a bottom-of-the-barrel business but I’m honored to be in it.”

lorenza.munoz@latimes.com