Company Town : Video Retailers’ Arch Rival : Some Complain That Discounts by McDonald’s Hurt Industry
You could put a sign outside a McDonald’s that says “Over 15 million sold” and not be talking about anything edible.
That’s about how many videocassettes of “Dances With Wolves,” “Wayne’s World” and other films the fast-food chain has sold at bargain prices with its Quarter Pounder combos and Chicken McNugget kids’ meals in the last few years.
The promotion is one of the fast-food industry’s most successful--too successful for some in Hollywood and the people Hollywood depends on to sell its movies on videocassette.
Now, in what has become an annual rite of fall, McDonald’s again plans to sell videos at bargain-basement prices with the purchase of burgers, fries, Cokes and the like. Starting in November, McDonald’s will sell MCA’s “Field of Dreams,” “The Land Before Time,” “An American Tail: Fievel Goes West” and “Back to the Future.”
The sales are nothing small--or new. McDonald’s was the fourth-biggest video retailer in the final quarter of 1992 and third-largest in the final period of 1993.
But within the past month, the issue has sizzled like an oversize hamburger patty, prompted by complaints from Walt Disney Studios Chairman Jeffrey Katzenberg and Disney video chief Ann Daly.
They argue that such promotions devalue videos, create expectations that all videos should sell for $5.99 and slice into additional video sales. Katzenberg last month warned a Video Software Dealers Assn. convention in Las Vegas that the main threat to the video industry isn’t new technology, but rather “the Golden Arches right across the street.”
Since then, miffed executives at retailer Kmart--one of the nation’s biggest sellers of videos--have denounced the promotion as well, promising that they’ll never sell the four MCA movies again because customers won’t like paying $14.99 when they once paid less than $6.
“That’s not how we treat our customers. We’d be very happy to have MCA sell us product at $5.99,” Kmart electronics executive Dennis Wigent says.
And McDonald’s? A spokeswoman says the company is simply “working hard to give customers what they want.”
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For its part, MCA has tried to soothe the video industry’s fears and portray the McDonald’s deal as a larger promotion for its upcoming “Jurassic Park” video this fall. If you buy one of the four videos at McDonald’s, you also receive a $2.50 rebate offer toward the purchase of “Jurassic Park” at video retailers, as well as rebate offers on other cassettes available only at video retailers.
“Careful and thoughtful consideration went into every aspect of the marketing plan,” MCA video chief Louis Feola says. “The ultimate intention is to drive consumers into traditional video outlets to purchase ‘Jurassic Park’ and other catalogue titles. This will put more customers in their stores than they’ve ever seen.”
At stake is a $16-billion-a-year business that has become a gold mine for Hollywood, and especially Disney. Movies don’t necessarily live and die by the box office any more. Successful movies bring studios even more profit when they hit the video stores. Even box office bombs can shed some of the red ink if they perform better on video than at the cinema.
Katzenberg argues that selling videos so cheaply at fast-food outlets marks “a clear and present danger”--an intentional reference to one of his rival’s hit films--that could hurt not only the video industry, but the studios that need video retail sales for years to come until technology makes it possible for people to easily call up films electronically at home.
“The financial health of the entire motion picture industry today is resting on the back of home video,” Katzenberg says. “It’s paying the rent out here. If you start squeezing the margins out of the business before you are able to replace it with another business--which I don’t see coming until way into the next decade--you’ll put us out of business.”
Katzenberg’s comments clearly annoyed executives at MCA. Some in Hollywood interpreted his criticism as a call for a boycott, which he insists was not the point at all.
Cynics also say that Disney, which has practically owned the video sales market as families snatched up its animated classics and family films, may be hearing footsteps from the success of such videos as 20th Century Fox’s “Mrs. Doubtfire” and with MCA’s “Jurassic Park” on the horizon. They also question the timing of the criticism, noting that “Jurassic Park” will be on the market this fall at the same time Disney launches its long-awaited video of the classic “Snow White and the Seven Dwarfs.”
Bob Alexander, a video consultant to studios, wonders why the issue is on the front burner now when the practice has gone on for three years. He said previous fast-food video promos have resembled bargain-basement sales to sweep out excess inventory but that MCA’s is different precisely because it is being used to promote “Jurassic Park.”
But Katzenberg insists his comments had nothing to do with MCA because both “Jurassic Park” and “Snow White” will be huge successes.
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Ann Daly, Disney’s video chief, adds that the company’s position is a long-held one that only now is getting so much attention. “The industry spin is that this is yet another marketing ploy. The reality is we were on record last year when it happened and on record prior to that. We have a long-term investment to protect,” she says.
The video business is made up of folks already under siege, bombarded with dire predictions that the business will disappear within a few years when it is supplanted by newer technology. And regardless of motive, Disney’s Katzenberg and Daly appear to have struck a nerve with most video sellers.
“We support an entire line of videos all year long only to see McDonald’s get choice titles at the end of the year,” said a senior executive at one of the largest video sellers. “And we don’t like to see people pay a lot less than we do for the same titles.”
The Market for McVideos
McDonald’s sells so many videos that it has made its way onto the annual Top 10 list for video retailers that buy direct from studios. In the video market, 39.4% of studios’ video revenue comes from wholesalers that distribute to outlets such as video stores; another 24.2% comes from rack jobbers like those that sell in supermarkets. The Top 10 direct accounts for 1993:
Kmart: 8.0%
Wal-Mart: 6.0%
Musicland: 6.0%
Sam’s: 2.5%
Price Club: 2.2%
Target: 1.7%
Wherehouse: 1.7%
Tower Records: 1.5%
Costco: 1.4%
McDonald’s: 1.0%
Other: 4.4%
Source: Advanstar Associates
