Video Stores Show Drop in Money for First Time
Last year was a sobering one for video stores--for the first time in the history of the business, they made less money as a whole than the year before.
Median annual revenues at individual stores have also been declining since 1983, as outlets have mushroomed to about 25,000 and non-specialty retailers have added videocassettes to their shelves.
“When you’ve got a video store opening up on every corner, not everyone is going to make it. You have to be innovative . . . .” said Danny Kopels, vice- president of marketing at Continental Video, a Los Angeles- based distributor.
Franchise Operations
Ron Berger, chairman of National Video Inc., aims to be one of the innovators. He has already built his Portland, Ore.-based company into the largest U.S. video store franchise operation, with nearly 700 outlets.
But the company’s franchise fee revenues were down 24 percent in the first nine months of fiscal 1986 and are expected to continue declining this year as the market becomes still more saturated. So Berger, 39, is looking for ways to increase royalty fee revenues from existing stores.
Perhaps his most significant idea so far is a scheme called pay-per-transaction (PPT), introduced two years ago as an alternative to the standard arrangement between retailer and wholesale distributor.
The standard scheme works as follows for hot-selling new releases or “A” titles such as “Alien:” The retailer buys the cassette outright from the distributor for about $60. The price is inflated because that is all the distributor will get for the tape, Berger told Reuters in an interview.
At a rental to the customer of $3 a day, the retailer needs 20 “turns” just to recoup his costs. The high initial cost of the tape also prevents him from building up a supply of “Alien” that can satisfy demand.
Under PPT, which is now being used in 150 National Video stores, the idea is that the retailer acquires “Alien” for between $6 and $12 per tape and then splits rental revenues with the distributor. The retailer can therefore afford more tapes and the increased volume offsets the slice of rental revenues he forsakes.
“If it (PPT) works, every distributor is going to have to jump on the bandwagon,” said Ira Mayer, executive editor of the Video Marketing Newsletter trade publication.
But Mayer has yet to be convinced it will work. “Berger has been very unspecific about how he’s testing this. He won’t say which suppliers he has been working with,” he said.
Mayer also pointed out that PPT was expensive for retailers to implement because of the costs involved in installing the computers which monitor the rental revenues from cassettes.
Berger said he had been vague about testing of PPT because agreements with suppliers were confidential and he did not want competitors to see how far he had progressed with the scheme. He said 20 distributors had already signed up to participate in PPT, which will eventually account for at least 75 percent of his franchisees’ revenues.
He admitted that start-up PPT computerization costs--which range from $9,000 to $30,000 depending on the number of terminals--may be a “deterrent,” but stressed that they had begun to decline.
Vans Stevenson, a spokesman for Erol’s Inc., a Springfield, Va.-based video store chain, said it was still too early to tell if PPT was workable. But he added that using the standard arrangement with suppliers, Erol’s enjoyed an ample supply of “blockbuster” titles, for example, an average of 40 copies per store of “Top Gun.”
Limited Shelf Space
The real problems in video retailing, he said, were limited shelf space and store numbers. “When you get enough stores clustered in one area, you can really go out and promote your business to the public,” Stevenson said.
Still, whatever the fate of PPT, Berger cannot be accused of having only one string to his bow. Earlier this year, for example, he announced a joint venture with Univisa, part of a Mexican media empire, to open a minimum of 600 stores in Hispanic neighborhoods in the United States.
The idea is that Univisa’s expertise in Spanish-language entertainment programming and National Video’s retailing skills will combine to exploit a growing market which has already fueled an explosion in the value of Hispanic television stations.
Berger also hopes to introduce PPT successfully in the Hispanic video stores. That, of course, would be the best of both worlds.
