Like millions of consumers, Kathy Wein of Rockville, Md., would rather rent than buy movies when she visits her local video store. “We just wouldn’t watch one movie over and over again,” she says. A video, after all, “isn’t like a book.”
Not yet, at least. But if the video industry’s projections prove accurate, home-video libraries may someday be as common as record or book collections. In this post-literate vision of America, “War and Peace” will share the den shelf with “The Terminator.”
Once considered a luxury item reserved only for the hardcore cinephile, videos-for-sale are quickly achieving mass-market status. Thanks to broader distribution and competition, prices for major new video releases have tumbled in recent years, in many cases to below $20.
Now, with Christmas approaching, the campaign to sell videos is cranking into fast forward. This month Walt Disney Co. will spend an estimated $25 million to flog sales of “Cinderella,” and MCA Corp. will dish out an equal sum to pitch “E.T.: The Extra-Terrestrial.”
Although Cinderella wasn’t shipped to video stores until last week and “E.T.” won’t arrive until Oct. 27, the two films already are the biggest sellers ever, thanks to massive preordering.
As such, they are likely to overshadow the expected strong sales of other recent releases, such as “Good Morning, Vietnam.”
Rentals Still Dominate
While a few blockbusters don’t make a trend, some analysts believe they do represent a watershed in the effort to reprogram consumer attitudes. “Most households don’t buy tapes yet,” said Tim Baskerville, publisher of Video Marketing, an industry newsletter, “but the thought is, if you can condition people to buy tapes as Christmas or birthday gifts, they’ll build a regular buying habit.” Baskerville estimated that “E.T.” and “Cinderella” could double the number of first-time video buyers.
Rentals still dominate the home video business, but the sales market is gaining ground. Videocassette sales accounted for 37.5%, or $2.4 billion, of all spending on prerecorded tapes last year, according to Veronis, Suhler & Associates, a New York investment banking firm specializing in media businesses. By contrast, sales accounted for only 24% of the market in 1985.
The firm predicts that the industry will hit $7 billion in retail sales by 1992, surpassing the $6 billion rental market.
Such a rosy forecast assumes that the video marketplace will continue to undergo a transformation in the next few years. Until recently, many hit movies were priced as high as $89.95, which needless to say discouraged ownership.
Even now, many video retailers, especially the mom-and-pop independents that dominate the business, are loath to sell tapes because rentals generate higher profit margins for the stores.
“You can go into most stores and not even know that you can buy a tape,” said Art Morowitz, president of Metro Video, a New Jersey-based distributor. “If it doesn’t say ‘For Sale’ people don’t ask.” And, as Wein asked, will many people want to watch “Legal Eagles” again and again?
The answer probably is no, but that shouldn’t necessarily discourage sales of other movies. Already several marketing strategies are emerging that may allow both the rental and sales markets to coexist.
For example, highly popular movies like “E.T.” are being introduced at low prices to capitalize on widespread buying interest. Meanwhile, secondary titles--say, “Adventures in Baby Sitting"--are offered at an initially prohibitive price to discourage sales and attract renters. After the rental market peaks, usually in several months, these tapes are often discounted to encourage a buyers’ market.
Many Potential Customers
“If you guess wrong on which market, you can lose a lot of money,” said Bill Mechanic, president of Walt Disney Home Video.
Experts say lower prices are possible now because the market is maturing and the channels of distribution are expanding. As of June, 56% of all U.S. homes had a VCR, up from less than 10% six years ago, according to the Electronic Industries Assn. of America. Veronis, Suhler forecasts that the VCR penetration figure will rise to 80% by 1992.
With so many potential customers, mass-merchandisers such as Wal-Mart and Target stores have moved into the video-sale business, not to mention bookstore chains and even gas stations. K mart Corp. began selling tapes two years ago, and has expanded its videotape section in the past year to 500 titles. “We see a big demand there,” said spokesman Steve Pagnani.
For discounters such as K mart, which operate on thin margins and rely on high turnover, the decline in tape prices has been a boon. Paramount Pictures, for example, has offered 24 of its classic films for less than $24 each, permitting big retailers to draw in customers with these discounts, or so-called loss leaders.
Most major movies now retail for less than $30; popular children’s tapes go for half that. Media Home Entertainment, the industry’s third-largest independent distributor with $150 million in sales, even offers a line at $9.95 for each cassette.
“At that price point, you overcome a lot of consumer resistance,” said Janice Whiffen, the company’s senior vice president of marketing. “That’s (the price) of two rentals in some places.”
Further, if new technologies pan out, the rental side of the business could take a beating. Although slow to catch on so far, pay-per-view movies--features beamed directly to your television by way of satellite--"could ruin rental stores,” said Raymond Katz, a securities analyst with Mabon, Nugent Inc. in New York. Pay-per-view movies, he said, are almost as cheap as renting a video but are more convenient, because customers don’t have to leave their homes.
To protect their franchises, some video stores have expanded their sales sections or have opened stores devoted strictly to sales. Erol’s, the 168-store chain based in Springfield, Va., last week opened its first sale-only outlet in Potomac Mills Mall outside Washington.
Marketing Propels Demand
“We believe that the sales end of the market is growing, and we want to capitalize on it,” said Ron Castell, Erol’s vice president of marketing.
Video retailers such as Castell expect demand to be driven by marketing efforts that have become more visible and sophisticated. Aside from massive doses of media advertising, Hollywood’s major producers have recently aligned themselves with consumer marketers to push the studios’ biggest hits.
The seminal moment in video hype may have been Pepsi Cola’s tie-in with Paramount Pictures last year through the video version of “Top Gun.” The two companies spent $6 million to push the tape, which carried a Pepsi commercial at its beginning.
Now Pepsi is backing “E.T.” with ads and a rebate promotion, although there’ll be no commercials on the tape, reportedly at director Steven Spielberg’s insistence.
For any sponsor, there’s a public-relations benefit to being associated with a popular movie, but the candy and soft-drink companies also think people will be in the mood to consume their products while they watch the video.
Success at the box-office helps sell a film on tape, but the key to selling a video is its “repeatability,” according to those in the business. Suspense or mystery movies, for example, may wear out faster than musicals, comedies or action-adventure fare.
“Top Gun,” an action-romance movie about fighter pilots, was an ideal film for home sale, said Erol’s Castell, because “it was like a music video interrupted by a story. Kids love to play it again and again, not necessarily to sit and watch it, but as background music.” Before “E.T.” and “Cinderella,” “Top Gun” was the second best-selling video ever, behind Disney’s “Lady and the Tramp.”
Influence of Youth
Apart from theatrical hits, the best-selling videos seem to be exercise tapes (Jane Fonda, Kathy Smith, et al.), rock videos and animated features. Eight cartoon videos, for example, were among Billboard magazine’s weekly list of the 40 best sellers, and three kid videos were among the top 10. The success of these tapes illustrates how much of the market is driven by the tastes of children and young adults.
Baskerville of Video Marketing said children’s titles sell well because, unlike adult-oriented features, they receive little if any exposure in their theatrical release. And as John Thrasher, video products manager of Sacramento-based Tower Records puts it, “Children’s videos are an excellent baby-sitting tool.”
As Hollywood and Madison Avenue combine forces to change the video market’s consumption habits, there’s one time-honored sales angle that may prove foolproof: snob appeal. “There’s a lot of status associated with owning anything,” said Media Home Entertainment’s Whiffen.
“There aren’t too many things people would rather rent than own,” she said. “After all, we’re a nation of collectors, aren’t we?”