Industry Weighs Effect of Video Purchases

Now that the holiday season is over, the home video industry is assessing the impact of MCA’s “E.T.: the Extra Terrestrial.” The reviews are mixed.

MCA sold a record 15 million units of “E.T.” to retailers and distributors. About half as many of Disney’s “Cinderella” were sold but it, too, had an impact on revenues.

Though the returns aren’t officially in, “sell-through” (industry jargon for consumer cassette purchasing) is, by all accounts, booming, largely thanks to the impetus from “E.T.,” which apparently put consumers in a buying mood.

“It had a very positive effect on sales,” said Allan Caplan, who runs the Applause Video chain in the Midwest. “ ‘E.T’ did something few movies have ever done--and definitely not to this degree. It attracted many video buyers who were coming to our stores for the first time. They were in a buying frame of mind. They bought other tapes too.”

Lou Berg of Houston’s Audio-Video Plus agreed: “ ‘E.T” made people think about buying rather than renting. It was great for the sell-through concept.”

Now the bad news.

The video retailers got only a portion of those sell-through dollars. Many consumers bought their “E.T”s and “Cinderella”s from mass merchants such as K mart, Target and the Price Club, that were selling it far below the $24.95 suggested retail price. Not only did video retailers lose business, many cut their “E.T” price drastically to stay competitive.

“The mass merchants hurt video retailers badly,” griped Berg. “First of all, many of them were selling ‘E.T’ before the day it was supposed to go on sale. Then they were selling it at ridiculous prices--way below cost. That really hurt the video retailers.”

To some extent that shortage of copies last fall--when MCA, misjudging demand, didn’t print enough copies--also hurt many video retailers. Some consumers went looking for “E.T” at the mass merchants, who seemed to be better stocked than the video retailers.

The negative effects of “E.T.,” speculated Harvey Dossick, director of movie purchasing for the West Coast Video chain, may outweigh the positives:

“The long-range effect of ‘E.T.’ is negative. It brought the mass merchants into the video business on a large scale. With their volume business they can sell at low prices--even under the wholesale price. How can video retailers compete?”

They’ll find out when the next hot movie, priced at $20-$30, comes along.

Predicted West Coast Video’s Dossick: “After the ‘E.T’ experience, when the popular, inexpensive movies come out, many consumers looking for a bargain will head straight for their nearest Target or Price Club.”

At least one chain executive, Caplan of the Applause chain, doesn’t take the mass-merchant threat as seriously: “For the mass merchants, video is like a new toy. They’ll be in for a while until something else comes along that can make them more money. Then they’ll cut back on video.”

MASS-MARKET TITLES: Recently Paramount announced that on Feb. 1, three of its major rental titles from last year--”Fatal Attraction,” “Beverly Hills Cop II” and “The Untouchables”--will be marketed at the reduced price of $19.89, down from $89.95.

Consumers in the market for these movies at the bargain prices might not find a large stock at their local video stores.

Said Paramount Video Division president Bob Klingensmith: “Most of the sales of these titles will be through the mass merchants. The big video chains will know how to market these titles but a lot of the small retailers don’t. They still haven’t figured out that they can make money this way.

“The mass merchants are expanding in video. The mass merchants have a voracious appetite for low-priced titles. Other companies are going to come out with titles that are going to appeal to the mass merchants.”

While mass merchants can steal a big chunk of the sell-through business, they can never dominate the industry, which still thrives on rentals. Fortunately for video retailers, the bulk of their business is rentals.

Though many of his colleagues don’t share his optimism, Applause’s Caplan insisted: “This business belongs to the video retailers. Day in and day out, we handle most of the business. There’s a war with the mass merchants, but we’ll win in the end.”